The oil, gas and coal sectors form a substantial part of Australia's resource wealth. Exploration in these areas are very capital and knowledge intensive but successful discoveries have proven to be very lucrative.
Oil, gas and coal are the three primary fossil fuels that dominate Australia energy landscape. Companies in this sector range from early stage explorers, to mature producers with global operations.
The oil and gas sector has seen significant turbulence in 2020. Following the COVID-19 lockdowns in many countries around the world, demand for oil and gas collapsed and caused WTI crude oil futures to briefly turn negative in April. This has led to numerous producers mothballing marginal wells and raising external capital to deleverage operations and cover working capital. Nevertheless, there remains optimism that the reopening of nations and restarting of transport networks combined with the transition to clean energy will underpin the recovery of both oil and gas demand in the near term. Many investors expect these catalysts to underpin the restoration of this traditionally lucrative industry.
Coal has long been a driver of wealth for the Australian mining sector. Yet following the COVID-19 pandemic, this industry has experienced substantial pricing pressure from the collapse in demand. In the thermal coal market, the shuttering of industries around the world combined with green initiatives has reduced the demand for this dirty fuel.
The metallurgical coal market has fared better, with the quick lockdown recovery and stable infrastructure spending in China underpinning demand for this steelmaking ingredient. Despite this, China alone has not been able to counteract the collapse in demand from other nations with pricing remaining soft throughout 2020. Although downward pricing pressures persist, as industry restarts and electricity consumption recovers, explorers and producers in this market will once again see their fortunes rise alongside.
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