Santos shares go cold despite energy regulator outlining ‘crucial’ role gas will play for decades

The Australian Energy Market Operator has released a 30-year plan for investment to enable the transition to renewables.

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Key points

  • The Santos share price went cold today, down 1.59% to $7.42 at the closing bell on Thursday 
  • Today's dip comes amid the Australian Energy Market Operator (AEMO) releasing its 30-year plan for energy investment to "efficiently enable" the transition to renewables 
  • AEMO says "gas-fired generation will play a crucial role as coal-fired generation retires" in Australia 

The Santos Ltd (ASX: STO) share price went cold today, down 1.59% to $7.42 at the closing bell on Thursday.

This ended a three-day winning streak and a 5.13% bump for the ASX oil & gas share between Monday and Wednesday.

Today’s dip comes amid the Australian Energy Market Operator (AEMO) releasing its 30-year plan for energy investment to “efficiently enable” the transition to renewables.

The 2022 Integrated System Plan (ISP) outlines key priorities to support the National Electricity Market (NEM) into the future.

Gas to ‘play a crucial role’ in future energy supply

AEMO consulted 1,500 stakeholders, including energy industry representatives, to create the ISP. It says the report is “based on rigorous economic and engineering analysis”.

In the investment roadmap, AEMO says “gas-fired generation will play a crucial role as coal-fired generation retires” in Australia.

For now, this bodes well for the Santos share price and other ASX oil & gas stocks.

AEMO says:

[Gas-fired generation] will complement battery and pumped hydro generation in periods of peak demand, particularly during long ‘dark and still’ weather periods.

It will help cover for planned maintenance of existing generation and transmission. And it will provide essential power system services to maintain grid security and stability, particularly following unexpected outages or earlier than expected generation withdrawal.

Gas-fired power needed through to 2050

AEMO says:

This critical need for peaking gas-fired generation will remain through the ISP time horizon to 2050, and older and less efficient peaking plants may need to be replaced.

Additional and earlier peaking gas-fired generation would add resilience against potential shortfalls in VRE, storage, DER or transmission.

Over time, gas-fired generation emissions will need to be offset elsewhere if the economy is to reach net zero emissions, and natural gas may be replaced by net zero carbon fuels such as green hydrogen or biogas.

AEMO wants investment in gas-fired power generation

AEMO CEO, Daniel Westerman, said: “Australia is experiencing a complex, rapid and irreversible energy transformation” and essential transmission investments are needed to “efficiently enable low-cost, firmed renewable energy to replace exiting coal generation”.

Westerman added:

To maintain a secure, reliable and affordable electricity supply for consumers through this transition to 2050, investment is required for a nine-fold increase in grid-scale wind and solar capacity, triple the firming capacity (dispatchable storage, hydro and gas-fired generation) and a near five-fold increase in distributed solar.

Santos share price summary

The Santos share price has risen 12.6% in 2022. Disrupted international supply chains have encouraged many investors to buy ASX energy stocks this year.

Over the past 12 months, the Santos share price is up 5.1%.

Santos will report its FY22 full-year results during the upcoming earnings season on 17 August.

Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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