In Australia, the CEO of Santos has reported that over 200 wells are currently submerged due to flooding in the Cooper Basin. This situation has led to a decrease in production by 15%.

The floods have impacted operations significantly, with many wells affected and some infrastructure potentially damaged. The company is assessing the situation to determine the full extent of the impact on production capabilities.

Impact on Production Capabilities

The reported flooding across the Cooper Basin has caused a sharp pullback in activity, with over 200 wells now underwater and production rates cut by around one-seventh. This drop is material, and the operational disruption could linger longer than the water itself – especially if inspections reveal mechanical damage or compromised infrastructure. The longer-term consequences may also depend heavily on how quickly repairs can be made, coupled with how easily logistics routes — often crisscrossing these remote areas — can be re-established.

For participants who trade on derivative markets tied to the energy sector, particularly those exposed to upstream oil and gas production in Australia, there’s a need to revisit projected flows. Pricing models that assumed steady supply from Cooper should be revisited this week, as ongoing assessments could reveal further reductions or longer timelines before flow rates recover.

Gallagher, by noting the scale of submersion, provided more than just a description of events — he gave an implicit warning for those tracking energy volumes. If pipeline operations suffer pressure changes or if compressor stations need realignment, we could be looking at non-linear effects on gas transmission further downstream. Almost certainly, hedge strategies need to reflect this deeper uncertainty.

Weather and Supply Chain Challenges

There’s also the weather component — we’re not only contending with physical damage but the risk that wet conditions could return. Recovery is contingent not only on human intervention but also on meteorological stability that doesn’t appear assured just yet. We are following rainfall projections closely, and we’d urge others to keep models updated with the Bureau’s short-term forecasts, especially for flow-dependent derivatives.

Additionally, consider delays to rebalancing efforts outside the Basin. Export buyers may begin adjusting demand from other geographies, which can influence swaps or options tied to broader benchmarks. It’s not just about the direct loss in production, it’s also about how buyers reposition and how freight or LNG schedules shift in response.

With uncertainty building not only locally but also further along the supply chain, short-term implied volatilities could continue to rise. Mean-reversion strategies in energy prices may need adjustment as a two-week disruption here does not equate to a two-week rebound. Timing asymmetries are common in events tied to natural disasters.

Watch storage data, watch maintenance updates from downstream partners, and be ready to revise delta exposure rapidly. The forward curve may already be moving, but it won’t be moving evenly.

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