Today’s blog – Thursday 5th March 2015

Commodity prices

Prices were pretty flat overnight, with WTI slightly advancing to US$51.61 and Brent retreating again to US$60.55.  The large ~US$9 differential (17% of WTI) shows that the two benchmarks remain focused on different things – New York on rig count and inventories in the US and London more on geo-political issues, with Libya’s yo-yoing production being the cause du jour.

The Saudi Oil Minister, Ali al-Naimi recently issued some pearls of wisdom which the market paid its normal attention to: “I hope and expect supply and demand to balance“.  I studied economics in the dim and distant past and its good to see its simple fundamentals apply to crude oil!

Henry Hub gas edged up to US$2.79, which I repeat still seems very low to me given the apparent full cycle costs of gas production and the winter demand levels.  I’ve been a long time bull on US gas prices, but now I’m waiting for Gulf Coast LNG exports to start at the end of the year to seek some vindication for my view.

LNG

An Indonesian Government source stated that the country expected its demand for gas to increase by 1.3 Bcf per day over the next 5 years.  I expect much of this to be met by LNG, sourced from both within and outside of the archipelago nation.

However, a not untypical socialist impulse to try and control this through the creation of some sort of Government gas “aggregator” could, in the view of this free-markeeter, make this process less efficient than necessary.

Pipelines

Earlier this week the Northern Territory Government continued to progress what Tony Wood of the Grattan Institute recently memorably called a “post-it note from school” strategy over its plans to support a gas export pipeline to the Eastern States.  The Territory Government announced that nine parties have responded to a Government invitation to forward an expression of interest in the project.

In its announcement, the Territory’s Chief Minister said that “the Territory has more than 200 trillion cubic feet of gas resources in six onshore basins“.   However, under my counting it has less than 200 billion cubic feet of gas reserves, i.e. 0.1% of this “resource” figure.  In my view, this project remains at the post-it note stage.

Company news (or lack thereof) – Santos

The media today have continued to report some confusion about the abrupt “retirement” of Santos’ 62 year old Chairman on Tuesday evening, with the Company adamant that all is sweet and light in its Boardroom.  Move along please, nothing to see here!

Company news (or lack thereof) – Woodside

The Woodside story is currently so boring that the banking and media fraternities have returned to the old chestnut of what might happen to the remaining Shell stake in WPL.  Of course many currently dividend hungry investors like “boring”!

Company news – AWE

One of AWE’s junior partners in the Perth Basin, Norwest Energy NL (ASX: NWE) today reported Government clearances had been given to proceed with a seismic program.  Although this item is inconsequential in itself, I think we will see a drum-beat of activity in the area as AWE (and others) follow up on the significant conventional gas discovery that AWE made in the Perth Basin last year (surely the largest conventional gas field discovered on-shore Australia for many decades).

I summarise my view of the largest threat to progress in the Perth Basin with one word: “Frackman”.  And on that front, how annoying (but not surprising) it is, as someone in the industry, to note that this movie was at least partially funded through the public purse

Company news – BP

In the absence of a lot of news from the ASX today, I thought it interesting to pull a key metric out of BP’s 2014 results announced a couple of days ago, namely that reserves replacement from exploration was only 17%.   The total replacement number was only around double this – with the balance being made up largely of revisions from existing fields.  Come on explorers, the engineers are whipping your a**e!

Quote of the day

Like many, I’m a fan of quotes from legendary US baseball coach, Yogi Berra, and I came across a new one this week (from the Berkshire Hathaway annual shareholder letter – well work a read): “every Napoleon meets his Watergate“.

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