Today’s Blog – Monday 30th March 2015

Introduction

Your blogger is finally clearing his ill-gotten virus out of his system (and it seems there are worse things that can happen when flying, sadly).  So its back to getting on a plane later this week – although only within Australia thankfully.

Commodity prices

Crude oil has fallen from its Yemen-fighting induced recent highs, with WTI currently at US$48.41 and Brent at US$55.97.  As well as a recalibration of Yemen risks (in-country production is tiny at 130,000 bond) – and ongoing sectarian warfare is hardly new for the Middle East – non geo-political factors also weighed negatively on the price.  These were: a slowing in the rig count reduction rate, with the BHI number on Friday being a reduction of only 12 rigs; and, also another slowing – this time in US GDP growth figures.

Henry hub natural gas prices also slipped – to US$2.63 – as gas storage injection figures were slightly higher than market consensus.

LNG

Momentum appears to be building for some sort of nuclear deal with Iran – at least in the views of some commentators.

Markets are focused on what this might mean for crude oil markets – with both short and medium term overhang from Iranian crude inventories and the Republic’s shut in production capabilities (of 1mmbopd) respectively.

However, it is interesting to also note what an Iran back in the fold of “normal” trading nations might mean for world LNG markets in the longer term.  Iran has very substantial quantities of undeveloped gas resources – at least a good part of which are likely to be low cost to develop (pace Qatar).  If sovereign risks were considered manageable, this gas would rate highly up the pecking order of world LNG developments.  However, developing this gas would be against the interests of Iran’s erstwhile “friend” Russia, so the Bear might well be incentivised to keep Iran more at the pariah end of nations by supporting it in its bellicose nuclear ambitions.  Also, any energy economist could tell Iran that using cheap-to-extract gas for electricity generation would be far cheaper than developing nuclear fueled power stations – but undertaking such a rational development path would remove the Iranian fig leaf that nuclear is about power generation not weaponisation capabilities.

Governments and petroleum extraction in their back-yards

New Brunswick has joined various other East Coast Canadian provinces, Australian States, European nations, etc, etc, in banning fracking whilst it undertakes “studies” into this ~70 year oil-field practice.  Australian Sir Humphrey’s might scoff at the short length of the study process – only one year!

Meanwhile in New South Wales, the incumbent liberal Government was returned, so the Labor party policy of effectively appropriating valuable CSG assets without compensation will not see the (immediate) light of day. Santos’s immediate efforts to try and bring some bi-partisan reason back into the State’s CSG debate has, accordingly to today’s Sydney Morning Herald, been rejected by the ALP.

Company news – Beach Energy Ltd (ASX: BPT)

Chevron has pulled out of its Cooper Basin joint venture with BPT (and also, with small-cap Icon Energy Ltd [ASX: ICN]).  My prior view had been that the parties would negotiate some sort of change to the original farm-in terms such that Chevron would stay in, but that did not eventuate.  Although BPT’s share price has fallen this morning – it is not by much (in a falling oil price environment anyway), as it appears that the market had already factored in this outcome.

By my reckoning, Chevron is the third Super-Major to come into and then exit the Cooper Basin (with the previous parties being Total and Exxon).  In my view, this shows that the Cooper is not a world class basin in geological terms, albeit one with low sovereign risks and low Government take.

Company news – Woodside Petroleum Ltd (ASX: WPL)

The Australian reported on the weekend that WPL has refinanced US$1B of debt at an attractive interest rate of 3.65% – which was compared to a figure of 9% apparently offered to Fortescue.  The differential shows how bond markets rate each company on the merit orders of gas and iron ore production cost curves…..

Quote of the day

“Russia is a riddle wrapped in a mystery inside an enigma”.  Winston Churchill

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s