Today’s Blog – Thursday 2 April 2015

Introduction

I’m back from my day-trip to Brisbane (having meetings about – horrors! – a renewable energy project) so today’s blog represents a resumption of normal service before the long Easter weekend.  For the Southern States people amongst us, this weekend is of course a welcome return to the Footy season (apparently some other game called rugby league has been played for the last couple of weeks in other places, but we don’t talk much about that).

Commodity prices

Brent and WTI saw some decent rises overnight, with current prices being US$57.10 and US$49.49 respectively.  Numerous factors said to be on traders’ minds at present include:

  • The failure to secure an Iranian nuclear deal by the deadline of 31st March – the can has been kicked down the road for a few more days at least.
  • Escalating smiting in Yemen.
  • An unexpectedly smooth electoral transition in Nigeria – albeit to a Northern President who may have challenges in dealing with the Southern oil producing regions.
  • Lower than consensus stock builds in the US.
  • And with spring in the air, the return of the famous “driving season” in the US.  That’s right folks, the Griswolds are back to rescue the oil price!

Henry Hub gas prices fell slightly to US$2.61.  This was notwithstanding the release of an EIA report noting that US gas production had fallen in January across pretty much all of the onshore US (the offshore Gulf of Mexico saw some production increases – associated gas?).

LNG

The Australian today reported Wood Mackenzie as stating that it expected significant pressure on Asian spot LNG prices (which have already fallen by 50% – or more – to levels of ~US$8/mmbtu).  That pressure would in part come from what many think of as an extinct dinosaur on any sort of macro-scale, namely the substitution of the burning of crude oil for power generation in Japan, China and their neighbours.

In my view, this substitution will happen on the margin only, as local particulate-emission rules, etc, will limit liquid fuels burning – but that margin in itself is significant when the spot market is such a small part of overall Asian LNG supplies.

Governments and fracking

Yesterday the German Government introduced a draft law concerning the regulation of fracking.  The practical outcome of the limitations will be an effective ban.

Fracking has been used in Germany for 50 years in tight “conventional” fields – and this will continue.  Why does such hypocrisy not surprise me!  It will be interesting to see what definitions are used to determine what is and is not “conventional”.

Company news – Beach Energy Ltd (ASX: BPT)

BPT confirmed today that senior ex-Chevron executive Colin Beckett had formally joined its Board.  This was foreshadowed some time ago – before Seven Holdings emerged as BPT’s largest shareholders.  This could be “interesting”, as Seven’s CEO, ex-Woodside Don Voelte, apparently had a notoriously bad relationship with Chevron in WA.

Company news – Oil Search Ltd (ASX: OSH)

OSH today provided the market with an update on progress on a project to supply gas for power generation needs in remote PNG, from the Hides field.  OSH’s partner, Exxon Mobil, also today announced a deal to provide electricity to the PNG Government from the PNG LNG plant.

Both parties seem to be carefully and properly dealing with their local stakeholders in a location which observers can occasionally forget has significant potential sovereign risks.

Company news – Santos Ltd (ASX: STO)

The Sydney Morning Herald reported a few days ago that Credit Suisse’s Australian oil and gas analyst continues to publish bearish reports on STO – with a particular emphasis on the need for the company to raise equity.  As I understand it, although Credit Suisse has been more forthright than others, this view is hardly unique in the bulge bracket analyst community.

Indeed, given the unexplained recent very sudden “retirement” of STO’s Chairman, it seems possible that the view is not unique inside STO’s Boardroom either.

Quote of the day

A demonstration of the resilience of the legendary US driving season, from its exemplar, Clark Griswold:

“I think you’re all f***ed in the head. We’re ten hours from the f***ing fun park and you want to bail out. Well I’ll tell you something. This is no longer a vacation. It’s a quest. It’s a quest for fun. You’re gonna have fun, and I’m gonna have fun… We’re all gonna have so much f***ing fun we’re gonna need plastic surgery to remove our goddamn smiles! You’ll be whistling ‘Zip-A-Dee Doo-Dah’ out of your a**holes! I must be crazy! I’m on a pilgrimage to see a moose. Praise Marty Moose! Holy S**t!”

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