Today’s Blog – Thursday 16th April 2015

Introduction

The oil price continues to rise and a key new insight into one of the supporting factors behind this (the ongoing smiting in the Middle East) was yesterday revealed by The Onion – who provided a scoop which re-contextualises the ongoing smiting in the Middle East – for full details go to:

http://www.theonion.com/articles/new-evidence-suggests-middle-east-conflict-predate,38428/

Commodity prices

Brent has broken through US$60 again, closing at US$60.32, whilst WTI has hit a calendar year high with yesterday’s US$56.03.  The drivers (other than the ongoing deteriorating geopolitical situation in Yemen) were: reported US inventory numbers being less than consensus; US production data from the EIA showing a 2% decline week-on-week; an IEA report providing bullish demand growth numbers – again higher than consensus; and, ongoing developments that will likely make an Iran nuclear deal harder (the US Congress getting formally involved in the process through a new law – and an unsurprising negative Iranian reaction to that).

Oil price bears often site the potential affect that the large inventory of drilled but uncompleted wells in the US will have on capping any oil price rise (i.e. wells will quickly be completed and brought on over coming months).  Tudor Pickering analysis put out overnight however indicates that in the Bakken, current net-backs are so low that total cash-flows being generated by the Basin as a whole could barely pay for the completion of the regional inventory of such uncompleted wells, let alone pay for the drilling of any new wells.

Henry Hub gas prices finished somewhat higher than yesterday at US$2.60.  This is still 44% down on a year-on-year basis and is a price that will drive coal-to-gas switching by electricity generators, even given the low coal price, and is in addition to the requirements for gas to substitute for hydro power in the parched West.

LNG

Yemen’s conflict is impacting on LNG markets as well as crude ones – in a physical as well as sentiment-driven way. Yemen LNG has called Force Majeure and stopped production at its ~6.5mmtpa capacity plant.   It is not clear when this might come back on line (the Sunni-Shia schism is only 13 centuries old, a heart-beat according to The Onion).

As noted yesterday, the Woodside/Japan Inc Browse LNG marketing deal has formally fallen over – but never fear, WA Premier Colin Barnett is currently travelling in India/Singapore/etc, single-handedly taking on this job instead.  Pity he does not actually talk for any gas sellers.  No doubt this is more fun than him than trying to get more GST revenue for his State.

Meanwhile, on the other side of the Indian Ocean, Anadarko were recently reported as saying they would FID their Mozambique LNG project, subject only to such minor matters as: signing formal gas sales contracts, obtaining finance and receiving Government approvals.  That is only slightly nearer than the new “Aussie Oil & Gas Observer LNG” project’s own FID decision – we just need to find some stranded gas as well as procure those few final other things Anadarko is looking for…..

Company news – AGL Ltd (ASX: AGL)

Its a thin day for oil and gas company news on the ASX today.  Energy utility AGL today announced a management reshuffle and noted that the ongoing role (and presumably existence) of its Upstream Gas business unit was under review – which would be resolved in the next few months.

AGL’s history upstream could be called patchy at best, and its vertical integration strategy was arguably driven last decade by a desire to “copy Origin”.  However, Origin has lost its lustre over recent years (basically since it rejected a BG Group takeover at a higher price than its current price) and a new strategic paradigm is now being set for the utilities by the much faster than expected penetration of solar and other disruptive technologies.

Quote of the day

However, there have been a small handful of peaceful lulls in the [Middle East]—most notably in the first six months following the 2008 Israel-Hamas ceasefire agreement and during the 215 million years of the Cryogenian ice ages, when the earth was blanketed in thick continental glaciers,”  The Onion

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