Today’s Blog – Tuesday 21st April 2015

Introduction

It was a fairly flat time in crude markets overnight.  My view is that the market feels a bit “toppy” at present – given the overall balance of good and bad news and that further downside action could well be seen (yesterday’s “W” shared market) before a longer term upwards secular move is made.

Commodity prices

Brent finished at US$63.28, down a tad, whilst WTI strengthened to US$56.23.  The BHI rig count numbers on Friday were again positive, with a drop of 34 – the overall count is now done 51% from last year’s peak and is closing on the 2009 GFC lows.  Inventory level numbers due out later in the week will be closely scanned following last week’s lower than expected build, with the possibility even of a draw at Cushing existing.  If that happens, I think the market will love it.

Henry Hub closed down a few cents at US$2.55.

LNG

A recent Reuters story has provided some further meat on the bones of the rumour that Andarko is looking to sell out of Mozambique – with Exxon as the presumed front-runner.  Exxon has recently shown itself as the king of greenfields LNG developments in “difficult” countries, following the success of the PNG LNG project and is a highly plausible buyer.  If the transaction took place, it could have interesting consequences for how Exxon viewed the merit order of its LNG project pipeline, including PNG expansions and even Scarborough in Australia (not that I put the latter high up the merit order anyway).

On the less public buyers’ side of the LNG market, the joint venture recently established between Tepco and Chubu Electric has recently been named as “Jera” – taken from “Japan energy new era”.  This JV will be a buying powerhouse and is another part of the growing body of evidence that Japan Inc is serious about making major changes to the previously cosy world of long term, oil-price linked, single destination, etc, LNG markets.

Pipeline related developments on one side of the Eurasian continent can affect LNG markets on the other – with the EU due this week to serve a charge sheet on Gazprom over competition law breaches in Europe.  This will encourage Gazprom even more to boost its gas marketing to China (going head to head with LNG imports from the likes of Australia, Mozambique, Canada, etc).

Company news – Oil Search Ltd (ASX: OSH)

OSH is the latest of the ASX big four to put out its quarterly report.  In addition to the headline stuff about sales, etc, I pulled the following couple of snippets out:

  • The Taza-2 well in Kurdistan “was tested” – but the results of that test were not described.  Under the iron rule of ASX reporting, that invariably means the outcome was not good.
  • OSH still seems to be sulking over the results of its arbitration battle with Total over the lack of pre-emptive rights to stop the latter coming into Elk/Antelope, as OSH reported the outcome of that arbitration as being a “non-unanimous judgement”.  Non-unanimity is hardly surprising in arbitrations, as each party gets to nominate one arbitrator and those arbitrators then chose a third arbitrator.  One’s own nominee rarely bites the hand that feeds it!

Company news – Santos Ltd (ASX: STO)

Santos is hosting site visits for analysts and key investors this week – with a trip to Moomba, Roma, Gladstone and Brisbane.  The company put out a long presentation on the site visits this morning.  Naturally this was full of good news, green ticks, etc. A few snippets that I took out from the presentation:

  • There was no mention of possible infrastructure asset sales in the Cooper Basin, which Beach Energy Ltd (ASX: BPT) appeared to foreshadow recently.
  • Exploration into deep Early Permian coals at Fairview had some potentially promising early signs – particularly given the exiting infrastructure, etc, that exists here.
  • On the subject of deep coals – these appear to be a current key focus for the Cooper Basin’s unconventional exploration efforts – the gas content appears to be very liquids rich (don’t ask me how this happens geologically!).  Carbon dioxide levels were not mentioned – no doubt they are immaterial……

Quote of the day

Regular readers will know my iron rule of ASX reporting – that good news is always material and inevitably reported. That brings me to another classic P G Wodehouse quote:

“..that inevitability that was such a feature of the best Greek tragedy. Aeschylus once said to Euripides “you can’t beat inevitability” and Euripides said he had often thought so too”.   Uncle Dynamite

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