Today’s Blog – Friday 29th May 2015

Introduction

Your blogster was travelling yesterday and accordingly apologises for the lack of a blog yesterday.

This week I have been talking about a powerful organisation, with shady members, opaque processes and unbelievable numbers.  But that’s enough about FIFA.

In the words of Captain Reynaud, I am “shocked! shocked!” to hear of corruption in football’s governing body.

An oil and gas nerd like your bolster thinks of Qatar as the world’s largest LNG producer, but of course the rest of the world knows it as the ideal home for the 2022 World Cup, with its long footballing tradition, great climate, supportive fans, etc, etc.  Any thought of any part of the large Qatari LNG revenues being diverted into the pockets of FIFA members is of course a ridiculous one.

And as a final word on FIFA, it is of course un-true that the when arrested, the FIFA miscreants fell to the ground, clutching their knees and writhing, whilst calling for a penalty…..

Commodity prices

Crude prices have fallen slightly since my last blog, with Brent at US$62.94 and WTI at US$58.09.  Yesterday saw the weekly report from the US on inventories, with a decline of 2.8 mmbbls – typical of recent weeks, but not enough to dispel views of ongoing supply robustness.

Henry Hub continued its recent decline, closing at US$2.72.  With respect to the medium term US gas outlook (which later this year will be formally internationalised through LNG exports), the US’s EIA reported this week that it expected production from the Marcellus shale play to fall in coming years.  The Marcellus has arguably been the key supply-side factor behind low gas prices in the US in recent years despite the large gas rig count fall in that period.  If the Marcellus declines in an environment of rising demand from liquefaction plants, then there should be structural support for higher prices.

LNG

A couple of interesting news stories on Jera, the LNG buying joint venture between Tokyo Electric and Chubu Power:

  • Platts reported that Jera will consider selling LNG purchases from the US into European markets, as well as for its own use in Japan.  That is, Jera will be a trader as well as a buyer.
  • Meanwhile, Bloomberg reported that Jera’s aim is to become the world’s largest purchaser of LNG (ahead of Kogas) – and will use the economies of scale it obtains to drive prices down and have the cheapest LNG purchasing portfolio in the world.

There are clearly very strong tides flowing in the direction of change in the previously stodgy world of LNG markets, as demonstrated by the Shell/BG tie-up, etc.  In my view, LNG is following the market liberalisation path that crude oil took a number of decades ago, with numerous consequences for industry players in areas such as gas contracting, project financing, value capture, etc.

Governments

At an ACTU conference this week, certain unions have been pushing the ALP to adopt a gas reservation policy (Western Australia has such a policy – and it is not clear to me as to the constitutional issues that might be involved in any Commonwealth attempt to regulate this area).

Not surprisingly, the oil and gas industry players have come out to point out the economic irrationality of such a policy.  However, reason does not necessarily prevail in such arguments.

Company news – Beach Energy Ltd (BPT) and Woodside Petroleum Ltd (WPL)

BPT announced on Wednesday afternoon that WPL had walked from the companies’ joint venture in Tanzania.  BPT has 100% of the asset now and will decide on its next steps (which would include seeking a new partner, selling, walking, trying to put in cold storage, etc).

BPT must be feeling a bit unloved by its bigger industry brethren just now, as this follows Chevron’s recent exit from a joint venture with BPT in the Cooper Basin.

Company news – Cue Energy Resources Ltd (CUE)

CUE today announced that it had received a notice from its largest shareholder, New Zealand Oil and Gas Ltd (NZOG), calling for a General Meeting to vote on removal of two directors (under the well known s249D of the Corporations Act).  NZOG has a 48% shareholding in CUE and should have no difficulty in winning a vote at any General Meeting.

It is therefore surprising that matters have become public and not resolved within the Board – I expect matters to be sorted out in NZOG’s favour in the next few weeks and that no GM will be required.

Quote of the day

I finish up my week of KSA related quotes with a pithy comment from the legendary Sheik Yamani in 1986. When asked how the KSA made oil policy, his reply was:

“We play it by ear”.

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