Today’s Blog – Tuesday 2nd June 2015

Introduction

As noted yesterday, President Putin has been too busy recently sending letters of support to his fellow democratic leader of a clean organisation, Sepp Blatter, to attend to a minor dispute between the two giants of Russian oil and gas, Gazprom and Rosneft.

(For readers of a certain age and movie disposition, the opening sequence of “Police Squad” comes to mind when thinking about the unholy alliance between these gentlemen – but where is Frank Drebin when the world of football needs him?).

Reuters has reported that Gazprom has denied access to Rosneft (and partner Exxon) to its Sakhalin Island gas infrastructure, and that accordingly the latter may need to change plans for their own LNG project on the Island.

Perhaps not coincidentally, recent reports have emerged from large LNG buyer, Tokyo Gas, promoting the project to pipeline gas from Sakhalin to the Japanese archipelago.  Apparently a pipeline would cost US$3.5B (although I’m no engineer this seems light on).

Commodity prices

Brent softened overnight to US$64.88 whilst WTI was flat at US$60.20.  All eyes are on Friday’s OPEC meeting and Saudi Oil Minister al-Naimi, already in Vienna for the meeting, has been reinforcing expectations of “no cuts”.

Henry Hub gas prices were flat at US$2.65.

LNG

Reports have emerged of Mitsubishi on-selling some LNG it has contracted for from the Cameron LNG project in the Gulf of Mexico (Mitsubishi is a part owner thereof).  The buyer is Indian Oil Company and the media report says that it will buy 0.7 mtpa  – at oil linked prices.

If correct, this shows that Mitusubishi is prepared to take on LNG trading risks/rewards, as it will be buying at Henry Hub prices.  Yet another development in the rapidly changing world of LNG trading.

Governments

The US State of Maryland is the latest to impose a moratorium on the 60 year old practice of fracking (for two and a half years). The State legislature passed this overwhelmingly and the State Governor, despite an election pledge to support fracking, could not veto this.

The mightiest of US gas shale formations, the Marcellus, extends under Maryland, but to date there has been little activity in the State.  No doubt this lack of drilling compared to neighbours such as Pennsylvania reflects the wealthier nature of Maryland residents (at least in much of the State outside Baltimore) rather than for any scientific reason.

Company news – Origin Energy Ltd (ORG)

ORG is a joint venture participant in acreage in the Northern Territory over the grossly under-explored Beetaloo Basin, which is considered to be prospective for shale oil and gas.  AIM and TSX listed Falcon Oil and Gas Ltd has recently announced that drilling operations have commenced in the area, with the Kalala S-1 well due to spud by the of June.  ORG and South African coal-gasification giant SASOL Ltd will carry Falcon through a three well program.

To date the results of shale oil and gas exploration in Australia could be described as mediocre at best, so it will be interesting to see if the Beetaloo delivers something more exciting for a change.

On a separate front, the Financial Review today reported that AGL Ltd’s recently announced cost-cutting exercise has put more  pressure on ORG to announce something similar.  A classic case of un-sophisticated “me-tooism” from the market.

Company news – Energy World Corporation Ltd (EWC)

A few weeks ago EWC announced an under-written convertible notes issue to raise $75M to take forward its Indonesian and Philippines LNG projects.  With no context as to why, that offer has just been with-drawn.

EWC does not appear to favour best practice ASX reporting, no doubt reflecting the absolute control of the company held by its Managing Director, Stuart Elliot.  Investors will just have to wait and see what alternative financing deal comes along.

Quote of the day

Sepp Blatter recently showed Putin a thing or two about playing the absolute dictator in these quotes:

“Now I am the president of everybody. President of everybody. President of the whole FIFA.”

“I forgive and don’t forget in regard to persons.”

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