Today’s Blog – Friday 12th June 2015

Introduction

BP has just issued its annual statistical review of energy.  This blog will review this in detail and make further comments on this next week, but for now we note the somewhat gloomy picture it paints for international gas demand.

Furthermore, and following up from yesterday’s comment, we note that the report indicates that China’s energy demand increase last year was only around a third of the headline GDP growth figure.  As economies mature, the inputs of energy into GDP growth decline, but this seems so significant as to put severe question marks over the official PRC GDP numbers.

Commodity prices

Crude prices re-traced a bit overnight, with Brent closing at US$65.11 and WTI at US$60.77.  A strengthening US dollar appeared to be the major driver of the fall, but the market may also have taken account of the release of a World Bank report which reduced that organisation’s forecasts for world growth.

Tar sand oil production in Canada has been reduced materially recently, with wild-fires affecting the production areas said by some commentators to be the main cause.  As those fires subside, it will be interesting to observe whether production stays shut in as economic factors really start to bite on this high cost oil source.

Henry Hub gas prices declined slightly to US$2.82.

LNG

The giant of the US LNG space, Cheniere, has announced plans for massive expansions of its Sabine Pass (Louisiana) and Corpus Christi (Texas) LNG plants.  These plans involve an extra 19 mmtpa or 3 BCF per day of gas demand in the US gas market of < 70 BCF per day.  In my view US gas supply will only meet that new demand at higher prices than current Henry Hub.

On the other hand – thats a lot of LNG fighting for what in the short/medium terms is a tight LNG market.  Of course these are only announcements at this stage, but Cheniere has proved no slouch (certainly in international LNG terms) in turning projects into FIDs and then steel on the ground.

Earlier this week Reuters reported that Australia (the Woodside Petroleum led NWS and Pluto projects) had made its first LNG supplies to Egypt.  The LNG world continues to shrink.

Governments and fracking

Following from yesterday’s news about Exxon denying any links between the injection of waste frack-water and increased seismic activity, Conoco has rather unhelpfully just come out and said that on occasion this can happen.

In my view this issue – which to date green groups have not really seized upon – could create more “licence to operate” issues for the industry than the act of fracking itself.

Company news – AGL Ltd (AGL)

AGL announced today the opening of its LNG gas storage plant in Newcastle, NSW.  This cost $310M and can store 1.5 PJ of gas that can quickly be injected into the local gas system.

Coincidentally, media reports emerged today about another gas storage asset – Energy Australia’s Iona (Western Victoria) underground gas storage asset – and its plans to sell it (investment bank Lazard has been appointed as the vendor’s agent).

The expected sale price is said to be ~$1B – reflecting strong international demand for infrastructure assets in our current zero percent interest world.

Quote of the day

A recent quote about coal rather than gas – but which gives a lot of support for the long term prospects for gas:

“Coal demand in China has peaked,” said Laban Yu, a Hong Kong-based analyst at Jefferies. “It went down last year, it’s probably going down even more this year. Coal prices will never recover, ever.”

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