As foreshadowed last Friday, this week the blog will take a more detailed look at BP’s annual energy review.
The last calendar year was yet another one of extraordinary performance by the US oil and gas industry, with BP reporting that the USA is now the number one producer of “oil” and indeed that its oil production is now at its highest point ever. However, BP use a definition of “oil” that includes natural gas liquids, so its US oil number is different from that used by many other commentators.
On a more conservative “crude oil plus condensate” basis, US production has not (yet) beaten its 1970 previous peak (and one point to make about the 1970 peak that is not often mentioned – this peak came at a time that the Texas Railroad Commission imposed production quotas, so production was not unconstrained as it has effectively been ever since in OECD countries).
On the gas side, BP has re-done its 2013 numbers and in that year the US overtook Russia as the number one gas producer.
Crude prices closed down at the end of last week, with Brent at US$63.87 and WTI at US$59.96. Poor economic numbers from Europe, a strong US dollar – and fears that the Greece “can” may no longer be able to be kicked down the road – were the main causes.
I would expect Greece to bear heavily on the market this week and that appears to be the case this morning on the ASX.
Friday’s rig count numbers from Baker Hughes were a source of some comfort for the bulls, with a weekly decline of 9 rigs. The bottom that many had expected has not yet been reached.
Henry Hub closed down on Friday at US$2.75. Gas injections for the prior week were high for the time of year.
The Petronas led Pacific Northwest LNG project (based in British Columbia) announced a conditional FID at the end of last week. The conditions include Government and environmental approvals (and likely some First Nation approvals as well).
What the point of a conditional FID is escapes me – but presumably Petronas want to demonstrate project momentum to other competing LNG suppliers around the world.
One such competitor (in a nation sense) is Mozambique. The two key players in offshore Mozambique gas, ENI and Anadarko, recently announced progress on unitising their very large discoveries. However, sovereign risk rather than JV misalignment is the number one hurdle to East African LNG progress.
The ACCC announced last week that it would review the planned takeover of BG Group by Shell in terms of its effect on competition in Eastern Australian gas markets.
These very capable parties should be able to manage such a process, particularly given Shell’s production of gas in Eastern Australia is small, but occasionally wild-cards can enter such reviews.
Company news – Origin Energy Ltd (ORG)
The Australian media has reported that ORG is considering selling its majority stake in New Zealand listed Contact Energy Ltd.
Apparently that ORG investment had previously been important to maintaining ORG’s credit rating, but now the ratings agencies would seem to prefer selling the asset and reducing ORG’s high debt levels.
Company news – Interoil
The Australian today reported that Interoil is considering an ASX listing (it is currently NASDAQ listed). A new entrant to the very sparse mid-cap section of ASX listed oil and gas stocks would certainly be welcome. However, the media reported that Interoil is a perennial rumoured takeover target for Woodside Petroleum Ltd (WPL), so such a listing may be designed to facilitate that take-out as much as anything.
Quote of the day
From Spencer Dale, BP’s Chief Economist:
“US net imports of oil in 2014 were less than half their 2005 peak levels. The US is no longer the world’s largest oil importer; that dubious honour now belongs to China”.