Today’s Blog – Wednesday 17th June 2015

Introduction

The blog continues to pull out some key points from last week’s BP Energy Report.  Today we switch to gas, noting the following:

  • Gas demand has been far weaker than generally expected (which we have seen in Australia for some time – with demand actually declining in recent years ex the LNG projects).
  • Like in Australia, gas is losing market share in electricity markets – squeezed between mandatory renewables and cheap coal.
  • Global gas prices are converging, reflecting the increasing integration of global gas markets.
  • LNG demand was up whilst pipeline gas demand was down – primarily reflecting geo-politically driven European demand switching from Gazprom pipeline gas to LNG imports.
  • US gas production increases were almost solely driven by the Marcellus (and to a lesser extent the underlying Utica).  (It is interesting to note that the once mighty Barnett Shale in Texas now hosts only a rig count of a paltry three!).

Commodity prices

Brent slipped slightly overnight to USD$63.70 whilst WTI firmed to US$59.97.  The latter was driven by fears over a tropical storm approaching Texas (no doubt with memories of what Hurricane Katrina did to Gulf of Mexico facilities 10 years ago).

Analyst consensus ahead of tomorrow’s formal inventory numbers was for another material draw – of 2.9mmbbls.

The Henry Hub gas price also strengthened on fears of Gulf of Mexico storm conditions, closing at US$2.90.   Katrina put Henry Hub to >$US15/mcf.

LNG

Russian and Chinese pipeline dealings continue to crank up (hence throwing a shadow over rival LNG supply aspirations for the PRC).  The parties have recently announced that the currencies to be used for supplies from the massive Western (or Altai) pipeline into China will be a mix of the Yuan and Ruble, rather than the usual petroleum currency of the US dollar.

The parties have re-stated that the actual pricing formula (which is still to be formally agreed) is a secret.  Industry consensus is that is will be ~US$10/mbtu.

Also on the Gazprom front, that company demonstrated yesterday (again) that it will not be left out of the current LNG trading market revolution by stating: “the company is paying a lot of attention to the development of its LNG trade portfolio”. 

Governments

The South Australian Treasurer was today reported as welcoming the development by the Australian Energy Market Operator (AEMO) of a new gas pricing hub at Moomba in South Australia.

Given access to this hub is basically limited to those few players who have pipeline contracts allowing take-away from Moomba, I expect hub trading at Moomba to be evolutionary rather than revolutionary.

Company news – Beach Energy Ltd (BPT)

BPT today announced that it had fully exited its Romanian asset (for nominal consideration).  This reflects a broader pull-back to Australia by BPT (although the MD may have given himself some wriggle room by stating that the company was focusing “closer to home” – which could still include Asia, for instance).

Other company news from the ASX was very thin this morning – come on BPT – make your expected move on Drillsearch Energy Ltd!

Quote of the day

Another quote from the Iranian Oil Minister, foreshadowing potential very significant arguments to be held inside OPEC about quotas – or a whole bunch of additional oil coming to market (presuming a nuclear deal is done, which is still very uncertain in my view):

“The market will continue to remain balanced after Iran’s return,” he said. “[Fellow OPEC members] will have to cut their production so that Iran’s return would not cause a drop in the prices.”

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