Today’s Blog – Thursday 18th June 2015

Introduction

Today’s blog turns to the non-fossil fuels section of last week’s BP report.  The key points that I drew out were as follows:

  • Last year non-fossil fuels contributed more to energy growth than fossil fuels for the first time in over 20 years.
  • Somewhat surprisingly given the doom and gloom over the sector, nuclear power actually grew last year, driven by South Korea and China.  If the Japanese fleet comes materially back on line (a big if) then happier days could be here again for uranium pricing.
  • Solar is growing at a stellar rate of 38% per annum – although clearly off a much lower base than the traditional fuels.
  • The non-fossil fuel sector now appears to be acting as the “swing” energy source, given their high-up position on the supply curve.

Commodity prices

Crude prices were fairly flat overnight, with Brent closing at US$63.87 (up 17c) and WTI at US$59.92 (down 5c).  The threat posed to Texas oil and gas production by Hurricane Bill (who appears to be a bit of a wimp) has not materialised.

Official US inventory numbers showed a draw of 2.7 mmbbbls (in line with forecasts – for once) – ameliorated by an unexpected build up gasoline inventories by ~0.5 mmbbls.

Official actual production numbers (rather than just extrapolations) from North Dakota just released for April have confirmed that production in this heartland of the Bakken shale has peaked some months ago.

What does not appear to be peaking in volumetric terms is OPEC’s production, as most cartel nations are busting their quotas in order to earn much needed revenues.  The Wall Street Journal has reported that OPEC’s export income in 2014 fell below US$1 trillion for the first time since 2010 (in which time needs for money to pay off potentially restive populations and, inter alia, bribe FIFA, have grown).

Henry Hub natural gas prices fell 5c to US$2.85 – again with fears of Hurricane Bill being overdone.

LNG

Gazprom held its AGM on Tuesday and as part of proceedings the company gave an update on the progress being made in its two pipelines to China (Power of Siberia to the East and Altai to the West).  Naturally all was said to be going well.

However, the consequences for being too gloomy in today’s Russia could be an invitation to sip a cup of polonium tea, so some scepticism will always be attached to Gazprom’s progress reports.

Russian based news and advisory house, Interfax, yesterday reported that a Chinese think-tank had stated that the PRC could act as a “transit nation” for Russian pipeline gas to be on-shipped to other Asian nations.  That seems far-fetched to me, both from a cost (US$11/mmbtu to the Chinese coast, then liquefaction, shipping and re-gas costs on top of that) and sovereign risk perspective (I tell you what TEPCO, why not take exposure to both the risks of Russia and China).

Governments and fracking

The Texan town of Denton has this week allowed the re-commencement of fracking operations with-in its city limits, notwithstanding a citizen vote against this.  This follows significant legal action from the oil and gas industry and State level politicking against any such bans being instituted at such a low level of Government.

Company news – Oil Search Ltd (OSH)

OSH has issued an investor briefing presentation today.  Not a lot new in that – just a re-affirmation of its tightly focused PNG and LNG strategy, albeit primarily as a non-operator.

Company news – Vedanta Resources and Cairn India

The recently announced merger of India’s Vedanta (a mining company) and Cairn India (an oil and gas company) creates a small imitator of BHP’s previously rather unique model of combining the two industry sectors.

Vedanta is run by ex-Rio MD, Tom Albanese, who still seems to be an inveterate optimist (psst, Tom, want to buy inland Mozambique coal resources for ~US$4B?).

Albanese was quoted in the AFR today as having some interest in expanding the Mergeco’s business in Australia.

Quote of the day

Donald Trump’s announcement that he will seek the Republican nomination for the US Presidency gives the blog permission to open up the deep vein of his quotes.  The following combines a key social issue of gay marriage with one of Trump’s passions: golf.

“Its like in golf.  A lot of people are switching to these really long putters, very unattractive.  Its’s weird.  You see these great players with these really long putters, because they can’t sink three-footers any more. And I hate it.  I am a traditionalist.  I have so many friends who happen to be gay, but I am a traditionalist.”

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