Today’s Blog – Friday 26th June 2015

Introduction

Rounding up this week’s Russian focused news, today we note that French giant Total yesterday formally pulled out of the massive Shtokman Arctic LNG project.  Total has basically walked, passing its 25% stake to Gazprom for nil consideration.

This seems an economic rather than a sanctions driven decision – Total is an active participant in the Russian Yamal LNG project as a JV partner and more recently as a gas purchaser.

This project, although containing an exceptionally large gas resource of 135 TCF, has basically been overtaken by events – i.e. discoveries of competing LNG feedstock sources in the Marcellus, off-shore Africa, British Columbia, etc.

Plus Russian sovereign risk does not help.

Commodity prices

Crude oil prices fell again overnight, with Brent closing at US$63.20 and WTI at US$59.70.  Again yesterday’s same fears over a Grexit, combined with US product inventory builds, appeared to be the main drivers.  Additionally, large volumes of West African crude on tankers are apparently looking for markets – and quick.  The likes of Nigeria has been hit harder by the rise of US tight oil than have the Gulf producers, who in physical terms supply China, etc, much more than the US.

Henry Hub gas prices firmed overnight to US$2.85, as the market expected a smaller than normal gas storage injection.

LNG

A tale of two regulatory environments:

  • Cheniere Energy has just overcome regulatory objections to the two-train expansion of its Louisiana based Sabine Pass liquefaction project.  Environment group the Sierra Club’s argument that expanding the plant would lead to poor environmental outcomes from increased US gas production was rejected by the Federal Government.
  • Meanwhile in British Columbia, the Pacific Northwest LNG project is facing new litigation from First Nation groups on environmental grounds – and over title for its proposed site.

Governments and fracking

Quelle Surprise! (or the Lancastrian equivalent): the Lancashire Council has postponed a planning decision on allowing the recommencement of drilling and fracking operations by Cuadrilla.  Apparently this will now be considered next week.

Can-kicking of Greek proportions?  This project has now been delayed for four years – and more seems likely.

Company news – Wesfarmers Ltd (WES)

Conglomerate WES recently announced it had taken a stake in what was Apache’s Western Australian assets, which were bought earlier this year by a private equity group (that included Macquarie Bank).  WES has acquired an effective stake of 13.7% from Macquarie for US$100M (the ownership structure is complex).

This appears to be a portfolio rather than strategic investment for WES.  Or possibly it is following-the-leader in terms of fellow WA company Seven Group.  Presumably it is taking a view that oil and gas assets are cheap just now.

Company news – Origin Energy Ltd (ORG)

ORG’s MD, Grant King, has responded to media speculation earlier in the week that APLNG’s prime customer, Sinopec, might have difficulties in meeting its purchase obligations.  He effectively stated that the venture had binding sales contracts which he had no reason to think would not be honoured.  Naturally we would say that, so I would put little weight on such a statement.  Sinopec is not an Australian gas or electricity customer of the type that ORG has traditionally supplied.

Other than that, as usual ASX announcements are a bit thin on Fridays.

Quote of the day

The always reliable P G Wodehouse:

“I dislike to dwell on the spectacle of a human being groaning under the iron heel of Fate. Such morbid gloating, I consider, is better left to the Russians.”

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