Today’s Blog – Tuesday 30th June 2015

Introduction

Apologies blog-followers for the non-appearance yesterday of your week-daily dose of opinion, cynicism and all-round oil-field news.  My excuse was that I was travelling in Asia and I will attempt to post the occasional blog over the next two weeks as those travels continue.

My experience at Beijing airport yesterday confirmed to me the extent of the PRC’s ongoing efforts to clean up its air pollution problem- the air conditioning was not exactly turned up high in the airport.  This was the reverse of the position when I was last there in winter – when the heating seemed only to be on in the sort of lounges where Communist party members might loiter.

Still, the particulate count in the US Embassy must have been lower.

Commodity prices

Oil prices have suffered along with pretty much everything else in the last few days as a consequence of the Greek crisis (notwithstanding the Greek economy is about the same size of Beijing airport’s).

Overnight Brent closed at US$62.01 and WTI at US$58.33.  The positive flip-side of the “events” coin for oil bulls was however the likelihood that an Iranian nuclear deal will not be closed on its due date of today.

Henry Hub was flattish at US$2.80.

LNG

Origin Energy Ltd (ORG) yesterday put out a formal ASX notice in connection with last week’s media stories about concerns over its off-take arrangements with Chinese NOC, Sinopec.  The announcement clarified a few things about the contract – principally that it does not effectively start operating until the JV is confident that production, etc, is stabilised and it can meet its firm commitments.   Until that time, LNG production will be sold into (currently low price – and tight) spot markets.

If one thinks about Australian LNG production from an “Australia Inc” perspective (which the producers clearly do not do – witness the debacle of 3 separate developments on Curtis Island), then it is interesting to observe that on the East Coast we have LNG production coming on stream from the likes of APLNG which the Chinese may struggle to take in the short term (and will not like the prices thereof) – and on the West Coast we have Woodside Petroleum Ltd (WPL) with the world’s worst LNG contract (which it naturally wants to re-structure) – selling to China at a very low price.

The Middle Kingdom does tend to think in a “China Inc” manner – which suggests a deal could in theory be possible – to trade off these two positions.  However, the chances of WPL and ORG (and their JV partners) coming to some sort of agreement about that – or the Australian Government pushing same – would be remote.

Governments and fracking

The long awaited recommencement of drilling and stimulation activities in England by the Cuadrilla joint venture have suffered another blow.  A key regulator – the Lancashire County Council – has rejected on planning grounds the JV’s application to commence work.  The judgement was effectively about surface matters – noise and the like – rather than sub-surface aquifer contamination, earthquake, etc, issues.

The involvement of this type of regulator for this type of activity seems strange from an Australian (or Texan) perspective, but is hard to avoid in the very densely populated United Kingdom.

News agency Interfax Energy has today reported a counter-factual story – the views of the China Geological Survey that fracking does not cause environmental harm.  China is one of only four countries with commercial shale oil/gas production (Canada, the US and Argentina being the others).  The list does not seem likely to expand in the short term at least.

Company news – A J Lucas Ltd (AJL)

AJL is the only Australian JV partner in Cuadrilla.  Naturally it has just suffered a negative share price reaction to the news from Lancashire.

Company news – APA Group Ltd (APA)

The AFR reported today that APA is closely looking at the sale process for Energy Australia’s gas storage and processing plant asset at Iona, Victoria.  APA is the “Pacman” of the Australian energy infrastructure industry perspective and has been built on numerous transaction.  Obtaining further finance should be no problem for it.  From the point of view of this particular asset, there is a fit with its connecting pipeline assets – and it has some gas storage experience already in Western Australia.

Other infrastructure investors will find it hard to compete against a rampant APA – unless they can partner with an operator.  The likes of Santos could offer up this role – and likely find synergies with its assets in the region.  However, it it does not feel likely to me that they would do so in their current “slough of despond” (i.e. sub $8 share price).

Quote of the day

Often attributed to Napoleon Bonaparte – from a verbal rather than written source though – which seems highly prescient from the point of view of the early Nineteenth Century:

“China is a sleeping giant. Let her sleep, for when she wakes she will move the world.”

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