Today’s Blog – Monday 6th July 2015

Introduction

The dramatic and resounding “no” vote in yesterday’s Greek referendum is likely to kick off a period of turmoil in markets as well as in European politics.  (Although I note that the issue is somewhat like the situation addressed by the computer Deep Thought in The Hitchhiker’s Guide to the Galaxy – who delivered the answer “42” to the “meaning of life”, but noted that the question was a far more complex issue).

Also this week – another deadline is due tomorrow on the Iranian nukes issue, and in oil markets the potential wall of Persian crude is hanging over the market like a wave about to crash.

And did I mention the ongoing bear rampage through Chinese stock markets – a ~30% decline in recent weeks notwithstanding substantial Government intervention.

So “interesting” times indeed.

Commodity prices

The end of last week was a holiday in the US, so Brent was the only crude market that was open.  It did not like Thursday’s early BHI rig count news (the increase in oil rigs that this blog noted last Friday) at all, and fell ~$US2 to US$60.32.

Henry Hub was also closed on Friday and the last price remains US$2.82.

LNG

Russian owned and gas focused news agency Interfax reported today that Australian LNG suppliers are under pressure from Asian buyers to re-open LNG sales contracts over the critical issues of prices and schedules.  This follows the more specific news in recent weeks concerning Origin Energy Ltd’s (ORG’s) contract (from its APLNG project) with Sinopec.

A clear business culture clash is at work – the Western view of the sanctity of contracts versus the more relationship focused Asian perspective.  Then on top of that is the role of Governments (through ownership in the case of the NOCs or influence from e.g. METI in Japan) on the buyer side which does not necessarily appreciate that the Western companies act for shareholders not in national interests.

Governments and fracking

This week’s The Economist noted that the UK fracking ball was now in Westminster’s Court, which as we noted last week, is unlikely to be comfortable for the Government.

It also pointed out that the industry in the UK faces hurdles other than regulatory ones – for instance the lack of an on-shore services sector and supply chain.  Over-arching those factors is the current low price of LNG – it is doubtful that tight/shale gas in the UK could be produced at costs below this.

Company news – AGL Ltd (AGL)

Not unexpectedly, the kitchen-sinking of AGL’s new-ish CEO continues, with today bringing the announcement of a ~$600M write-down (pre-tax) in the value of the company’s upstream gas business.  That business unit will now be subsumed into the corporation’s  normal Operations Group and certain non-core assets will be put up for sale (although as AGL noted, it has been trying to sell its Moranbah CBM operation in North Queensland for 18 months and has yet to find a buyer).

AGL has decided to keep its Gloucester CBM venture in New South Wales, which has been an unfortunate magnet for protestors.

The company also emphasised the “strategic importance” of its gas storage assets, which may be softening up the market for its potential participation as a bidder for Energy Australia’s gas storage asset at Iona in Victoria.

Company news – Swala Energy Ltd (SWE) and Armour Energy Ltd (AJQ)

ASX listed micro-caps SWE and AJQ have been registered as bidders for an upcoming gazettal of oil exploration licences by the Ugandan Government.  SWE is an African focused company and this is therefore not surprising.

AJQ however has to date been solely focused on its tight/shale plays in Australia, so this potentially represents a recognition that these are expensive, market interest is lacking and many gas markets (nationally and globally) are not particularly attractive at present.

Quote of the day

A nearly 3000 year old prediction of the plight that Greece seems to have voted itself into:

“Ruin, eldest daughter of Zeus, she blinds us all, that fatal madness—she with those delicate feet of hers, never touching the earth, gliding over the heads of men to trap us all. She entangles one man, now another.”  Homer – The Illiad

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