Today’s Blog – Thursday 23rd July 2015

Introduction

From yesterday’s blog quoting comments from a story in The Times of London, we turn today to a story earlier this week reported in The Times of India.

This concerned a pipeline project which makes Australia’s own “post-it note” pipeline (the NT interconnector) seem sensible and mature – what the Times’ headlines called “Pakistan starts work on 700km pipeline to import LNG from China.”

This actually seemed to concern a project linking the Pakistan port of Gwadar to the remote South-Western city of Kashgar – presumably to import LNG at the port (unlikely to be from the large LNG importer that is the PRC….) for onwards distribution throughout Pakistan and then Western China.

This project has it all – a route through troubled Kashmir, Taliban/other terrorism risks in Pakistan’s North, highly uncertain supply sources, questionable ability to pay, etc.

A rival project to build a pipeline to Iran’s bountiful gas resources seems more logical for Pakistan – but would Sunni and Shia cooperate on that?

Commodity prices

Support for WTI at US$50 was breached overnight, with that benchmark price closing down at US$49.19.  Brent also closed down at US$56.03.  The weekly EIA report on US inventories showed a build of 2.5 mmbbls (against the earlier Bloomberg consensus of an inventory reduction).

Rising US dollar exchange rates and widespread carnage across all commodities also contributed.

Henry Hub natural gas prices closed up a cent at US$2.89.

On the gas price front, BHP announced yesterday that its forecast gas US gas production for the coming year would be substantially reduced.  No doubt BHP is not the only E&P company planning for this – and this will happen at the same time as LNG and Mexican gas exports ramp up.  The short term gas price however is not connecting these micro dots into a macro picture of material price rises being possible – yet.

LNG

On the LNG supply front, the British Columbian legislature has just passed its foreshadowed long term fiscal, etc, stability law. Although a major step forward, the projects in the Province still have to contend with environmental, First Nation – and most importantly – customer, issues, before FIDs can be taken.

Meanwhile on the demand side, China reported a reduction in gas imports in the first half of 2015.  This is another statistic which raises questions about official PRC GDP growth numbers of 7% being hit (i.e. exactly on target).

Moving back to Australia, the Western Australian and Commonwealth Governments have come to an agreement over the royalty split for the proposed Browse LNG project.  The Commonwealth has given up a substantial share to WA – politically this should ameliorate some of that State’s bleating about its share of GST revenues.  Canberra may have concluded that giving up a slice of a project that is likely many years away from starting is not like paying out real money…..

Governments and fracking

The ongoing battle over onshore exploration in Victoria continues, with the Victorian Farmer’s Federation urging another 5 year extension of the current ban (why always 5 years?).

In my view, no credible parties consider onshore Victoria to be particularly prospective, so the farmers would be better off just permitting exploration in theory – which would not actually materially occur in practice.

Company news – InterOil Corporation

The AFR today reported the sale of a strategic stake in NYSE listed, but PNG focused, InterOil.  The seller was billionaire private New Zealand investor, Richard Chandler, who previously held a ~20% stake.  The paper speculated that a stake of this size could be of interest to potential predators – of which Woodside Petroleum Ltd (WPL) is rumoured to be one.

Chandler still holds a >20% stake in ASX listed LNG focused company, Energy World Corporation, whose asset base is primarily in PNG’s neighbour to the North (on the Indonesian island of Sulawesi).

Company news – Drillsearch Energy Corporation (DLS)

DLS put out a short corporate presentation today.  Given the recent sudden exit of the company’s CEO, the most interesting aspect thereof was a statement that the Company was reviewing growth opportunities outside the Cooper Basin.

Industry speculation suggests a difference of opinion at Board level about whether the Company should invest outside Australia was the causa belli that led to the CEO’s exit.

LNG Ltd (LNG)

This highly successful ASX company (which some in the industry question is supported by fundamentals) has just announced that it has entered into a binding contract for its Gulf of Mexico LNG project – the reservation of 2mmtpa of liquefaction capacity by Meridian LNG (who will buy the gas and sell it to E.on in Europe).  The deal is subject to LNG making FID within 11 months.

Quote of the day

The Donald is the gift that keeps on giving to those of us seeking interesting quotes.  However, taking a different angle on this, below is a quote from Obama on the follically challenged political phenomenon:

“No one is happier, no one is prouder about putting this birther issue to rest than the Donald. And that’s because he can finally get back to focusing on the issues that matter – Did we fake the moon landing? What really happened in Roswell? And where are Biggie and Tupac?”

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