Today’s Blog – Monday 10th August 2015

Introduction

In recent weeks this blog has drawn its readers attention to a new (or more correctly, a re-visited) source of tension in the combustible Middle East: the renewal of hostilities by the Turkish Government against its Kurdish minority (under cover of attacking ISIL).

Turkey has generally been a source of regional stability, but its worth noting that unintended consequences can arise from violent acts (who thought Syria would deteriorate to the extent it has in recent years?).  From an oil market point of view, Turkey’s greatest role is hosting the Bosphorus straits – through whose tight confines 3 mmbopd currently flow.  That flow will only increase when Kazakhstan’s full production from Kashagan comes on line in a few years time.

The Bosphorus has not been blocked to naval traffic since World War One – but has been an occasional potential flash point since then – e.g. Stalin planned to take control of it in ~1940.

Another choke point for oil markets to be aware of in addition to the more heralded Straits of Hormuz and Malacca.

Commodity markets

Oil prices are however taking no notice of the potential of such “events”.  Friday’s close saw another decline, with Brent closing at US$48.61 and WTI at US$43.87.  The fall over the week was a meaty 7%.  The BHI rig count numbers issued on Friday were the primary cause of the day’s malaise – a third week of additions (6 oil rigs and 4 gas rigs).

Henry Hub had a better week – rising 3% to close on Friday at US$2.80.  Famed corporate activist Carl Icahn was revealed on Friday as having taken a ~8% stake in US LNG exporter Cheniere Energy, which got a big share price boost as a consequence.  A bet of this magnitude by Mr Icahn presumably reflects a positive view on the global prospects for US gas.

LNG

The next year will see a wave of new Australian LNG contracted supplies hit Chinese gas markets, with 7.6 mmtpa from APLNG, 4.25 mmtpa from Gorgon and 5 mmtpa from QCLNG.  The Chinese gas market has seen declining LNG volumes purchased in the first half of 2015 and the overall gas market is growing at only ~2%.

The Chinese buyers will no doubt look to off-load volumes into spot markets – and Cheniere will also be delivering Gulf of Mexico LNG to world markets at the same time.

It is in this context that Russian news service Interfax recently reported delays to new pipeline gas projects intended for China – with Uzbekistan said to be postponing additional volumes (which admittedly are much lesser in size than from its neighbour Turkmenistan).

Over in Japan this week, we have the unfortunate coincidence of the 70th anniversary of the Hiroshima/Nagasaki atomic bombings with the likely re-start of the country’s nuclear power plants (which will reduce Japanese LNG demand in what is an over-supplied short term LNG market).

Governments and fracking

Today’s Sydney Morning Herald reports that energy utiliity AGL is said to have been in recent discussions with community groups about potentially shutting down its CBM project in New South Wales’ Gloucester Basin. The relatively recently appointed MD of AGL has already “kitchen sinked” this asset and therefore has the luxury of considering closure without personal embarrassment.

If this occurs it would likely give considerable impetus to the anti-fracking groups in NSW and elsewhere in Australia.  Santos Ltd’s (STO’s) CBM operations in the State would then likely come under greater pressure (although would likely need a new MD to be kitchen-sinked themselves).

Company news – Karoon Gas Ltd (KAR)

KAR has gone into a trading halt pending news on its offshore WA well, Levitt-1 (KAR is largely carried through a 50% interest in this well by the Operator, Quadrant Energy).  i would expect a trading halt to be more likely associated with good rather than bad news (the latter is usually “immaterial”).

KAR is famed for its good fortune (rather than, for instance, its pristine corporate governance) and this could be a rare success for what is a genuine wild-cat well.

Company news – Beach Energy Ltd (BPT)

Rather more prosaic than the developments at KAR is BPT flagging a presentation on its new corporate strategy due to be released on Wednesday.  I do not expect much change.

Company news – Strike Energy Ltd (STX)

Well supported Sydney based company STX provided the market with a short update on its deep CBM project in the Cooper Basin – which was said to be progressing well.  This is a world first – deep, water saturated coal-bed methane – and STX has been remarkably successful in garnering investor support for it (STX’s market cap of ~$100M seems generous compared to other exploration peers).

Quote of the day

With his cunning electoral strategy of offending just about every group of voters he can think of, The Donald has now targeted that small minority group known as “women”, with the following (gentler souls should look away now):

Mr Trump said Megyn Kelly of Fox News “had blood coming out of her eyes, blood coming out of her wherever”.

I promise readers that I will eventually try and balance the constant quoting of The Donald with things more high-brow – but he just won’t let me!

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