Today’s Blog – Friday 28th August 2015

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Introduction

Overnight we saw a stunning come-back for oil prices – with ~10% rises in the price of both WTI and Brent.

This occurred in the context of material rises in stock markets around the world, as investors voted with their buying fingers following stimulus news from China and good economic data from the US.

Your blogster considers the following quote from this week’s The Spectator magazine (Martin Vander Meyer) summarises what has happened most insightfully:

“In effect, investors have used the most drastic manoeuvre available to them – the blind stampede – to dissuade authorities from raising the price of money”.

That is, by throwing their toys out of their cots over the last week, investors in all asset markets have effectively persuaded central banks, and the Fed in particular, to postpone interest rate rises.  Victory was then celebrated by the bulls going on a buying spree.

Commodity prices

Brent closed at US$47.56 and WTI at US$42.56 – with the kind of rises normally only seen in response to major geopolitical “events”.  However, as noted above, this was a sentiment driven rise, aided by technicals such as short covering.  On the fundamentals side, the only real driver was a suspension of some exports from Nigeria due to a Force Majeure claim by Shell.

The Henry Hub natural gas price fell a couple of cents to US$2.66.  This was notwithstanding the release of a report by the EIA that forecast that US gas production would fall in September – in the lead-up to the commencement of GOM LNG exports by year end.

LNG

A number of recent news stories on LNG markets support the regular theme of this blog about the ongoing liberalisation of international LNG trading:

  • Reuters has reported that Qatar and PetroChina have agreed to amend the terms of an existing long term LNG supply agreement – to skew cargoes towards the higher demand winter period – therefore deterring customer purchases of spot purchases from rival suppliers.
  • Rosneft has formally entered the LNG trading market by signing a deal with Egyptian authorities to supply them with LNG – to be sourced from Rosneft’s portfolio gas, rather than particular supply sources.

On the negative side for potential LNG projects – First Nation groups in British Columbia are seeking a new site for Pacific Northwest LNG’s liquefaction plant – in  order to protect salmon fisheries.  This project seems increasingly troubled – particularly by the multifarious funding calls on its operator, Petronas.  Additional costs in potentially re-locating sites do not help an anyway challenging project.

Governments and fracking

Also in British Columbia, the Province’s oil regulator has linked an earthquake with fracking – undertaken by Petronas.

This appears to be a different – and potentially troubling issue – to the linkages between seismic events and the injection of produced water into existing faults that have occurred in the likes of Oklahoma.

Company news – Santos Ltd (STO)

Some recent news from the UK that is relevant to STO – namely the >$1B sale by STO’s GLNG partner, Total, of pipeline and mid-stream infrastructure.

Media reports have indicated that STO is having diffculties in selling its GLNG transmission pipeline due to issues with its JV partners (Total, Kogas and Petronas).  The details are opaque – but strategically all parties at present have good reasons to liberate much-needed cash from non-strategic investments.

Company news – Woodside Petroleum Ltd (WPL) and Oil Search Ltd (OSH)

The Australian Financial Review (AFR) has today reported on rumours that WPL may be considering a take-over offer for OSH.  Key issues to deal with would be:

  1. Firstly and nearly always most importantly, “social” issues – i.e. which Directors get to keep their jobs.  Encouragingly, the AFR noted that the two companies’ Chairman had met to discuss the matter without an impasse quickly arising.  WPL’s Chairman, Michael Chaney, who has had his job for a long time, may be ready to step down (but not be left bereft – he could then more easily take on the Chairmanship of his alma mater, Wesfarmers).
  2. Accommodating the PNG Government. Here WPL could offer some balance sheet strength to support further developments in exchange for a loss of influence by the Government.
  3. Price comes down the list!

Company news – Beach Energy Ltd (BPT)

BPT’s acting CEO, Neil Gibbons, put on a bravura one-man-show in the South Australian Parliament yesterday (as reported on last night’s Today Tonight TV show), as he fronted a  panel of politician’s investigating “fracking” in the State’s South East.

However, it remains to be seen whether Mr Gibbon’s methodology of being reasonable and pointing out scientific facts would persuade his opponents, who at one point were quoted as saying “you could use a dozen casing strings on a well, and germs could still eat through them….”

Quote of the day

Finishing up the week of quotes from Edmund Blackadder – another one that might have been heard in an OPEC council meeting, considered the rather backward political systems that prevail in some member states:

“To you, Baldrick, the Renaissance was something that just happened to other people, wasn’t it?”

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