Today’s Blog – Monday 31st August 2015

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Introduction

This week sees the formal accession of Fatah Birol to the leadership of the International Energy Agency (IEA – not to be confused with the US’s EIA, or Energy Information Administration).  Birol is currently the IEA’s Chief Economist and arguably has been its de-facto intellectual leader for some time.

A key challenge for Birol will be to retain the IEA’s relevance at a time when its OECD members are less dominating of global energy demand than in the past – and for instance can he bring China into some form of closer relationship with the Agency.

Going back to the EIA, this week it should release its regular monthly report which industry insiders expect could be expanded to include much better data on US crude oil production.  In the short term, this could be a more important regulatory development than Birol’s promotion.

Commodity prices

Crude oil prices continued to surge on Friday (after their spectacular ~10% gain on Thursday), with Brent closing at US$50.05 and WTI at US$45.22.

This was notwithstanding yet another disappointing weekly rig count report from BHI, which indicated that the oil rig count had increased by one, whilst the gas rig count was reduced by nine.

Overall, Fridays’ market remained a technical one, where shorts were covered in an environment of widespread asset market rises.

Henry Hub closed up on Friday at US$2.71.

LNG

Italian oil and gas giant ENI reported a major gas discovery over the weekend.  This was the finding of a ~30 TCF (gas-in-place) gas-field in deep water off-shore Egypt.  The company has already signalled that it will pursue its development aggressively.

From a market perspective, this find is arguably more significant in the than the larger discoveries that ENI and others have made offshore East Africa.  Gas in Egypt can readily feed both the nation’s voracious energy needs and export markets through existing liquefaction infrastructure. The find will no doubt disappoint neighbour Israel, from both monetary and geo-political stability points of view, who was hoping to supply Egypt from its own large offshore gas fields.

In theory this find could indicate that there is a whole trend of deepwater gas fields remaining to be discovered in the Eastern Mediterranean – with profound implications for European gas markets, Russian ambitions for the Turk-stream pipeline, etc.

As we noted last week, Putin is due to visit China this week, but hopes of signing some sort of deal during that visit over the Altai (AKA the Western route pipeline, or the Power of Siberia-2 pipeline) appear slim.  Recent media reports have instead suggested that some sort of deal could be inked over the supply of gas to China from Vladivostock (sourced by pipeline from Sakhalin Island).  Russian plans had previously favoured selling this gas through a new liquefaction facility whilst selling “spare” West Siberian gas (that had lost market share in Europe) to China via the Altai route.

Russian hegemony over gas in the Eurasian continent is not what it was and faces ongoing threats.

Company news – Origin Energy Ltd (ORG)

ORG’s Chairman, Gordon Cairns, has just taken on another Chairman’s role for a company facing challenges – Woolworths Ltd.  Whether this means that in due course he will step back from ORG remains to be seen.

ORG has managed to escape some of the focus on poor performance, fiscally, operationally and governance wise, that its close peer, Santos Ltd (STO) has faced recently.  However, it is arguable that its leadership (executive and non-executive) also needs to take some responsibility for its current over-gearing and very poor share price performance.

Company news – Buru Energy Ltd (BRU)

BRU reported on Friday what at this stage appear to be encouraging results from its Praslin-1 well in Western Australia’s onshore Canning Basin.  A 23M gross oil column has been discovered in this relatively shallow well – which will be production tested over coming months.  If that test is positive, BRU should be able to monetise the oil fairly quickly given its already existing operations in the area.  Furthermore, significant additional geological prospectivity may be opened up.

Company news – Cooper Basin players

Recent media reports have echoed a question from Credit Suisse analysts who are asking when the great game of mid-tier Cooper consolidation will kick off.  To answer that question, Beach Energy’s CEO, who has been absent for some weeks for family reasons, will need to return to work.  Hostile takeovers are rarely initiated by acting CEOs.

Quote of the day

Acting CEOs often ask themselves whether they are allowed to “act”.  The following quote from The Game of Thrones makes it clear what was expected of a certain acting leader:

“The city?” Tyrion was lost. “What city would that be?”

“King’s Landing. I am sending you to court.”

It was the last thing Tyrion Lannister would ever have anticipated. He reached for his wine, considered for a moment as he sipped. “And what am I to do there?”

“Rule,” his father said curtly.”

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