Today’s Blog – Monday 7th September 2015

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Introduction

The Australian Financial Review (AFR) today contained an interview with a gas expert from the OECD’s International Energy Agency (IEA) which addressed Australian’s LNG sector.

Regular readers of this blog will not be surprised to hear that the tone was gloomy – with the IEA concluding that the current 6 LNG projects under construction in the country will struggle to make any money and that new projects are unlikely to proceed.

The AFR notes Australia’s high cost structure, but little further analysis is added as to the cause of this potential A$200B debacle.  Your blogster notes a pithy summary of some other causes in a recent presentation from junior explorer, Blue Energy Ltd (BUL), which included: duplication of infrastructure, schedule driven behaviour, competition for labour, gold plating, etc.  BUL’s focus was on the Queensland projects, but its comments fit for WA and the NT as well.

The bizarre desire of oil and gas company CEOs to own and operate their own giant fridges will no doubt be looked back upon in future years with astonishment.

If I can however pick up a positive from the situation – at least the projects are (nearly) built and will produce from a low risk country over many decades.  This can be contrasted with the ongoing saga over Russia trying to procure Chinese funding in order to allow it to deliver on various pipeline and LNG projects.

Last week this blog noted that not even a MOU had been signed last week at Beijing’s “look at the size of my missile” parade over the mooted Vladivostok-to-China pipeline project. However, shortly after writing that, Gazprom’s CEO, Alexey Miller, stated on his company’s website that he had signed a MOU with CNPC to “establish a working group“.  Presumably Putin himself was too embarrassed to sign something so lame.

Commodity prices

Crude oil prices closed down again on Friday, with Brent down 2% to US$49.61 and WTO down 1.5% to US$46.05.  The fall seemed to be due to general asset market gloom over worse-than-expected US labour figures.

Things could have been much worse, as Friday saw the first good news from the BHI rig count weekly release for some time.  BHI noted that in the previous week the oil rig count fell by a solid 13.

Today is the Labour (or Labor) Day holiday in the US – which signals the close of the traditional “driving season” in the States (as Clark Griswold instead turns his mind to planning his family Christmas).  US refineries are likely to schedule maintenance in this shoulder period and all things being equal crude inventories should start to build up materially.

The Henry Hub natural gas price fell 6c to US$2.66 on Friday.

LNG

LNG market observers have recently been following the ups and downs of the re-starting of Japan’s nuclear power fleet.  What seems to draw much less attention is the growing penetration of renewable energy in the country, following policy reforms put in place post-Fukushima.  Recently up to 10% of Japan’s power demand has been met by solar power (on sunny days admittedly) – which no doubt has been a factor in the country’s low demand for spot LNG cargoes in recent months.

Governments and fracking

As we noted last week, ASX junior Metgasco Ltd (MEL) has turned to the Courts following the break-down of negotiations with the New South Wales Government over the latter’s illegal suspension of MEL drilling operations before the last State election.  MEL has announced today that it has formally taken the matter to the Supreme Court of NSW.  Saturday’s Sydney Morning Herald (SMH) stated that the Goverment’s poor handling of this matter risked “spraying tens of millions of taxpayers’ funds up against the wall“.

MEL’s unfortunate shareholders have already had of tens of millions of dollars of their funds sprayed up against the wall of Government populism.

Company news – Antares Energy Ltd (AZZ)

ASX junior AZZ today announced the sale of its acreage in Texas’ Permian Basin for US$250M – which this morning has provided a handy >200% share price rise to its shareholders.  However, the latter appear to be a sceptical lot, as the company is still trading at a massive discount to the implied share price of the deal.

It is possible that they recollect AZZ’s previous US$300M sale agreement over the same assets – executed around two years ago – which the company ultimately said it walked away from, at its election.

Today’s announcement notes that the deal is subject to “the usual commercial closing conditions“.  The market would likely be very interested in what these were.

Company news – Woodside Petroleum Ltd (WPL)

WPL’s CEO, Peter Coleman, has been appointed as Chairman of a new Commonwealth Government body, the Advisory Group on Australia-Africa relations.

He could have an interesting time preparing for this by dusting off WPL’s old files about its sudden payment of US$100M to the Government of Mauritania around 10 years ago.  No doubt all of those funds were used to benefit the good people of that poor country and WPL would be “shocked, shocked” to hear that any part thereof had been diverted to Swiss bank accounts.

Quote of the day

“Washington seems to think Putin is more burden than boon to Beijing.”  Douglas H. Paal, vice president for studies at the Carnegie Endowment for International Peace

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