Today’s Blog – Friday 11th September 2015

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FAITHFUL BLOG-FOLLOWERS – PLEASE NOTE THAT YOUR BLOG-MEISTER WILL BE TAKING A BREAK FROM BLOGGING FOR AROUND 10 DAYS AS HE CONDUCTS RESEARCH IN THE NORTH SEA CAPITAL OF ABERDEEN (“RESEARCH” = PLAYING GOLF AND DRINKING WHISKEY…).  AH, THE SPOILS OF THE REMUNERATIVE PRACTICE OF BLOGGING!

Introduction

Oil markets yesterday were a “tale of two reports” (“it was the best of times, it was the worst of times” sounds like the oil market over the last year!).

The US’s Energy Information Agency (EIA) released its regular weekly report on inventories yesterday – the news was not particularly good, with a build in crude stocks of 2.6 mmbbls and a product (gasoline and distillate) build of 1.4 mmbbls.

However, the day before the EIA’s Short Term Energy Outlook came out, with its new improved methodology for measuring US production, and it contained more positive news.  This indicated that US oil production continued to fall in August and had declined by a material 0.5 mmbopd since its peak in April this year.  The projection for the next year was for a further 0.5 mmbopd decline.

So the market considers that there is some light at the end of a tunnel (which is not too long – and which does not appear to contain a speeding locomotive).

Commodity prices

Brent rose ~2.5% overnight to US$48.89 and WTI bounced even harder (4%) to US45.92.  The USD fell and the EIA’s Wednesday report was apparently given more weight than its Thursday one.

Henry Hub gained a few cents to close at US$2.68, notwithstanding higher than normal gas injection numbers for the time of year.  Gas continues to win its current war with coal in US electricity generation markets, with the latter losing even more market share (which it cannot make up in international sales as the whole global coal market is long).

LNG

US based company, CME Group, one of the world’s largest futures exchanges, has announced it is developing a Japanese LNG contract – which will not be oil-linked.  This reflects an interesting nexus between Japan Inc’s Government/private sector policy of severing this link (notwithstanding current low oil prices) and US private sector appetite to seek new markets and make profits.

Asian LNG buyers are also looking to physically hedge their US LNG purchase contracts – with US company Chesapeake Energy advising earlier this week that considerable interest had come from Chinese utilities in acquiring some of its US gas fields.

At the US’s Northern-most point, the “tortoise” of global LNG pre-evelopments, Alaska LNG (AKLNG), is reviewing the potential to re-cast its project to deliver even higher volumes by increasing the size of its North Slope to Cook Inlet pipeline to a 48 inch one.’

Although this will slightly delay this project, which was otherwise aiming for first gas next decade, this fits with what this blog noted yesterday – the market window for new LNG has moved out a few years.  Competitor projects in Canada, Australia and East Africa should fear an even larger AKLNG project, run as it is by the LNG A Team of Exxon, BP and Conoco, and with its unparalleled reserves certainty.

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

The MDs of WPL and OSH (Messrs Coleman and Botten) are scheduled to meet over the weekend.  No-one would be surprised if OSH concluded that the WPL offer was too low.  I expect an ASX announcement to that end on Monday.

Media reports today have indicated that some WPL shareholders are not happy with the proposed acquisition – as they note they can buy OSH shares without paying a premium.  However, this appears to be grumbling rather than a revolt.

The energetic boys and girls in investment banker land are busy making alternative pitches to WPL, including “why not buy STO instead (and pay us millions to assist you in doing that“).  It seems highly unlikely to me that WPL would listen to that particular siren call.

Company news – Antares Energy Ltd (AZZ)

As we noted on Monday, the market would like to know more about the conditions surrounding the “binding” Agreements that AZZ recently entered into to sell its Permian Basin assets at a very large premium to the company’s EV.  AZZ provided some further colour on that yesterday afternoon – noting that the deal was for cash and there were no CPs.  The stock price nearly doubled on this news.

In an unusual move, the ASX and ASIC have basically forced AZZ to go into a trading halt this morning whilst they review the terms of the sale agreements.

Quote(s) of the day

With (as noted above) ongoing developments leading up to US (Lower 48) LNG exports commencing in only a few months time, it is timely to dust off the following quotations:

It is more likely to see snow in New York in July than to see exports of gas from LNG terminals in the United States”. Oppenheimer & Co – 2011

“Everyone underestimates perseverance”. Charif Souki – CEO of Cheniere Energy

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