Today’s Blog – Thursday 15th October 2015

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Introduction

Earlier this week BP’s new Chief Economist, Dale Spender, made a presentation which has rather breathlessly been reported as saying things like “there will never be peak oil“.  His actual conclusion on this was rather more nuanced – carbon constraints meant that the current totality fossil fuel reserves would not be extracted (subject to developments in carbon capture and storage).

The most interesting thing in the presentation from the point of view of Mr Spender’s employer BP was a supply merit order diagram that presented shale oil as being a significant lower cost production source than offshore-deepwater and oil sands.  The latter two are the areas where the Super-Majors such as BP have the greatest competitive advantages.  This analysis therefor shows that in the overall oil supply market (which at the low cost end is dominated by NOCs) – the position of the Super-Majors has weakened.

Commodity prices

Crude oil prices fell again overnight, with Brent closing at US$48.89 and WTI at US$46.15.

There were not a lot of new market drivers on the day, other than the EIA’s weekly report.  This showed that crude inventories had risen yet again, by 3.1 mmbbls.  Gasoline was also up by 1.9 mmbbls.  Market bulls with thank god for the thirsty VWs, with diesel stocks declining by 2.5 mmbbls.

Henry Hub strengthened a few cents to close at US$2.54.

LNG

The Australian Financial Review (AFR) published a story today about a trip to Japan by Australia’s new Resources Minister, Josh Frydenberg.  The primary aim of the trip was said to be to encourage further Japanese support for Australia’s LNG ministry, through meetings with the likes of the Japanese Minister who oversees METI.

The Australian Government owns no gas reserves/resources, has no marketing expertise therein, will have little knowledge of the intricacies of gas markets and has only tangential influence over the Super-Majors and NOCs who dominate ownership of Australia’s gas reserves.  On the Japanese side, although there is a far greater integration of Government and gas buyers (through “Japan Inc”), the Government does not directly buy any gas.

Those hardened cynics who adopt a less starry-eyed view of the world than this blog will not expect the Minister to achieve much from this trip other than taste the pleasures of Japanese hospitality.

This is of course what Governments around the world do, so Mr Frydneberg is no orphan – but he is a Minister of a Government that supposedly understands and supports free enterprise.

Governments and fracking

This blog noted a few weeks ago that it expected the US capitalist system to find ways to deal with water limitations that might impinge upon fracking operations, by nature or by law.

A recent example has emerged which supports this – in Pennsylvania, permission has just been granted to use coal mine waste-water (duly treated) for frack jobs.  A classic win-win.

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

The AFR updated the market today on the latest possible moves by WPL to acquire OSH.  “Sources” told the AFR that WPL was considering increasing – but not by much – its prior proposed price to OSH.

This sounding out by media process seems unlikely (in the absence of “events”) to much change the position of the parties – OSH wants a much bigger premium than it was offered, WPL’s shareholders do not want WPL Management to offer such.

“Events” may of course emerge and over the last week we have seen various news stories come out from PNG which serve to remind everyone that it is a developing nation with sovereign risk issues.  These stories range from political disputes over the opaque funding of the acquisition of the PNG Governments stake in WPL to Highland land-holder issues, etc.

Company news – Sino Gas and Energy Holdings (SEH)

SEH is a participant in a couple of JVs in the PRC to explore for and produce CBM.  It issued an ASX yesterday advising the market that it has reached another milestone in terms of commissioning a processing plant.

However, it is still yet to be paid for prior gas sales.  SEH’s JV is complex and working in the PRC is not easy.   The market will want SEH to “show me the money” rather than tick-off its engineering project plan before it rewards its achievements to date.

Company news – Buru Energy (BRU)

BRU today announced that it had received a speeding ticket from the ASX asking why its price had recently spiked.  BRU has advised, as is standard practice, that it does not know why this has happened.

Cynical market observers will wonder whether the hotline from the rig undertaking its current drilling operations is running hot to the a Perth broker.  However, given current illiquidity in junior oil stocks, the answer is likely more prosaic.

Quote of the day

In light of last week’s news about a potential material oil discovery in the Golan Heights, Israel will be hoping that the views of its early 1970s Prime Minister, its own “Iron Lady” Golda Meir, will finally prove to be incorrect:

“Let me tell you something that we Israelis have against Moses. He took us 40 years through the desert in order to bring us to the one spot in the Middle East that has no oil.”

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