Today’s Blog – Wednesday 28th October 2015

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Readers – please note that blog services this week will be short and/or intermittent due to your blogster travelling

Introduction

Bloomberg yesterday reported that by year end the flow of crude oil in the integrated US/Canadian oil pipeline system may change, as certain supplies that currently head towards Cushing and on to the Gulf of Mexico, will instead flow to Quebec.

So what? one might ask.  However, it seems feasible that this unheralded change could contribute to some closing of the WTI – Brent spread, as more US light sweet crude accesses Brent priced markets in Eastern Canada.

This spread tightening is what Congress is effectively trying to achieve through passage of contested legislative changes to allow the US to export crude to countries (other than Canada).

As is often the case, good old-fashioned US capitalism can deliver what the dead-locked Washington system cannot.

Commodity prices

Crude fell overnight, with Brent closing at US$46.81 and WTI at US$43.20 (a 2-month low).  The market is steeped in gloom at present about the extent of both crude and product inventories.

The release of BP’s latest half year results was likely also a bear factor, as the company stated that it expected the present glut to extend into at least 2017.

The Henry Hub natural gas price fell through the key floor of US$2 during the course of yesterday’s trading, but closed up on the day at US$2.09 – possibly due to “technical” support coming in at this key pricing point.

LNG and international gas

One of the world’s less likely pipeline projects, to take gas from Turkmenistan to India via Afghanistan and Pakistan, appeared to receive a boost a few days ago.  A cooperation agreement was signed between stakeholders from the various countries in Turkmenistan’s capital (quick – name that capital – that’s right, you knew it was Ashgabat).

This project has been discussed for many years.  In the view of this blog, its chances of actually going ahead can be answered by the answer to the question – if you were a long term buyer of gas in India, would you trust the reliability of supply from a pipeline that went through these countries?

Company news – Woodside Petroleum (WPL)

WPL issued an ASX announcement yesterday to ensure it had some wriggle room under the take-over laws which might affect any subsequent proposal/offer it might make to Oil Search (OSH).

The media had quoted WPL’s  CEO, Peter Coleman (who increasingly seems rather more media effusive than his Exxon past would have trained him to be) as saying WPL would not increase its previous offer price.

The ASX announcement said that he had not said that.

Company news – Santos (STO)

The Australian newspaper has today reported that a STO Board meeting to be held today will consider a binding A$1.5B offer for the company’s Western Australian gas assets from PE group Quadrant Energy (as STO has extensively leaked to the press over recent weeks).  The recently leaked deal over PNG LNG with Japan’s Marubeni will presumably also be considered.

And then the Board will have to consider whether they will also need to undertaken a rights issue – and if so, where the recent Scepter Partners approach might fit with that game.

Company news – AWE 

AWE has released further excellent technical results from its Waitsia-1 well in the onshore Perth Basin.  A second test zone has flowed 26 mmcfd.  This brings the total flow rate from this well from two test zones to >50 mmcfd – a superb result for on-shore Australia (assuming it can be sustained say my reservoir engineering chums…..).

The result in the market of this news – a big yawn.  However, the news is likely to be taken more seriously in industry circles – good timing for Origin Energy’s (ORG’s) sale process for its 50% interest in this asset.

The afore-mentioned Quadrant Energy would presumably be looking at this asset closely.

Quote of the day

The Saudi Arabian Game of Thrones continues. What started as a few anonymous letters will not go away.  The UK’s The Independent newspaper recently conducted an off the record interview with the dissident Prince who is the author of those letters.  Amongst other quotes, he noted that:

“The Ulama and religious people prefer Prince Ahmed – not all of them, but 75 per cent,” said the prince, himself a grandson of King Ibn Saud

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