Today’s Blog – Tuesday 17th November 2015

Please pass this blog on to others who may want to read it

Introduction

Yesterday we predicted a fall in oil prices as a response to the Parisian terror attacks – with a short/sharp V-shape recovery to quickly follow.  However, on the actual day the market was ahead of us, noting the previous V-shaped responses to similar attacks in the past – and deciding to pre-empt the prior course of events completely by actually rising yesterday (see below).

The key “numbers” factor that is dominating crude markets at present is the sheer volume of oil in storage and the steady increases to that tally through the daily excess of supply and demand.

Some commentators have suggested that this “peak storage” factor is in fact diminishing the normal impact of “events” on oil markets.  That is, the vast storage volumes can more than absorb any supply disruptions caused by e.g. Middle Eastern turmoil, etc.

Commodity prices

As noted above, crude oil prices rose yesterday, with Brent closing at US$44.80 and WTI at US$41.92.  Wall Street also rose (although other commodities fell) as risk assets generally brushed off ISIS-induced worries.

When neither “events” nor “numbers” troubled the market,  it was left to the weird and poor cousin of “technicals” to (allegedly – who can really  determine causality for this things) have some impact on the market.  Apparently, a floor price of US$40 was tested in the day – was not breached – and that encouraged later day buying.

Henry Hub closed down a couple of cents at US$2.34.  Hotter than normal weather in the US continues to dominate the North American continental gas market.

LNG and international gas markets

A recent report from Russian news-agency Interfax on the Anadarko led Mozambique LNG project demonstrated well the problems such greenf-ields projects have at present.  Last week we noted that project partner Mitsui had advised that FID for this project would now be pushed out to the first quarter of next year.

Interface noted that for that date to be achieved, the project would need to undertake the following in the next few months (over Christmas): secure binding off take contracts; settle a long term LNG tax regime with the Government; agree funding terms for financing of the local NOC’s project share; agree domestic market reservations for gas supplies; and, resolve a dispute over an allegedly corrupt supply-hub deal.

Given those factors, the chances of reaching FID by early 2016 would appear to be around 1%. But Anadarko is no orphan there – for instance, much of the same issues arise for the Western Canadian LNG projects.

This illustrates why (as we reported yesterday) Woodside Petroleum (WPL) remains so interested in acquiring Oil Search (OSH) – as the latter’s various PNG LNG projects are substantially ahead of the project queue from the likes of the East African and Western Canada LNG ventures.

Australian pipelines

The Australian Financial Review (AFR) this morning flagged that Jemena (a SPV jointly owned by Chinese and Singapore companies that has existing pipeline assets in Australia) would be named the “winner” of the NEGI pipeline tender process.

Readers will no doubt be sick of this blog banging on about this project – but there is only a winner when a party procures long term gas supply and gas purchase agreements from credit-worthy parties.  Such parties could chose to build a pipeline on any route they wanted (subject to normal planning laws) and involve any pipeline company they saw fit.

Having a winning ceremony in Darwin with Jemema later this week will be a political event – not a business one.

Company news- OSH

OSH made various investor presentations yesterday – the same day that the AFR reported that WPL was considering taking a different approach to taking it over.  It is safe to say that the content of the presentations was not encouraging of the Perth-based suitor.

This blog cannot currently see how WPL can acquire OSH at present without alienating its own shareholders (although we note that “animal spirits” in the executive chamber can sometimes trump such concerns).

Company news – Origin Energy (ORG)

The AFR has reported that ORG is moving along with its process of selling non-core upstream assets, with various bankers, etc, being canvassed.  Additionally it noted that ORG may sell a Victorian based pipeline connecting its Mortlake Power Station.

This pipeline is 100% owned by ORG, has a long life, and demonstrates the inefficiencies of markets – ORG should be able to sell this at a multiple that is much higher than the new multiple of annual pipeline charges it will take one.

Quote of the day

One more from President Charles de Gaulle – and a good illustration of the cultural richness of France – and hence why it is a difficult enemy for ISIS to consider defeating:

“How can anyone govern a nation that has two hundred and forty-six different kinds of cheese?”

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