Today’s Blog – Tuesday 1st December 2015

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

This blog will be intermittently delivered over this week due to your blogster travelling

Introduction

Europe this week will host two major conferences for the energy sector – in Paris on global warming and in Vienna OPEC will convene on Friday.

Our prediction for both of these – heat and light but not much delivered in the way of substance.

Nearly every member of OPEC other than Saudi Arabia will want the “swing” producer to cut its output by a material amount.  Saudi Arabia will not want to do so.

Possibly the most interesting thing to come out of the OPEC meeting will be any indication as to how the organisation will accommodate greatly increasing Iranian production next year (in our view, the most negative factor overhanging the medium term oil market).

Speaking of negative factors, on the demand side we have a weaker Chinese economy than was previously expected.   A recent anecdote supports this weakness possibly being graver than currently thought – your blogster’s overnight flight from Singapore to Beijing on Sunday saw the Singapore Airlines flight being only half full – normally there are few if any spare seats.  Not a positive sign for traffic between two of the most important business cities in Asia.

Commodity prices

Crude prices were fairly flat on Monday, with Brent closing at US$44.61 and WTI at US$41.65.  Over the month of November an overall decline of ~10% was experienced.  Only a very low probability of OPEC announcing material cuts post its Friday meeting is factored in at these prices.

Henry Hub closed at US$2.23 – only down ~1% in the month of November.  The 2015 calendar year now looks like having the lowest average US natural gas price this century.

LNG and international gas

An unusual recent development in the LNG world – a project taking a final investment decision.  This was done by French independent Perenco on a FLNG project off-shore Cameroon.  The development is a small one – around half a Tcf.

The FLNG vessel to be used is accordingly much smaller than Shell’s massive Prelude project offshore Western Australia.  It will be owned by NASDAQ listed LNG shipper Golar LNG.  Perenco is therefore sensibly focused on the sub-surface and avoids the cardinal sin of the likes of the Gladstone LNG developers – the strange desire of otherwise smart oil and gas executives to the developers and owners of their very own giant fridges.

Perenco has sold all the offtake from this project to Gazprom who will market it in the Atlantic and the Pacific as part of its overall LNG portfolio.

Company news

Any interesting news from Australian companies remains thin on the ground at this time of year.

This week we should see the extent of the shortfall in the retail component of Santos’ rights issue (and hence the over-hang that might eventuate from a lot of unwanted stock ending up in the hands of underwriters).

Rumbles will no doubt continue between Woodside Petroleum and its target of Oil Search – but likely little of substance.

Quote of the day

The IEA’s Executive Director (Fatah Birol) recent comments on China’s energy demand trajectory:

“We are approaching the end of the single largest demand growth story in energy history”.

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