Today’s Blog – Friday 11th December 2015

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Introduction

Last week we reported on something very unusual in the current LNG world: a project taking a final investment decision (FID).  This FID was made by French independent Perenco, for a smallish offshore African gas-field, with the liquefaction processing to be done on a vessel owned by Golar LNG, and the gas to be sold to Gazprom.

This week saw a similar project make significant progress.  The Fortuna FLNG project is also located offshore West Africa and will use floating technology.  It is operated by London listed Ophir Energy, who this week announced that its estimated development costs had been slashed and it had signed heads of agreement with un-named LNG off takers.  It is aiming for FID next year.

These developments may show that:

  • There is greater room to insert gas into LNG markets if the off take volumes are relatively small and sellers are sensible about pricing.
  • Material cost savings are being achieved in the current service sector market.
  • Operators are focusing on what they do best – rather than for instance wanting to own all assets in the value chain.

Australia hosts various stranded gas resources which could support smaller scale FLNG projects – such as Santos’s Petrel/Tern assets off the Northern Territory.

Most analysts (your blogster included) have to date not highly rated the chances of these being developed any time soon.  News from Africa may indicate that we are wrong and that the owners of these projects have unexpected opportunities at present to push hard on developing their assets.

Commodity prices

Yesterday it was Brent’s turn to fall through the US$40 barrier at close of trade, as oil prices fell again by around 2%. Brent closed at US$39.53 and WTI at US$36.54.

Any bad news will do at present, and yesterday’s bears got succour from an OPEC report that noted that the (so-called) cartel’s production had increased to 31.7 mmbopd.

Additionally, on the “numbers” side of the market, another inventory report from the US showed that capacity at the key Cushing Oklahoma location had now reached 90%.

Henry Hub is now teetering at the US$2 level, as the indice closed at exactly that price overnight.  US winter temperatures are some 15+ degrees (fahrenheit) higher than normal for the time of year.  Unless Santa and his reindeers bring down a sudden cold snap from the North Pole, Christmas will not look too bright for US gas producers.

LNG and international gas

The CEO of Anadarko has recently reiterated the company’s 2016 timing for reaching FID on its Mozambique LNG project.  As we noted recently, this project has been boosted by a cooperation agreement with neighbouring gas owner ENI and is considered by influential LNG advisory guru Fesheraki to be in the top 3 global LNG projects.

Andadarko could be a target for Exxon, with the Mozambique project being a key driver for any takeover, given that the Super-Major is relatively starved in its LNG project pipeline (outside PNG and possibly Alaska).

Anadarko’s recently abortive takeover approach to Apache Corporation presumably recognises its takeover vulnerability, as at least one driver of such a deal would be to bulk up for defensive purposes.

Company news – Origin Energy (ORG)

ORG announced today that its APLNG business in Queensland had commenced production of LNG at its Gladstone based liquefaction plant.  First cargoes are due to be exported by year end.

Company news – Shell

Shell has just announced that it is seeking to sell its New Zealand assets.  Shell has been the largest oil and gas player over the “ditch” for over 100 years. Its assets there are mature, but in a low sovereign risk and low tax location – and as such could be attractive targets for private equity buyers.

We expect ORG to also seek to exit its remaining New Zealand assets next year – primarily being an operated equity stake in the offshore Kupe gas-field.

Company news – Woodside Petroleum (WPL)

Life goes on for WPL post its Oil Search rejection.  Today it announced that the North West Shelf joint venture had formally committed to spend US$2.0 (gross) on developing 1.6 Tcf of gas into its LNG plant.

Quote of the day

CNBC’s Jim Cramer on the current crude oil market:

“This is not ‘longer and lower;’ this is ‘longer and much lower.’”

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