Today’s Blog – Wednesday 3rd February 2016

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With the results from Iowa in yesterday, round one of the official race to be the next US President is now over – and the clear winner is Marco Rubio.

With his better than expected third place in the Republican primary – and with Hilary on the Democratic side looking weak – the race is now his to lose in our view.

Will this be the start of the long expected flame out for The Donald?  We think so – and this blog, like all other forms of media will be the poorer for that.

The Republican winner Cruz we think is unelectable nationally and will not be acceptable to mainstream members of his party (and he is Canadian!).

What might this mean for energy markets?  Nick Butler of the Financial Times noted the following possible consequences a month or so ago:

“A Republican victory and a fundamental shift in energy and environmental policy is entirely possible. If that happened coal would be reprieved, drilling would be opened up and government-supported research funding on alternatives would be reduced.

In our view, these are long term matters in terms of the balance of oil and gas supply and demand and will not affect current pricing issues at all.  Opening up more Federal land (ultimately even in the holy grail of the near shore section of Alaska’s National Wildlife Refuge- easily the most conventionally prospective untapped acreage in the US) will do more in the long run to make the US the mooted new “swing producer”.

Rubio is not a fan of Iran – a not surprising position for a candidate for Republican Presidential nominee – but by the time the actual election has been run, dealings with that nation by the international community will effectively be set – so we don’t see much material change there.

All up, the President of the US does not occupy as powerful as a position as the media constantly suggests – by deliberate constitutional design.  So there will be consequences from the election of the likes of a Rubio – but more long term and less material than many might expect.

Commodity prices

Crude continued its re-trace (dare we say dead cat bounce downwards) from last week’s over optimism about Russian and OPEC cooperation.  Brent fell 4% to US$32.71 and WTI went through the US$30 barrier again, closing down 5% at US$29.97.

A mild US winter has reducing demand for oil heating stocks – and built up expectations this week for another material inventory build to be announced by the EIA tomorrow.

Henry Hub also reacted to the mild winter conditions, closing down 5% at US$2.04.

LNG and international gas

Expectations by international LNG suppliers of a bottomless pit of Chinese demand growth have so far proved to be somewhat optimistic.  There are a number of reasons for that – a slowing economy, gas market structural problems in the country, cheap liquid fuel alternatives, etc.

A particularly material supply side issue has been the large growth of gas imported by pipeline – illustrated by recently released data that shows that gas imports via the West-East pipeline from Turkmenistan have increased by `126% since the start of this decade.

And Russian gas is coming (eventually).

International LNG markets continue to liberalise in numerous ways – as demonstrated by a recent deal between French super-major Total and Indonesian NOC Pertamina.  These parties have just entered into a deal to swap “Atlantic” LNG contracted from the Gulf of Mexico by Pertamina to gas to be supplied by Total to Indonesia from its “Pacific” LNG portfolio.

Company news – Beach Energy (BPT)

BPT today announced some retirements from its Board (effective upon the legal closure of its takeover of Drillsearch Energy in a few weeks’ time).  These were of ex-APPEA CEO Belinda Robinson and ex-BPT MD, Rob Cole.

Why the latter was ever appointed a NED by BPT after his stint of a few months as the company’s MD is unclear to us – it raised obvious governance questions.  Presumably BPT and/or Cole have now recognised this.

Notwithstanding these changes, there is still no room round the BPT Board-room table for the company’s new CEO.

Company news – Senex Energy (SXY)

BPT’s Cooper Basin colleague SXY released its monthly drilling report this morning.  The contents of this reflected the current reality of the industry (and its medium term saviour) – there was no actual drilling to report.

Quote of the day

Princeton and Harvard Law School graduate, and spouse of a Goldman Sachs Managing Director, Ted Cruz, trumpets his anti-establishment victory in Iowa:

“Iowa has sent notice that the Republican nominee and the next president of the United States will not be chosen by the media, will not be chosen by the Washington establishment.”

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