Today’s Blog – Friday 5th February 2016

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Introduction

Yesterday’s announcement by AGL Energy that it was getting out of the upstream gas business in New South Wales and Queensland has been widely reported upon today – with the general angle being taken that this was a “victory” for the anti-fracking flat-earth crowd.

The victors are now turning on other potential sources of fossil fuel supplies.  In NSW, protest groups have promised to re-double their efforts to stop Santos (STO) developing coal-bed methane in the State. We expect them to be victorious – not on the merits of their case but partly due to the sheer lassitude induced inside STO about having to perennially deal with such issues – with zero (or negative) political support.

The NIMBYs are also turning on other States within Australia.  In our view Victoria is irrelevant – its low prospectivity geologically means that no serious (and funded) party is looking to do much work there anyway.

However, the grand prize for the lentil crazed luddites is Queensland.  Already the Shut-the-Gate group has stated this week that it will more aggressively target developments in that state.  Apparently the ongoing need for more CBM wells to be drilled to supply feed-stock for the State’s largest recent investments (the Gladstone liquefaction plants) is somehow a suspicious act by the upstream producers, not a base and public element of their normal business.

And now the politicians in the NT have decided to get into the act – after $100Ms spent on exploration in the State in recent years (for the first time in decades) and the apparent desire of a Chinese/Singapore funded pipeline group to take uncharacteristic risks in building a pipeline from the NT to the East.  The ALP in the NT yesterday pulled out the tired trick of calling for a “moratorium” while “studies” could be undertaken into the >70 year old practice of fracking.

G’day sovereign risk.

Commodity prices 

Crude prices fell ~2% over-night, with Brent closing at US$34.43 and WTI at US$31.72.  No particular news drove the changes – the market is just very volatile at present.

One short term demand source might help things a bit – Chinese New Year.  Anyone who has tried to organise travel over the next week would know that every plane, train and automobile in Asia is fully booked.  That should equate to a few incremental million barrels of fuel demand.

Henry Hub slipped below US$2 again – closing at US$1.98.

Governments, fracking, etc

A few weeks’ ago we reported on a gas leak from a gas storage asset in California – noting that it provided many opportunities for the lawyers in that state to organise their favourite activity – a picnic.

The State of California legal department has got into the act – filing criminal charges against the asset owner (Sempra Energy).  The latter will be pushing even harder on its drilling crew to reach TD on the intervention well that is apparently required to stop the leak.

LNG and international gas

Reuters has just reported that Chevron as operator of WA’s massive Gorgon LNG project is having to sell un-contracted gas at significant discounts (around 18%) to the prices it secured under contract a few years ago.   That makes neither it – nor its long term customers – very happy.

Company news – STO

Book your tickets early for the corporate event of the year in Adelaide – STO’s AGM – the date of which has today been confirmed as being 4th May.

We wonder whether the event’s hosts will string up chicken wire in front of the Board like the country and western bar in The Blues Brothers.  There is some chance of a hostile reception from the legions of annoyed shareholders who will turn up for the event.

Company news – Petsec Energy (PSA)

A story from the smaller end of the market that shows great courage – but possibly of the Yes Minister variety.

This was the purchase of an oil asset in Yemen by PSA – for the princely sum of A$0.7M. Not surprisingly given the current carnage in the country, the asset is shut in at present.

PSA’s Board will no doubt delay the customary field trip to inspect their new asset.

Quote of the day

Chevron’s CEO John Watson on the current state of LNG markets:

“Lousy”.

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