Today’s Blog – Monday 15th February 2016

Please pass this blog onto others who may be interested

The blog this week may be intermittent and/or short due to travel

Introduction

Across the world it is easy to dig up stories that support the consensus view that we are currently “drowning” in oil.  Nuggets of information or analysis to support a different view are harder to find – so in the spirit of independent thinking and counter cyclicality, we will outline a few this week, starting with the following.

Iran (as represented by its NOC) has postponed an energy summit due to be held in London later this month. The purpose of the conference was to be a showcase for investors looking to come into (or back to) the country to assist it in developing its very substantial petroleum resources.

The delay is no doubt an 0n-the-surface manifestation of ongoing tensions in the country between liberalisers and those who benefit from the status quo.  Accordingly, the emergence of the mooted additional 0.5 to 1 mmbopd of Iranian oil in coming months is not as certain as the market may think.

Commodity prices

Friday saw a sharp upwards kick in oil prices – closing out a very volatile week.  Brent was up ~8% on the day (but down ~4% on the week) at US$33.36 and WTI was up ~7% at US$29.44 (but again down ~4% on the week).

The drivers this time were some comments from the UAE’s Energy Minister about potential OPEC cooperation over supply cuts (note to the market – is he from Saudi Arabia? – no – go back and recite the golden rules).

Some solid “numbers” from the US also helped – the weekly BHI rig count again showed a large cut – of 28 oil rigs and 2 gas rigs.

On rigs, last week US tight oil specialist Pioneer Resources announced it would reduce its rig fleet operating in the Eagle Ford shale to a big fat round zero.  Now its only drilling going forward will be elsewhere in Texas – in the Permian Basin (and even there it was cutting its rig count).

Henry Hub fell ~4% on Friday – closing at US$1.97, as fair weather in the US continued to drive much smaller than normal gas storage  with-drawals.

LNG and international gas

We have reported on this before and last week some new media reports echoed this – the reduction in capital spending by Gazprom on its massive Power of Siberia pipeline to China.  This year only a lousy ~$1B is to be spent on this.

That won’t pay for much, even allowing for ultra-low environmental, etc, management issues to be addressed compared to Western equivalents.  Deliveries in 2018 now seem extremely unlikely.

Also, no material expenditure appears to be being made on the other Russia/China gas pipeline – the Altai pipeline intended to take largely already developed Western Siberian gas to China.

Governments, fracking, etc

The extensive legions of Californian lawyers will have been a bit disappointed last week – the gas leak (that we have reported on before) from an underground gas storage asset is now close to being capped.

An intervention well has now reached its target and concrete is being pumped (“wait a minute, isn’t that stuff carcinogenic or otherwise deadly if inadvertently inserted into boots before being pushed off a boat”?)

Company news – Origin Energy (ORG)

ORG reported on Friday that it had sold an electricity infrastructure asset that connects its Mortlake Power Station to the Victorian grid.  The sale price is $110M and is part of a wider divestment program currently under way within ORG.

The disposal reflects a classic current arbitrage between different costs of capital for different industry sectors – with the buyer being a low yielding infrastructure fund and ORG currently being a somewhat distressed merchant and upstream energy company.

ORG also advised the market on Friday that from now on it will report its results in basically only two internal sectors – quite simply, downstream and upstream.  In our view this will clarify the ability of the market to compare the former to the currently highly priced AGL – and therefore lay more ground work for the option to split the company up.

Quote(s) of the day

Is it the curse of the blog?  It seems that no sooner do we call Marco Rubio as the favourite for the US Presidency, then he stuffs up – as pointed out by rival Chris Christie in the pre-New Hampshire debate:

“There it is.  There it is.  The memorised 25-second speech. There is it everybody.”

He seemed to recover in the subsequent pre-South Carolina debate, but as The Economist noted yesterday about that event:

“..amid all the hypocrisies, slanders and lies, a few truths were uttered…….Mr Kasich, who in one of his outbursts of folksy reasonableness said: “I think we’re fixing to lose the election to Hillary Clinton.”

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