Today’s Blog – Tuesday 15th April 2016

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Russian energy news agency Interfax recently reported that the Thai Government had announced plans to curtail domestic gas production – and replace it with cheap LNG imports.

As we have reported recently, LNG spot prices in Asia are at sub US$5/mmbtu prices – i.e. effectively “free” gas when liquefaction costs are taken account of.

The Thai policy is one orchestrated by a Government.  Australia however has a laissez faire energy industry (and Governments that have had a woeful performance in encouraging private sector participants to act rationally over issues such as the multiple Gladstone LNG plant fiasco).

Notwithstanding these differences, the same arbitrage exists in Australia today – that is, it is arguably currently cheaper for gas buyers to source spot LNG and import it near demand nodes (if gasification plants existed) than pay the high prices domestic gas suppliers are seeking (and which most of them need to pay for high cost production).

If blog followers want to club together, we could readily set up a new company called Sydney Harbour Floating Gasification Ltd………

Commodity prices

Crude prices retreated on Monday following the near 6 week mini bull run we have seen recently – arguably as the reality of continuing large inventories and oversupply was faced (or at least peaked at between splayed fingers).

Brent closed down ~2% to US$39.56 and WTI dropped slightly more (~3%) to US$37.28.

The storied OPEC and Russian meeting to freeze production that was supposed to take place on the 20th March in Russia has now been postponed – to April in Doha, according to the Russians.

Not surprisingly (to us anyway), the Iranians continue to stick to their position that they will not freeze at sanctions level production whilst others freeze at all time production highs.

Henry Hub was flat at US$1.82.

LNG and international gas

The once booming US liquefaction industry has gone pretty cold recently, as global LNG over-supply sets in.  The projects that have been FID’ed will continue – and worsen that over-supply position.  Pre-sanction projects will likely remain in that position for some years to come.

This was emphasised by a recent regulatory decision from FERC in Washington over an Oregon based LNG project.  Basically FERC refused to grant compulsory acquisition powers to the project for its plant and pipeline – for the simple reason that the project had no customers lined up.

Company news – Origin Energy (ORG)

The Australian Financial Review (AFR) continued today what we recently called the ever-louder “drumbeat” over the break-up of ORG between its upstream and downstream business units.  As we noted, when everyone starts to think something should happen, then it usually does.

The AFR quoted analysts from UBS as mooting the potential IPO of ORG’s APLNG business.  An IPO rather than an in-specie distribution of shares in this company would address the issue of “too much debt” within ORG.

As would a sale of APLNG to an industry player.  ORG’s investment bankers must be rubbing their hands with glee….

Company news – BHP

The Australian newspaper contained an interview with the new head of BHP Petroleum on Saturday.  That interview confirmed one of the common themes of US tight oil just now – that new production efforts would come back on at different pricing points depending on the quality of the resource (with US$40 for BHP’s best acreage and US$50 for its broader Permian acreage).

However, BHP has a balance sheet that is rather bigger than the majority of US tight oil players, who would need external financial support for material re-start efforts – in a context of financiers feeling pretty burnt by the sector.

Company news – FAR

The exploration news keeps coming for what is just about the only major exploration success story by an ASX listed E&P company just now.  FAR has announced the spud of BEL-1 off Senegal – the well has both delineation and exploration goals.  News from the well will be kept tight.

Company news – Oil Search (OSH)

OSH announced today that a reserves certification process had commenced with respect to the Elk/Antelope gas-field in PRL 15 in PNG.  This will be very closely watched, as it has performance payment and takeover implications for OSH partner InterOil – as well as for broader LNG development and consolidation scenarios in PNG.

Reflecting this importance , two sets of auditors have been engaged – Gaffney Cline and Neverland Sewell.

Quote of the day

One of the more famous movie star quotes:

“I want to be alone”.  Greta Garbo

Now echoed by the Garbo-esque Iranian Oil Minister Bijan Zanganeh:

“They should leave us alone”.

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