Today’s Blog – Thursday 17th March 2016

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Introduction

Yesterday we reported on the ongoing withdrawal of financial sector support (or at least grand-standing to that effect) for the oil patch’s fossil fuel cousin and rival, the coal sector.

This was reinforced by yesterday’s SEC filing from US coal company (we were going to say “global giant” – but the second word is no longer apt) Peabody Energy.  Peabody advised the market that there were doubts it could continue as a going concern and it may have to shortly go into Chapter 11 administration.

Again the question is begged – damage to the primary sectoral competitor to natural gas – or a preview of things to come for oil and gas companies if a “lower for much longer” oil price scenario plays out?

Commodity prices

It was a case of Return of the Bulls yesterday, with sharp rises in both London and New York, as Brent closed up ~4% to US$40.33 and WTI closed up even sharper (~5%) to US$38.46.

The weekly EIA inventory report announced a lower than forecast crude build of only 1.3 mmbbls and a gross product (gasoline and distillate) draw of 1.8 mmbbls.

The on again/off again meeting of OPEC and Russia is now on again – due to be held in Doha in Qatar on 17th April (rather than in Russia this time – what is it with these meetings and dodgy FIFA World Cup venues?).

We reiterate our view – freezing at maximum production rates whilst Iran continues to build exports – means nothing for markets with long inventories that continue to rise.

Henry Hub was up a point at US$1.87.

LNG and international gas

An apt phrase has emerged from a recent LNG conference in Singapore reflecting the current over-supplied market – “homeless LNG“.  This represents the un-contracted gas that producers could put through their liquefaction plants – but for which there is no demand at the prices producers want.

Australia’s mega Gorgon project currently has this issue – operator Chevron is trying to sell gas outside its contracted volumes – but reports are that potential buyers in China are only contemplating purchases at prices well below contract prices.

Chevron and partners therefore face the risk of aiding and abetting their contracted off-takers demanding lower prices based on a falling spot market.

Governments and fracking, etc

News just in from Brisbane has jumped the proverbial shark of ridiculous anti-fossil fuel policies.  Majoral candidate Rod Harding has announced his plans to with-draw council bank deposits from banks which finance fossil fuel companies (err, that would be all of them – cash to be stashed under the mattress?).

And apparently this will slow climate change and reduce floods in Brisbane.  Ahh – good old cause and effect there.

Harding is an ex Macquarie Banker – so either their recruitment standards are laxer than the media would lead one to believe in that they hire blatant idiots – or this is a display of utter cynicism from someone who should know better.

Company news – Petronas

Malaysia’s NOC (and large investor in e.g. Queensland’s GLNG project) Petronas has just demonstrated its increasingly political rather than business orientation – by sacking ex Prime Minister Mahithir Mohamad as one its advisers.

Paul Keating may have called him “recalcitrant” – but he would seem a pretty well connected and influential person to have around a company like Petronas.

This follows Mahithir’s increasing criticism of current PM Najib “Father Ted” Razak.  The Economist reported last week that the extent of the “resting”/missing funds from Malaysia’s current scandal is now in the region of US$4B.

Company news – AWE

AWE has announced today that it has completed the sale of its Eagle Ford assets for US$190M.  Unfortunately the pesky US Government gets a share of this – to the tune of $33M in tax – with no offset of losses from elsewhere possible or creation of franking credits for AWE shareholders.

Quote of the day

An imprecise, but revealing, statement sourced from the recent Singapore LNG conference:

“Everything is quite questionable.  With LNG, it’s even worse.”   

Tatiana Mitrova, head of the oil and gas department at the Energy Research Institute in Russia

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