Today’s Blog – Tuesday 12th April 2016

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Please note that blogs this week will be intermittent due to travel commitments


Perth in Western Australia this week hosts the annual top LNG industry shindig (that postman is still getting my invitations lost in the mail) – LNG 18.  Industry leaders and politicians are rubbing shoulders in the pleasant autumnal climes of Perth (sounds nicer than e.g. Doha) as the Australian industry moves from a >5 year intensive development phase to a more boring long term state.

The media has reported that the LNG industry has taken the opportunity to put the boot into its poor (and reeling on the floor) cousin, the coal industry.  Coal is of course dirtier than gas on a global (CO2) and local (particulates, heavy metals, etc) basis.  Much comment focuses on the former – but in our view it is the latter that it is moving politicians to action in the likes of China.

The Economist recently quoted a coal industry statistic from China that to us was astounding.  This was that the excess coal industry supply capacity in China alone within 2 years would be 3.3 billion tonnes per annum.  Converting that to daily oil barrels (at a conservative 3 barrels per tonne) gives spare capacity of nearly 30 mmbopd.  Current global oil industry spare supply capacity is probably around 3 mmbopd (Libya, Iran and maybe some in the KSA/Kuwait).

Which goes to show (in our humble opinion) that the oil and gas industry, despite current woes, is in a massively better secular and cyclical position than that of coal – on pure over-capacity as well as environmental terms.

Commodity prices

Oil prices have run sharply up in the last couple of days, with Brent closing overnight at US$42.83 and WTI at US$40.37.

Friday in particular saw a big rise.  Key “numbers” on that day were the weekly BHI rig count, which had a nice drop of 8 oil rigs (with a rise of one gas rig).  Other than that, the rise did not seem to be induced by any particular factor.

This coming Sunday’s Doha OPEC/Russia meeting seems to be giving greater heart to the optimists that it warrants (according to the cynics such as ourselves).

Last week we posited that a CPI linked US$3/mmbtu gas price was a “goldilocks” price.  Goldman Sachs last week also used the goldilocks analogy – for oil prices.  The vampire squid view on crude was that US$30-35/bbl would neither send the industry absolutely broke nor encourage premature investment and as such was the price that would best set up a vibrant long term.

Henry Hub has been falling while crude has been rising, closing US$1.91 overnight.

LNG and natural gas

As noted above, the LNG 18 conference in Perth is attracting media interest this week.  Not a lot of great note has emerged so far.  WA’s Premier has called upon industry to do more political heavy-lifting; industry types are trying to air-brush away their failures to collaborate in recent times (“it was the over-paid welder wot did it, not me!”); etc.

Woodside Petroleum (WPL) and Kogas have taken the opportunity to sign a non-binding MOU which promises collaboration but will likely deliver nothing substantial other than some nice trips, dinners and karaoke.  We understand what Kogas (arguably still very much a Government entity) gets out of this – but WPL?

Company news – FAR Ltd

Successful Senegal oil explorer FAR reported yesterday another hydrocarbon bearing well – and its share price fell.  The fact that the word “gas” was prominent in its ASX announcement probably did help – but arguably the larger reason was a positive that the current market interpreted as a negative – another appraisal well will now be drilled.

In rosier times that would be seen as value enhancing.  Just now it means that a capital raise might be required – cue selling.

In the medium term however, FAR is participating in what is increasingly demonstrated to be one of the best oil discoveries in recent years and when the “medium” term reversal in oil prices hits it should be rewarded (if it survives as an independent that long).

Quote of the day ususally supports left wing on-line movements – but now it is garnering signatures to oppose the secret service recommended handgun ban at the upcoming Republican convention.  The Donald uncharacteristically prevaricated on this issue:

“I’m a very, very strong person for the second amendment..[but]  I want to read the fine print.”





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