Today’s Blog – Monday 20th June 2016

Please pass this blog on to others who might like to read it

We are again on the road this week, so blogs may be shorter than normal

Editorial

Last week Bloomberg New Energy Finance issued a very bullish report on the long term future for battery technologies – at household and utility scales.  If correct, this will be highly disruptive for the traditional energy utility model which has prevailed for around 100 years – which the utility incumbents in the likes of Australia are increasingly recognising.

What does this potential trend mean for the oil and gas sector?  Currently much of the upstream industry in Australia is so wounded by falling commodity prices and over-leveraged balance sheets that taking a long term strategic view on this sort of thing can be challenging at best.

Internationally, the stronger are however making bets – including Total investing >US$1B to acquire in a battery company recently – and last week adding to this through the acquisition of a Belgium based energy retailing company.

The Bloomberg research sites statistics noting that >90% of current energy storage facilities are pumped hydro storage.  We think this uses an overly narrow definition of what energy storage is.

A lot of highly deliverable energy – in the form of natural gas – is stored in depleted reservoirs and salt caverns and plays a greater role in matching energy supply and demand than does pumped storage. The E&P sector in Australia is well placed to do more on developing this capability – either internally or by farming out/vending/etc assets to more focused players.

Commodity prices

Oil prices leapt on Friday, as apparently an imminent weekend had traders considering a destabilising Brexit vote this week was now less likely.  Crude was up ~4% on the day, with Brent closing at US$49.17 and WTI at US$47.98.

This bullish market managed to shrug off what was otherwise a fairly disturbing weekly rig count report from BHI. This showed gains for a third week in a row – arguably not a statistical aberration – with oil rigs up 9 and gas rigs 1.  In isolation, this data point would seem to confirm the theory that US$50 oil is the anti-goldilocks pricing point that brings back activity too soon in the commodity price cycle.

Henry Hub gained nearly 2% on Friday, closing at US$2.62.

LNG and international gas

Some scary news last week for LNG suppliers – a move by India (led by private company GAIL) to try to form an LNG buying group with South Korea, Japan and China (i.e. nearly all the Pacific LNG demand).

From time to time comments emerge about the possibility of a gas OPEC being formed.  This proposal would however be a buyer’s OPEC – in Australian terms a full-blown Coles/Woolworths agreement to screw suppliers.

Suppliers will hope that – as OPEC proves – running a cartel is very hard – particularly when Governments with different agendas (and amongst the above list, enduring hatreds) are involved.

Company news – AWE

AWE has sold its late life oil assets in the near-offshore Perth Basin to junior Triangle Energy (TEG).  This is the second time it has sold these assets – a previous deal with Exoma Energy fell through due to a lack of funding.

TEG states it has the cash of A$3.2M required to close this deal.  However, the petroleum regulator in Western Australia should be concerned about a strong-ish party like AWE leaving material abandonment liabilities to a micro-cap like TEG and may require a hefty bond posting – or even just block the deal.

Quote of the day

A bear-ish statement from someone who is normally a technology bull:

“Storing energy turns out to be surprisingly hard and expensive…and it would triple your electricity bill.”- Bill Gates, February 2016

 

 

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