Today’s Blog – Wednesday 22nd June 2016

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Blogs this week may be shorter than usual due to travel commitments


Relatively recently the Panama Canal formally confirmed its greater capacity to take ever larger ships including newer generation LNG vessels.  This allows US Gulf of Mexico liquefaction plants owned by the likes of Cheniere Energy to more cost effectively access Pacific LNG markets – and add to the factors linking together the previously largely separate Atlantic and Pacific LNG markets.

We recently came across another development to the South of Panama which also links the two markets – albeit in a different direction.  This was news of LNG being landed in Chile and then pipelined over the Andes to Argentina.

The latter has gasification capacity (in the form of a FSRU) in the Atlantic, but that is working full tilt and the country’s land-based imports from Bolivia are currently constrained. So instead of burning diesel it is importing Pacific LNG via Chile, hence reversing the direction of pipelines that historically supplied Argentinian gas to Chile.

Argentina is said to be paying ~US$7/mmbtu for its Chilean gas – a large premium over Pacific LNG spot prices – but a large discount over its alternative diesel costs.

Free markets in action, delivering win-wins, doncha just love it!

Commodity markets

Crude continued to rise overnight, as Brexit risks continued to be down-graded. It was WTI’s turn to break through the US$50 mark, closing at US$50.20.  Brent continued to inch up as well, closing at US$50.87.

If a Brexit “leave” vote does in fact occur on Thursday – ouch! – there will be blood all over the place.

An indirect challenge to the “US$50 is the anti-goldilocks pricing level” recently came from research from well-known US maverick oil and gas analyst, Art Berman.  In his view, the best of the US tight oil plays in the Permian Basin have a break-even price of US$60 and material new drilling before that would not be logical.  However, we would note that US independents have not necessarily been Dr Spock clones in e.g. drilling for natural gas for years at sub-economic pricing…

Henry Hub inched up 1 cent to close at US$2.76.

LNG and international markets

The Wall Street Journal reported a few days ago on the ongoing coordinated efforts by “Japan Inc” to make its LNG supplies cheaper and more flexible.

To the unlikely sound-track of Twisted Sister’s “We’re not gonna take it anymore!” (at least in the head of this blogger), the country’s utilities – firmly backed by the Government, including through indirect financial support, are pushing back on decades old contractual rigidities and crude price linking.

UK based energy commentator, Jonathan Stern of the Oxford Institute of Energy Studies, noted the flow-on consequences of these moves by the long time kings of the LNG demand side:

“Japan will never again be paying vast amounts more for its gas … that could eventually transform the underpinnings of the entire LNG market.”

Company news – Origin Energy (ORG)

The Australian Financial Review noted today that the succession plan for ORG’s long time CEO, Grant King, was gaining momentum and could deliver an outcome next quarter.

Not surprisingly, it noted that finding a candidate with skills in both of the company’s LNG and downstream energy utility businesses was proving difficult.  Who would have thought it!

Company news – Sundance Energy (SEA)

A few week’s ago we commented upon a capital raise undertaken by SEA – which appeared to be largely to be used to shore up its rather debt heavy balance sheet.  However, SEA has not been able to pass-up a bargain and has today announced the purchase of 3 mmboe of 1P reserves (in acreage operated by SEA in Texas’s Eagle Ford shale) – half of which are PDPs – for US$16M.

A few years ago, a metric of ~US$5/boe for 1P boes would have been seen as sensational – like Russian not US prices. However, the market has today marked SEA down – debt fears seemingly prevail.

Quote of the day

Some serendipitous news stories today out of Australia and the US. On the one hand AGL is offering electric car charging services for A$1 per day.  On the other hand Elon Musk is merging Tesla with Solar City.  The exuberant Mr Musk on Tesla’s competitive position in the emerging new energy world:

“At this point we have quite a good understanding of all the battery technologies in the world”




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