Today’s Blog – Friday 5th July 2016

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A few media stories have been aired today about a recent speech by head of Shell in Australia, Andrew Smith, which contained some blunt views on how the industry, its regulators and various Governments, are currently poorly performing on the energy policy front.

Mr Smith is managing to build a profile as the de facto leader of the big end of the petroleum industry In Australia – aided both by Shell’s strong role (only vying with Chevron) as one of the largest Super-Majors in Australia – and various factors which have muted the voices of the heads of the Australian energy companies (e.g. Origin going through a lengthy leadership change; Santos’s new CEO keeping a low profile and focusing on cost cutting; Woodside’s boss not being naturally flamboyant and being focused only on the West; and, Oil Search’s more flamboyant leader focusing on PNG not Australia; etc).

Given Shell’s leading position in Queensland CBM, long term history with Woodside, the forthcoming Prelude FLNG commissioning, etc, it has a broader position than Chevron, which is solely focused on LNG in Western Australia.  Plus Smith is an Australian, unlike the Chevron leadership.

Mr Smith has focused on the following areas for improvement:

  • Opening up onshore gas exploration and production in New South Wales and Victoria (although in our view the prospectivity of the latter is low – and capital markets would not fund junior led exploration at present, even if Governments got out of the way).
  • Liberalising pipeline access (ouch! say APA, Jemena, etc – and they will fight their corner for longer than the ACCC will push for change).
  • Promoting gas more vigorously as the mechanism to be used to balance out increasingly volatile energy markets – and replace brown coal in electricity generation.
  • Educating people that energy choices – particularly with respect to renewables – lead to inevitable higher costs – but that society can afford them and they are inevitable.

We look forward to following Mr Smith’s growing leadership of the sector – both as an advocate – and potentially in business areas such as asserting a role as King of Curtis Island and driving synergies there.

Commodity prices

The rebound continued overnight, with crude up again nearly 3%.  Brent closed at US44.29 and WTI at US$41.93.

The drivers of the day appeared to be partly “technicals” based (the market moved above its 200 day rolling average); partly as shorters closed out positions; and, partly aided by “numbers” from Cushing which showed an inventory draw at that key location.

Henry Hub was flat at US$2.83.

LNG and international gas

Bloomberg recently reported on another traditionally staid Japanese utility driving the liberalisation of global LNG markets.  This was news of Tokyo Gas negotiating LNG swaps with European buyers – whereby it would supply them with cargoes from the US and they would in turn divert cargoes from e.g Qatar to Japan.

Also from a once thought of conservative force – India – further support from the Government to re-open LNG contracts, with the following recent quote from Oil Minister Pradhan:

“We have asked the companies to renegotiate the LNG deals wherever there is a possibility.”

Company news 

Not much happening on the company front yet again.  The widespread “NFE” exploration strategy that we quoted yesterday does not help.

Quote of the day

The current booming gold market and contrasting gloomy view on oil and gas companies reminded us of the following words of wisdom from Warren Buffett:

“I will say this about gold. If you took all the gold in the world, it would roughly make a cube 67 feet on a side…Now for that same cube of gold, it would be worth at today’s market prices about $7 trillion dollars – that’s probably about a third of the value of all the stocks in the United States…For $7 trillion dollars…you could have all the farmland in the United States, you could have about 7 Exxon Mobils, and you could have a trillion dollars of walking-around money…And if you offered me the choice of looking at some 67 foot cube of gold and looking at it all day, and you know me touching it and fondling it occasionally…Call me crazy, but I’ll take the farmland and the Exxon Mobils.”

We suspect that the gold cube would now buy even more Exxon Mobils.

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