Today’s Blog – Friday 12th August 2016

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


Australia’s financial press is today dominated by the news that the Federal Treasurer has blocked the two “Chinese” bidders for New South Wales’ Ausgrid electricity network asset on the grounds of national security concerns.  Doing so for SOE China State Grid Corp is understandable, albeit the process should have been far better handled.

Doing so for HK listed Cheung King Infrastructure – an investor in Australian power assets for nearly two decades – is far more puzzling.  We can only conclude that Scott Morrison felt he needed to treat all Chinese companies as equally being controlled by the devilish Dr Fu Manchu – sheer pandering to the idiot populists of various stripes who now hold balance of power positions in the Senate.

Potential implications for Australia’s oil and gas sector:

  • Chinese NOCs hold material stakes in Queensland LNG assets.  These are presumably long term investments and are unlikely to be disturbed.
  • Potential bidders for companies such as Woodside and Santos are now less likely to include the NOCs – therefore reducing any theoretical takeover premium due to a diminution in potential competition.
  • Non Chinese asset acquirers may face problems as the Treasurer may feel a need to block a deal with say a US company just to show he is not anti-Chinese.
  • Oil and gas companies seeking to sell infrastructure assets such as pipelines, liquefaction plants, etc, will see less competition for these and all things being equal receive reduced prices.

Commodity prices

The still ongoing power of Saudi Arabia to move crude markets was shown overnight – with a remark from the Kingdom’s Oil Minister about possible discussions later this month in Algeria to “stabilise prices” boosting crude by ~5%.

Brent closed at US$46.04 and WTI at US$43.49.

An interesting study issued today by think-tank Beyond Zero Emissions examines the potential cost of moving Australia’s vehicle fleet to 100% electric vehicles within 10 years – and concluded this was actually feasible.  In  practice the momentum in massively sunk cost energy systems is enormous, so absent a war type environment we can’t see this happening.  But perhaps this type of threat might inform the KSA’s current “pump flat out” strategy – it would not want to be left with massive reserves post the “oil age” and could be mindful of the following well known adage from its Oil Minister Sheik Yamani:

“The Stone Age did not end for lack of stone, and the Oil Age will end long before the world runs out of oil.”

Henry Hub traded down nearly 1% to close at US$2.55.

LNG and international gas

Japan’s largest LNG buyer – Jera – arguably the most significant actor (possibly with Korea’s Kogas) on the demand side of LNG markets – has made another blunt statement about what it will accept in LNG contracts going forward.  This time its target is contract term – it is aiming to materially shorten contract lengths across its large portfolio.

That will challenge the traditional financing model used for greenfields LNG projects.  In competitive terms, this type of move should favour brownfields expansions – and possibly also favour smaller FLNG ventures.

Ultimately LNG developments should go the way of large crude developments – offtake is not guaranteed for decades – but parties are happy they are selling into a deep and liquid market.

Company news – FAR Ltd

The pre-emptive rights that FAR has over Woodside’s purchase of Conoco’s equity in its Senegalese joint venture are a matter of acute interest for its investors.  In the absence of any news of how they might operate, speculation is rife as to their term being 30 days or a longer period.  30 days seems to expire tomorrow.

However, even if this happens, FAR may not disclose this fact if it is pressured (bullied?) by its partners over confidentiality of contract matters.

Company news – Woodside Petroleum (WPL)

WPL’s non-operated Wheatstone LNG project in Western Australia appears to be facing major new cost over-runs, based on reporting on its operator partner Chevron by third parties such as Wood Mackenzie.  WPL is no doubt waiting for formal numbers delivered through a joint venture process before it advises the market of any details on this issue.

Company news – AGL

AGL today announced that its long term electricity hedges with the owners of Victoria’s Portland smelter had started a legitimate contractual termination process.  AGL noted that it expected the smelter to keep operating.

However, others might see this as a sign the smelter will shut down.  If it did, its load is large enough to affect electricity markets in Victoria and beyond, with implications for large coal fired power station closures.

Quote of the day

Legendary investor Marc Faber (author of the Boom, Gloom and Doom Report) recently stated his blunt bearish judgement on the Tesla phenomenon (which is exciting the likes of the think tank noted above):

“I think Tesla is a company that is likely to go to zero eventually.”




Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s