Today’s Blog – Tuesday 16th August 2016

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Editorial

Yesterday we reported on Santos’ (STO) US$1.5B write-down of its Queensland based GLNG asset.  The reasons for the write-down were said to include a less than expected production from GLNG’s own gas-fields (due to a lack of funds?) and a higher than expected cost of third party gas required to meet downstream LNG supply obligations.

This problem for STO led one eagle-eyed reader to point out that to this blog that STO had effectively moved from being long Australian gas over a multi-decade period to now being short gas.

And much worse for it – when it was long gas prices were low, now it is short gas prices are high….Schadenfreude all round, anyone?

The logical thing for STO to do would now be to join downstream lobby groups such as the Gas Users Group, Manufacturing Australia, the Domgas Alliance, etc.  It is in the same position as an industrial company like Incitec – it has to buy increasingly expensive Australian gas in order to make a product (LNG in its instance) whose international price has been falling.

But logic takes time and STO is likely to still consider itself an oil and gas producer rather than net consumer for some time.

Commodity prices

Crude is continuing on its good run following various half-baked statements from OPEC countries and officials.  Brent was up ~2.3% to close at US$48.04 whilst WTI rose even further (by 2.7%) to close at US$45.71.

Remind anyone of Doha earlier this year anyone?  At times like this the oil market is reminiscent of the French Royal House of Bourbon:

“They had learned nothing and forgotten nothing.”

Henry Hub closed flat at US$2.59.

One potential tiny but interesting sign of life in oil markets – further ahead than the proverbial bowl of fruit coming back – was noted by your correspondent on Facebook last night.

This was a list of sponsors for the annual Dunecht House Golf Club open day (note to those few readers not familiar with this location – it is near the North Sea oil capital of Aberdeen and owned by the Pearson family whose vast fortunes were founded in the Mexican oil patch over a 100 years ago – when onshore wells could be located without seismic and flow ed at 100,000 bopd).

Amongst these sponsors – which included Jaffs Bar, Dunecht 4*4 and Nevada Bobs Scotland – was one not so small oil company called Apache Corporation.  Such a sponsorship effort in these times is either a herculean effort by an employee with access to a budget – or (hopefully!) a small canary in the coal-mine tweeting that the days of fruit bowls, golf tournaments and other largesse could be sneaking a comeback.

If they are, my consulting services are available on very reasonable terms and I like to play golf.

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LNG and international gas

A recent story from the US gas patch which could have resonance for the situation apparently emerging in Queensland.  This was news that once mighty Chesapeake Corporation has just sold its Barnett shale assets for effectively zero or worse.  This price reflected a need to get out of onerous long term commitments for pipeline haulage – which it had to partly pay out US$100Ms for – and partly pass onto the new owner of its gas reserves.

The analogue with Queensland is that finding a large amount of gas resources led in both locations to the view that high prices would endure – leading to confidence to invest in long term commitments (pipeline leases versus liquefaction ownership – they are economically the same).  Prices fell but obligations did not – result: a nasty squeeze.

Governments and fracking, etc

The upcoming Northern Territory election seems likely to be won by the Labor Party – who has announced a policy of making renewable energy 50% of the Territory’s energy supplies within 14 years.

Given: its isolation and lack of connectivity with other markets; ultra-low population density; there is no gas storage; battery technology is immature and 14 years is a short time; it is poor; etc – this policy will have around zero chance of being implemented – but unfortunately will give cover to introducing a fracking moratorium( (“why do we need gas when we will 50% renewables soon?”)

Quote of the day

Amongst the recent verbiage around OPEC, etc, cooperation, we are also seeing a re-run of the noise about Russia joining the party.

Check out the following from Russia’s energy minister Novak, for an all time classic game of bullsh*t bingo:

“With regard to the cooperation with Saudi Arabia, the dialogue between our two countries is developing in a tangible way, whether in the framework of a multi-party structure or on a bilateral level.  We are cooperating in the framework of consultations regarding the oil market with OPEC countries and producers from outside the organization, and are determined to continue dialogue to achieve market stability.”

 

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