Today’s Blog – Wednesday 31st August 2016

We only have time for a short flash blog today.  Travel commitments over the rest of this week will render blogging services somewhat intermittent

Editorial

One of our Denver based followers has been first to point out overnight the contrasting regulatory positions just adopted with respect to the production of gas in Colorado – and Victoria, Australia.

The latter’s Government has continued on its path of never meeting a ridiculously right-on-Rick-from-The-Young-Ones position that it did not embrace.  It has now moved from trying to unionise volunteer country fire-fighters to promising an eternal ban on fracking and indeed any on-shore “unconventional” (define that one please – what is your milli-darcy cut-off point?) petroleum production.

Its timing can only be interpreted as a slap in the face to recent COAG calls to try and address in an adult manner various problems currently being faced by Australia’s energy markets.

Although there is little if any material private sector desire to actually explore for gas in Victoria, the bigger potential problem that could arise from this decision is the succour it will give fellow travellers in the likes of the Northern Territory, New South Wales – and horrors!  – Queensland.

Meanwhile in the “clean, green” State of Victoria, many tens of millions of tonnes of low quality brown coal continue to be burned every year – with negative side affects that are without scientific dispute – particulates, mercury, CO2, etc.

Over in Colorado, the recent attempt to put on the upcomoing State ballot an initiative that could severely limit fracking in this significant oil and gas producing State did not get enough legitimate signatures.  This story may not be over yet – legal challenges could follow.

Commodity prices

Crude prices fell overnight, with Brent down nearly 2% at US$48.34 and WTI down 1.3% to US$46.35.

Commentators noted that a strengthening US dollar and expectations of an inventory build number out tomorrow were the main bear-ish factors.  In addition, we would add that the intoxicating “OPEC whispers” of a production freeze agreement have only limited medicinal qualities and are no doubt starting to wear off.

Henry Hub also fell, down ~2.4% to US$2.83.

LNG and international gas

A recent LNG sales agreement struck between Super-Major Chevron and Chinese downstream gas company ENN has resonance in Australia for a couple of reasons.  The deal is a 10 year one, for ~650,000 tpa, commencing in 2018/19.

Chevron will source the gas from its portfolio of un-contracted LNG – including from Gorgon and Wheatstone.

ENN is Santos’ largest – and arguably only strategic – shareholder (with a ~12% stake).  This deal illustrates the kind of international vertical integration strategy which presumably drove ENN to take up its stake in STO within the last year.  What this means for STO remains obscure – but is of more interest to this observer than what the current “cash costs per barrel” of the company are.

Company news – Beach Energy (BPT)

BPT released its annual results this week and its new CEO took the usual opportunity to write-off some of his predecessors’ poorer investments.  One of the largest of these was a >A$200M write-off of its Cooper Basin tight/shale gas contingent resources.

The expected expansion of US shale plays globally has severely under-shot to date – with low prices being a major but not the only material factor.  Geology, service sector availability – and good-old US oil-field can-do culture – being other significant issues.

Quote of the day

Rick from The Young Ones could supply the Victorian Government with more policy inspirations with the likes of the following enthusiastic quote:

“Yeah, this will shake them up at the Anarchists Society! Occupying the refectories! So what? This is the real stuff! I’m a fugitive! A desperado! I’m going to form a new union society, right? With me as president! ‘People Who Don’t Pay Their TV Licenses Against the Nazis!’ This is only the beginning!”

 

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