Today’s Blog – Friday 30th September 2016



Wednesday’s Statewide power outage in the blog’s home state of South Australia has led to a massive outpouring of ignorance and prejudice on energy matters in general, with the event providing a widely welcomed opportunity to prosecute one’s preconceived ideas.  And now it is our turn….

The event was in reality relatively minor – a 6 hour blackout caused by a 1 in 50 year weather event – and was handled very well by the technical people in the electricity industry who undertook an unprecedented “black start” of a whole State’s power network.  In a year’s time the outage will likely be forgotten.

Politicians and media commentators – with social media providing its usual amplifying effect – are blaming renewables, privatisation, under-investment, etc, etc, depending on their starting preconceptions.  In this instance, South Australia’s very high renewables penetration  had zero causal links to the issue.

From an oil and gas industry point of view, the event had little lessons to give.  Gas fired power stations were as shut-in as wind-farms.

The Federal Government is using the opportunity to push the States to consolidate their individual renewables schemes (which in most cases are just sound bites not policies) and that is common sensical.

As we have said before:

  • South Australia has a high penetration of wind farms because it is windy, not because of State based policies.
  • The State’s only coal fired power plant was shut in earlier this year because its coal source was economically exhausted and the asset was a poison pill for its PE owners plans to sell out.
  • Gas fired generators need deliverability of gas supplies to balance the system out – provided by high pressure reservoirs and gas storage.
  • Gas’ flexibility rather than its volumetric contribution will increasingly be its selling point.

Commodity prices

Oil markets on Wednesday reacted very favourably to unexpected news from the unofficial OPEC meeting in Algeria – a so-called “agreement” to go beyond previous chatter about a freeze and instead institute actual “cuts” of 200,000 – 700,000 bopd.  However, no-one put their hand up to be the cutting party…..  The official November meeting is supposed to resolve that – we shall see.

Whether this is the start of real cutting moves – which would likely have to be borne by Saudi Arabia – or is just the replacement of OPEC Ice with the even more potent OPEC heroin in order to juice markets up for another short while – remains to be seen.

To us Wednesday brought some potentially more interesting – but duller – news on the “numbers” side of the market.  This was the 4th week in a row of material US crude inventory reductions – of 1.9 mmbbls (with net gasoline/distillate only building by 0.1 mmbbls).  The gnawing away at crude in tanks – likely in an uneven fashion but proceeding in a liquidating direction – is what will bring markets back to balance and raise prices to a level to incentivise exploration and development.

Saudi Arabia was also in the news for another reason on Wednesday.  The US Congress over-rode the President’s veto of a bill designed to allow US citizens to sue the KSA over its alleged involvement in 9-11.  One consequence of this might be to put another hurdle in the way of the proposed IPO of Saudi Aramco  – would it list in New York for instance now?

Henry Hub continues to oscillate around US$3 and closed at US$2.96 overnight.

LNG and international gas

A few snippets from the LNG world:

  • Jamaica has just joined the growing ranks of countries using FSRUs to import gas.  The vessel involved is considerably smaller than most and its deliverability capabilities match a small-ish electricity generator that has been converted from distillate to gas.
  • Japan’s  JERA has used its growing flexibility of contractual rights to deliver LNG cargoes to a different destination for the first time – diverting a tanker to South Korea.
  • The Petronas led Pacific Northwest LNG project in British Columbia has procured a key Government regulatory approval.  However, we think this project remains challenged in terms of moving to FID any time soon.

Governments, fracking, etc

The potential slow motion delay of BP’s drilling in the South Australian Bight (which might just suit BP fine) continues, with further delays in the regulatory process just announced.

Potential disruption

The Paris motor show opens today – and the hottest items are an array of new electric vehicles from a wide range of manufacturers, including heavyweights such as Volkswagen and Mercedes – who at the very least see they need to hedge against well funded and “driven” new entrants such as Tesla, Google, Apple, etc.

The oil and gas sector also needs to hedge against such potential disruption – but its fiscal woes and focus on immediate cost cutting, etc, has left it with little time and strategic space to do so (outside some efforts – arguably on the margin only – by the likes of some larger players such as Total).

Company news

Again not much is happening in Aussie oil and gas company land.  Stock prices received a welcome fillip yesterday in response to the OPEC heroin shot – otherwise not much is being announced.

Quote of the day

Another one from Tony Seba’s book Clean Disruption:

“The lines between the auto industry, the energy industry and the electronics industry are blurring.  These lines will soon be non-existent.”



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