Today’s Blog – Tuesday 11th October 2016

Editorial

Last week we highlighted the potentially massive (> 2 billion barrel) crude oil discovery made in Northern Alaska by PE backed Caelus Energy, noting that this could be one of the largest discoveries made in recent years.

That ranking however ignores the year-in-year-out reserves added in Saudi Arabia (and indeed in other lesser OPEC countries) – where annual production is miraculously exactly matched by new reserve adds.  In the case of the KSA that is nearly 4 billion barrels per year – take that Caelus!

Cynics who have long doubted this remarkable reserves adding process will be intrigued by press comments a few days ago from the CEO of Saudi Aramco that it would be the whole company that would be IPO’ed – not just the downstream part (as many have expected).  Any IPO on a respectable exchange like New York would have rigorous reserves disclosure requirements which could finally shine some light on this fundamental issue for long term oil markets.

Whether this recent statement is just meaningless noise or a real plan remains to be seen – and as we noted a couple of weeks ago, new laws in the US to allow victims of 9-11 to sue the KSA might mean that New York is not an attractive listing destination.

Commodity prices

The current bull run continues. Last week crude rose by 3% – largely on the back of good inventory numbers and news of a potential OPEC production cut.  Overnight a further rise of nearly 3% occurred again – with Brent closing at US$53.14 and WTI at US$51.16.  This was the highest price in New York for over a year.

The fuel for this was Russia’s indication it could join in the OPEC freeze (we note that Russian production hit a 30 year high recently – a good place to start a cut from), with Putin saying: “Russia is ready to join the joint measures to cap production and is calling for other oil exporters to join.”

Henry Hub is doing even better than crude – up 10% last week and 2.5% overnight (closing at US$3.27).  Gas inventories have reduced over a warm summer to be pretty close to historical norms – a cold winter and growing exports would likely generate even higher prices.  A counter-cyclical indicator of this potentiality was BHP announcing it had started to hedge in its US gas prices.

LNG and international gas

Those free-wheeling Japanese are at it again in the liberalising LNG market – doing things that would have been unheard of in the staid old LNG club – with the latest being a potential inter-ocean swap.

The CEO of Tokyo Gas has just flagged that his company is looking into swapping gas it has contracted for from Gulf of Mexico suppliers for supplies in the Pacific region.  Companies like Shell and BP would have the global LNG portfolios to facilitate such a trade – no doubt for a decent profit – and could see the merits in taking such a profit rather than trying to sustain the ancien regime, Canute style.

Disruption

BHP issued a presentation today summarising where the company is at post the COP 21 “treaty”.  One interesting quote therefrom was somewhat counter to a recent blog from the company which was cynical about the threat to crude oil demand from electric vehicles (EVs), as follows:

“Battery technology continued to improve while costs declined, suggesting that in the longer term EVs will be cost competitive with internal combustion engines and this technology may ultimately be applied at a larger scale.”

On the EV front, Russian mining giant Rosatom announced last week that it would review opportunities to invest in lithium ventures in Chile.  Although we do not claim to be geologists on this blog, we find it hard to believe that there would not be significant lithium prospectivity in Russia itself.  Perhaps executive in Rosatom might have more fun visiting the delights of Santiago rather than Siberia……

Company news – Origin Energy (ORG)

ORG has just announced that its APLNG venture in Queensland has produced the first cargo from its second LNG train.  Our layman’s view is that the downstream performance of the Curtis Island trains appears to have been solid through their commissioning phases – particularly in comparison to rivals such as Gorgon LNG.  But that is a purely engineering assessment – there could well have been an economic trade-offs.

Quote of the day

Warren Buffett appears to have attracted the ire of the somewhat less successful billionaire The Donald during yesterday’s Presidential candidate debate.  This was foreshadowed by the following quote delivered at the Berkshire Hathaway AGM earlier this year:

Question from audience: “Will Berkshire suffer due to Buffett’s support of Hillary Clinton?”

Buffett: “that won’t be the main problem…..”

 

 

Leave a Reply

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

WordPress.com Logo

You are commenting using your WordPress.com 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 )

Google+ photo

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

Connecting to %s