Today’s Blog – Thursday 3rd November 2016

Editorial

The Australian media has today reported on a possible last minute rescue for the steelworks based in Whyalla, South Australia (owned by the in-administration Arrium Ltd).  The possible white knight is South Korean steel giant Posco (who is sticking both of its hands out for as much Government support as possible).

Posco is said to be interested in installing a cutting edge steel-making process called Finex at Whyalla.  This involves gasifying thermal coal in the manufacturing process rather than using coking coal.  Excess syngas (basically hydrogen and carbon monoxide) could be used in a power plant that would export electricity to the South Australian grid – which given recent power interruptions in the State would be politically attractive.

Interestingly to us, Federal Industry Minister Greg Hunt said that Posco could possibly access Federal cash from the Emissions Reduction Fund to support this venture.  We are not sure how that would work, as producing syngas from coal and then combusting same vents more CO2 than the current burning of methane at Whyalla’s traditional blast furnaces (although said methane comes from the CO2 rich Cooper Basin which on a full cycle should be taken account of).

This proposal feels very last minute to us – but the combination of State and Federal cash, support (including e.g. a generous electricity purchase contract from the South Australian Government) could get it over the line.

And using coal instead of gas in a State that has been quite politically proud of embracing lower emissions policies – what’s Korean for c’est la vie?

Commodity prices

Bad news from the EIA’s weekly US inventory report issued overnight sent crude prices falling by nearly 3% – with Brent closing at US$47.14 and WTI at US$45.51.  Crude stocks increased by a massive 14.4 mmbbls – only partly offset by gasoline draws of 2.2 mmbbls and distillate draws of 1.8 mmbbls.

In some ways this data point might concentrate OPEC minds over a freeze/cut deal at its formal meeting at the end of this month – as it will signal that prices could get a lot worse if the trend continues.

The other negative factor pushing the market down is the recent comeback of “The Donald” – which has hit pretty much all markets other than the likes of gold and Swiss francs (and maybe smaller markets such as champagne sellers near the Forbidden City and the Kremlin).

Henry Hub has not escaped The Donald either – falling 3% overnight to close at US$2.78.

Recent news from gas producer Chesapeake (CHK) of a new “propageddon” record in the Haynesville may also have signalled that US gas production could be pretty robust.

CHK has just managed to push 50 million pounds (or around 23 thousand tonnes) of sand into a single well – which will no doubt encourage others to go even harder on the frack front (CHK seems to have copyrighted the  fantastic “propageddon” phrase though).

LNG and international gas

Shell has recently been bigging up another market for LNG that could well move from being niche to being material – the use of LNG as a clean shipping fuel, as many ports impose limits on emissions that will prevent traditional heavy oil use.

Adding this to potential land vehicle LNG use, a Shell spokesman estimated that a massive 100 mmtpa of LNG could go into the transport sector by the end of next decade.

Company news – Goshawk Energy

With news from listed companies being pretty thin just now (“how do you spell ‘strategy’, I’m too busy cutting costs?”), we note that at least one private company is doing some deals – with yesterday’s news that Goshawk Energy (which already owns some onshore petroleum exploration licences in Australia) had entered into a JV with a Twiggy Forrest controlled company over a vast swathe of Western Australia’s Canning Basin.

The JV parties will be hoping this area is not established habitat for the Northern Australian lesser spotted moose.  But unless you swing the exploration bat (its game 7 in the World Series) – you can’t hit home runs (how many metaphors can one blog mangle?).

Quote of the day

With the re-emergence over in the US of an old FBI investigation into Bill Clinton’s pardon of oil industry legend, Marc Rich, we exhumed the following extract from The Economist’s obituary of Mr Rich from 2013:

“In 2001 Bill Clinton pardoned him, his hand pushed by the Israeli prime minister, the king of Spain, an ex-head of Mossad and Mr Rich’s ex-wife Denise, who had given generously to the Clinton library and to Democratic campaigns. The president later regretted his action, calling it “terrible politics”. Mr Rich, oblivious to politics, would have called it good business.”

 

 

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