Today’s Blog – Thursday 10th November 2016

Editorial

Like all other media outlets in the world we initially treated the Trump candidacy for the US Presidency as a joke that provided a rich vein of quotes for us.  We were wrong – and borrowing the title of a successful British TV comedy show of the early 1980s (that we hope are not too apposite) – “Whoops Apocalypse”!

Indeed, referring to another comedy – Mel Brooks’ The Producers – we thought that The Donald was following the cunning plan of Messrs Bialystock and Bloom of fleecing the gullible by producing the most unsuccessful show they could think of – Springtime for Hitler – but which like Trump’s candidacy turned out to be actually successful.

In the barrage of media commentary about what this all might mean for the globe, we try to set out a few oil patch specific thoughts:

  • The most obvious and material point is that a world with less trade grows more slowly – lessening the demand for oil and gas and hence their prices.  Specifically, US LNG might suffer from trade wars and tensions with allies and competitors in the Pacific market.
  • We have occasionally commented on the multifarious affects of low interest rates on issues such as the weight of dollars that have gone into US unconventional oil and gas, solar developments, etc. Trump has called for new Fed leadership to deliver higher interest rates.  If he succeeds, this could reduce the dollars going into shale and lead to faster production declines therein.  A balancing factor could be a reduction in US corporate tax rates though.
  • The Middle East seems set to become even more unstable – with the result that more “events” could emerge to destabilise oil markets.  However – see news on Total in Iran below.
  • Much greater Federal support for oil and gas activities could increase US production – subject to what money is available for particular activities.  For instance, even though more offshore drilling was allowed (against fierce local opposition no doubt) – what companies at present would have the appetite to allocate scarce exploration funds thereto?  The grandest prize in regulatory terms would be the opening up of Alaska’s wildlife reserve – the last place in the US where multi billion conventional oil fields are likely to reside – still that would likely take 10 years (and lawyerly enrichments) to deliver meaningful production.

Commodity prices

Global asset markets yesterday sought to compress the recent Brexit experience of sharp declines and than a bounce back into a less than 24 hour period.  For instance, crude prices were initially smashed and then recovered to make slight gains over the course of the day, with Brent closing up ~1.9% to US$46.75 and WTI up ~1.5% to US$45.52.

Much improved EIA inventory numbers from last week’s shocker no doubt helped as well – with crude builds of 2.4 mmbbls more than offset by gasoline and distillate draws of 2.8 mmbbls and 1.9 mmbbls respectively.

Henry Hub also bounced up at the end of the day to close up ~2.7% to US$2.69.

LNG and international gas

France’s Total has been the first Super-Major to get back into Iran – with news a couple of days ago of the signing of a heads of agreement over a US$2B investment into the massive South Pars gas field that Iran “shares” with Qatar.  This initial deal is for the development of gas for Iran’s domestic market, but the clear option value for Total is getting into the ground floor for potential ultra-low cost and well located LNG developments.

Total today rushed to publicly advise that the election of Trump made no difference to its Iranian plans.  We shall see.

Another potential consequence of President Trump will be to embolden Russian adventures in its West – thereby leaving the country’s East ever more exposed to Chinese encroachment.  Yesterday we saw news about downstream Chinese utility Beijing Gas taking a 20% stake in a Rosneft oil/gas field in North East Siberia for ~US$1B – the sort of move that Russia has tried to avoid but which its cash position has now left open.

How the gas in that remote field might ever find its way to China is very unclear – and could reflect intra-Kremlin brawling between Gazprom and Rosneft about the latter getting into the former’s massive Power of Siberia pipeline project (which some recent unclear news sources – apparently sourced from Gazprom itself – seemed to indicate would now be 5-7 years late).

Governments, fracking, etc

As long feared, Greenies over in the West of Australia have now turned their sights on AWE’s Waitsia gas asset under development in the onshore Perth Basin.  Industry insiders have scoffed at the attack given the bare facts that Waitsia will not require fracking (at least initially…..) and that the Perth Basin has successfully and cleanly produced for multi-decades.

However, certain recent events we could point to would seem to indicate that “facts” and “experts” do not necessarily win all arguments……

Disruption

Initially there is only one word thought that comes to mind in the world of disruption to oil and gas business models from renewables, etc – Trump!

However, arguably this will be itself trumped (ouch!) by bigger events in the global warming mitigation space such as contracts for solar power at less than US$30/Mwh and the desire of China and India to reduce the non-carbon based pollution forms from coal and combustion engines that are highly politically sensitive to them.

Company news

Its AGM time – so pretty much yawns all round.

Quote of the day

The normally bullish voice of Daniel Yergin last night:

“The outcome of the U.S. election adds to the challenges for the oil exporters because it likely leads to weaker economic growth in an already fragile global economy. And that means additional pressure on oil demand.” 

 

 

 

 

 

 

 

 

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