Today’s Blog – Friday 11th November 2016


One widely predicted consequence of a Trump Presidency has been that it would provide a massive fillip to Chinese efforts to dominate the Western Pacific (i.e. where we are).  A couple of Australian energy news items have emerged over the last 24 hours which could play into this narrative (although reacting with such speed gives an awful lot of credit to Chinese nimbleness).

Santos (STO) has today confirmed that its previously short lived strategic shareholder, Chinese PE company Hony, has recently built up its stake in the company again (including an material off-market purchase last night at a premium) to 3.2%.  Hony had previously flipped its ~12% stake in STO to downstream Chinese gas company ENN.  Today’s Australian Financial Review reported (presumably from a good source) that ENN has been seeking a Board seat at STO.  This plot will thicken and “China Inc’s” desire will be to see if it can push for a quasi-influence/control position at at STO without paying a premium.  Over to you STO Board…..

Regular readers will know our view that the major strategic weakness facing Australia’s LNG companies like STO (and Origin and Oil Search and even Woodside) is that they are too small to be effective LNG players.  Barriers to consolidation are generally focused on balance sheet weaknesses – but we think social issues also play an enormous blocking role.  The traditional laissez faire view of Australian Governments in pushing for a “national champion” in this sort of area might however be re-evaluated in the face of China Inc’s moves.

The other news item was Central Petroleum (CTP) calling a trading halt due to a takeover approach being made to it. In our view the most likely approachee is PLA controlled company Landbridge (who already owns Darwin Harbour and CBM assets in Queensland).  Readers may also recall that the NEGI pipeline between the NT and Queensland is being built by Chinese SOE controlled company Jemena.  The PRC is building up a nice little strategic position in Australia’s North with arguably more effect than Japan’s previous moves on the area in 1942…..

Commodity prices

Crude prices fell overnight, with Brent down ~2.5% to US$45.57 and WTI down around the same to US$44.29.  No particular news drove this move – we presume it reflected the market realising post the Trumpian gyrations that oil markets will in fact be driven in the short term by the upcoming OPEC meeting and in the medium term by weekly inventory reports.

On the OPEC meeting, we noted a very definitive view in Tudor Pickering Holt’s daily note from Houston overnight:

“We strongly believe Saudi Arabia/OPEC will execute this cut.  Stay tuned.”

That is far more optimistic view than the generally prevailing one in the market that expects a fudge at best from the meeting.

Henry Hub fell ~1% to close at US$2.66.

LNG and international gas

A couple of those smaller scale LNG stories that we think add up to potentially more than the normal gaze on large scale greenfield developments:

  • Agreements recently being struck to firm-up a JV to develop a small scale FLNG plant off Equatorial Guinea between the resource owner Ophir and the “OneLNG” venture between Golar LNG and Schlumberger.
  • First LNG cargoes due to reach Columbia within days – through a FSRU facility (owned by Heogh LNG) – rather than a full scale re-gas plant on-shore.

Company news – Strike Energy (STX)

STX has announced a A$4.5M rights issue today.  It is underwritten by stock-brokers Taylor Collison (Taycol).  Eagle-eyed STX followers will have noted a recent favourable analyst’s report on STX from Taycol and would accordingly not be surprised by a capital raising then eventuating…..

Company news – Alinta Energy 

PE owned downstream energy company Alinta has just postponed its planned IPO until next year – given market volatility following the US election (and the short time to the festive season in which the market informally closes).

As noted yesterday, we think the biggest macro consequence of a Trump Presidency (absent a conflict, fingers crossed) is that it seems to signal the end of the 35 year fall in interest rates and the start of rising rates.  If correct, that will change financial flows in many ways – and for instance will make infrastructure assets (unless they have TIPS like cash-flow characteristics) otherwise less attractive.

Quote of the day

Reader’s who play the game of bulls*t bingo in their own corporate lives would be pleased to see that life is even worse over at Gazprom, given the meaningless gibberish in the following press release it put out this week:

“Chairman of the Gazprom Management Committee, and Xu Wenrong, Vice President of CNPC, signed an Agreement to cooperate in the field of mutual recognition of standards and conformity assessment results. The document provides for joint development of intercorporate technical standards and application thereof by the companies.”



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