Today’s Blog – Monday 14th November 2016

Editorial

Something quite unusual happened in global-LNG-land last week, which was lost in the overall news focus on the Presidential election (at least, we missed it) – a hen’s-teeth-rare greenfields LNG plant FID decision.

This investment decision was made in connection with the Woodfibre LNG project in British Columbia – and represented the first such development in Canada.

Woodfibre LNG is a small single train ~2 mtpa project – so its much smaller than the mega-projects in BC promoted by the likes of Petronas and Chevron.  Woodfibre is privately owned – ultimately by an ethnic Chinese Indonesian billionaire businessman, Sukanto Tanoto, through Singapore registered conglomerate RGE.

This project has significant vertically integrated components in that RGE’s businesses include stakes in re-gas and CCGT assets in China.  We therefore conclude that it was the benefits from this integrated business model, added to the project being small and internally financed, that is the key differentiator for Woodfibre.  If correct, this suggests that other smaller scale developments (with downstream owners, particularly if connected to the massive Chinese energy market) could be more likely to proceed with LNG projects than the Super-Major operated mega-projects.

This plays to one of our regular themes – that evolution (or revolution?) in LNG markets is occurring in niches, with new players, smaller projects, different drivers (e.g. converting shipping fuels to gas), etc.

Commodity prices

Crude prices fell around 2% in Friday’s trading, with Brent closing at US$44.75 and WTI at US$43.41.  During the week prices fell around 2% for Brent and 1% for WTI.  Friday’s trading sentiments appeared to have forgotten about Trump already and be driven by concerns that an OPEC deal later this month continues to ebb away.

The weekly BHI rig count numbers were fairly innocuous – an increase in oil rigs of 2 and a decrease in gas rigs of 2.

Henry Hub fell 1.5% on Friday – and was down 5% for the week – closing at US$2.62.

Governments, fracking, etc

Recent news from the Middle East (the United Arab Emirates) about a rare commissioning of what the media have called a carbon capture and storage (CCS) project.  This project involves taking 800,000 tonnes of carbon dioxide per annum from the “exhaust pipe” at a steel plant and injecting it into old oil reservoirs.  The latter action will drive enhanced oil recovery (EOR) in these reservoirs.

CCS works in in a handful of locations around the world where EOR is feasible, but has yet to look even close to being commercially viable anywhere else.  Such EOR favourable locations (which require reservoirs with particular characteristics rather than being universally applicable) are in our view likely to be far too few to make CCS an effective major tool in mitigating CO2 emissions.

Company news – Central Petroleum (CTP)

CTP has today came out of its trading halt and has advised the market that it had received an informal takoever proposal – from Maquarie Bank (MCQ) – at a price of 17.5c per share.  This had been rejected – but interestingly CTP had offered MCQ access to a data-room on its assets.

Presumably any other credible party with an interest in CTP could also access this data-room – hence to that extent the company is now in play.

MCQ appear to be operating under the old investment banking model of “no-conflict-no-interest”, given their multiple roles at CTP of shareholder, lender and offtaker.

Ultimately MCQ is an agent not a principal when it comes to owning non-banking assets.  It could be a current front-man for e.g. a Chinese enterprise – or it could take on CTP assets on a  “merchant” basis with a view to later on-selling them to the highest bidder.

We don’t think this game is over.

Company news – Santos (STO)

Further media comment emerged over the weekend on encroaching “China Inc” ownership over STO’s share register.  ENN/Hony (based on history they could be taken as one actor – for commercial if not legal purposes) – are clearly seeking Board representation and greater influence.

Given they are the only large shareholder on the register, we do not think this can be denied for much longer.

Quote of the day

We’re not sure why this came to mind……from the 2,50o year old Art of War by Sun Zhu:

“When the enemy is close at hand and remains quiet, he is relying on the natural strength of his position. When he keeps aloof and tries to provoke a battle, he is anxious for the other side to advance”.

 

 

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