Today’s Blog – Friday 18th November 2016

Editorial

The Kingdom of Saudi Arabia’s plans for a partial sell-off of the behemoth that is Saudi Aramco appear to still be on track (although in our view the hidden Game of Thrones in the desert kingdom could at any time de-rail that).

Earlier this week, the KSA’s Energy Minister, Khalid al-Falih, made the following very definitive statement:

“Everything that Saudi Aramco has, that will be shared, that will be verified by independent third parties [that would include] reserves … costs [and] profitability indicators.  This is going to be the most transparent national oil company listing of all time.

We have been sceptical that Aramco would disclose audited reserves – these numbers have been one of the world’s most closely guarded secrets for decades (and for instance in addition to scepticism about them from the likes of Twilight in the Desert (and ourselves), Wikileaks sources indicated the State Department also has doubts over the official numbers.

We are still sceptical – but would be pleased to be proven wrong.

A scenario that could support disclosure is as follows: the KSA has concluded that rapidly falling renewables costs, the rise of EVs and the likes of the Paris Agreement mean that oil’s future is a matter of a few decades rather than a century.  In which case – disclose accurate reserves numbers which are much less than previously announced – watch the price of oil rise markedly – then make more money whilst the going is good.

Commodity prices

Crude trading was flat overnight, with Brent settling at US$46.49 and WTI at US$45.42.  All eyes remain focused on OPEC.

Henry Hub closed down 2.5% at US$2.70.  Gas inventories remain very high due to a mild US winter (to date anyway).  In contrast, China is experiencing a cold winter and gas demand is up in the PRC.

LNG and international gas

The Japanese continue to escalate pressure on LNG contracts, with the latest move being an official demand for contractual information about items such as destination clauses from the country’s competition regulator.

BMI Research has said that if successful, this move could prompt a large amount of Japanese LNG seeking other markets (presumably replaced by coal fired generation at home?) – which could depress LNG prices for 5 years. If so – ouch! for investors in the larger ASX E&P stocks such as Origin, Santos, Woodside and Oil Search.

Company news

Unfortunately its a pretty flat day for company news – no irate shareholders, no takeover attempts, no disputes about pre-emptive rights – and no drilling.

We await “events”.

Quote of the day

The author of Twilight of the Desert, Matt Simmons, in response to a question about his views on the KSA’s true reserves position:

“I can tell you on your program that, trust me, my net worth will exceed Bill Gates’ by 2030, and you’d be a fool to believe it—unless Bill Gates had a terrible financial collapse. There’s nothing illegal about me telling you that. I can want that. And that’s kind of what the world has done.”

 

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