Today’s Blog – Tuesday 29th November 2016

Editorial

The Australian business media has in recent days reported on a few comments made by the CEO of Woodside Petroleum (WPL), Peter Coleman, at a LNG conference in Japan.

Naturally we expect a CEO to “talk his own book” rather than make an objective case, but we thought a few of his statements didn’t stack up even given this normal bias.

Firstly with respect to the issue of pricing, with particular reference as to why he did not think Australian gas prices should be linked to the US indice at Henry Hub, he said:

“But the index needs to be related to the market from which it’s getting supplied”.

Like crude oil traded in London and New York?

If as a producer you have market power then prices are set with respect to your circumstances.  If you selling any product into a competitive market, then it is the alternatives available to your putative buyer which set prices.

Coleman also said that long term contracts were still needed for green-fields LNG developments.  However, we would note:

  • The only green-fields development this year – the small-ish Woodfibre LNG project in British Columbia – has been sanctioned without any public offtake deal – rather the vertically integrated business dealings of its owner appear to have provided sufficient de-risking.
  • Large US liquefaction businesses on the Gulf of Mexico have been developed without long term commodity pricing being locked in.
  • And looking at the history of crude oil itself – Producers made the same arguments about long time prices being “required” prior to the Marc Rich induced market liberalisation back in the late 1960s.  Developments have still happened since then.

Commodity prices

Crude prices bounced strongly overnight, closing up 2%, with Brent at US$48.15 and WTI at US$46.96.  The cause, naturally, was the latest gossip/rumour (and possibly even fact) prior to tomorrow’s key OPEC meeting.  This time Iraq made some favourable rumblings about cooperating with the Gulf States.

Henry Hub continued on its tear, closing up very strongly (8.5%) at US$3.33.  Winter weather is now starting to hit the US and inventories are being drawn upon.

LNG and international gas

The gas bulls can take some comfort from recent predictions from PetroChina that the PRC’s gas demand will triple by 2030.

This echoed the IEA’s head, Fatah Birol:

“When you look at the global energy mix today, the share of gas is about 25 percent. And in China, it is about 5 percent. … We expect the Chinese gas market will grow significantly.”

Governments, fracking, taxes, etc

Last week we noted the lazy assumptions going into claims that Australian E&P companies were not paying their fair share of taxes (look at their share prices – they are not making money).  Even The Economist echoed this in its most recent edition.

Today the media reported an apparent underpayment of royalties by the North West Shelf JV – of less than $20M over many years.  Shock, horror, go the likes of the Greens, that’s a big number!   Of course in reality its closer to a rounding error and its entirely normal that royalty calculations could have some grey areas and points of dispute.

As usual, the industry does not fight these issues on the retail level that its opponents do.

Quote of the day

It does not take too much a stretch of the imagination, to conjure up a similar conversation to the following, between fractious OPEC members at present:

Inspector Clouseau: [answering the phone] This is Monsieur Gadbois – who is this speaking?

Chief Inspector Dreyfus: Don’t you know? Hmmm? Hmmm? Can’t you guess? I’ll give you a clue – this is the man who hates you. This is the man who more than anything else in the world would like to see you dead and buried!

Inspector Clouseau: …are you the headwaiter that works in the little bistro on the Rue de Bazaar?

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