Today’s Blog – Monday 19th December 2016

Blogs may be short and/or sporadic this week – its Christmas!


Energy infrastructure company DUET announced this morning that it will build an underground gas storage (UGS) asset in Northern Western Australia, using the depleted Tubridgi gas field.

To us the timing of this announcement seems not to be entirely coincidental with the recent takeover approach made to DUET by massive Hong Kong HQ’ed conglomerate CKI Group.  In such an environment DUET management will naturally want to show that their company has hidden value such as this new development.  However, they may in fact be creating a poison pill in what could be over-eagerness in pushing this project forward.

Various disclosed aspects of the Tubridgi field appear to be unpromising for a UGS development:

  • Lots of old wells (21 in total).  Readers will remember the risks of old wells in a UGS facility as encapsulated by the Aliso Canyon episode earlier this year – leaks that cost its owners a pretty (and still not defined) total – likely to be many $100Ms.
  • Water drive  – lost gas potential.
  • A large cushion and working gas requirement – the gas-field has produced ~70 PJ.
  • Optimistic capex estimates of A$69M.  This clearly excludes any cushion/working gas.

A rush to enhance the defence of a company can in fact weaken it (but not we suppose if the potential buyer is hooked in by over-optimistic spin – unlikely in CKI’s case?).

Commodity prices

Crude prices traded upwards by around 2% on Friday, with Brent closing at US$55.31 and WTI at US$52.02.  The overall move for the week was also a rise of ~2%.  The bulls seized on positive vibes coming from OPEC to support the rise.

The BHI weekly rig count was bear-ish – but not nearly as much as the previous week.  Oil rigs increased by 12 and gas rigs by one.

Henry Hub was down ~1% in a poor weak (down ~9% overall) – closing at US$3.39.

LNG and international gas

Last week Putin visited Japan.  The latter had been hoping for some sort of deal on Russia returning territories occupied in its heroic operations in the last few weeks of the war (Operation Kick a Man When He is Down and Steal his Wallet).  However, the answer was “Nyet!” on that front and the other pickings were slim indeed.

These included some energy industry MOUs (always popular at these sorts of things – and it is even conceivable that 1 in a 100 of these turn into something real).  One such MOU was between Marubeni and Novatek – a loose mutual look at LNG opportunities in the Arctic.   That will have the likes of PNG LNG stage two quaking in their boots.

Governments, fracking, etc

A truly bizarre development in Victoria – the Federal Government examining whether funds from the renewables funding Clean Energy Finance Corporation could be used to support a gas fired development that will somehow save the old and high cost Portland aluminium smelter.

Thats in the State that has banned petroleum exploration.

Thats in the State that used to spend >$100M per annum to subsidies Portland – from brown coal generation that was much cheaper than any gas fired alternative.

Thats in a State that is exporting gas to the Queensland LNG plants – and accordingly realising international gas prices.

We hope that this is just end of year posturing – but you never know.

Quote of the day

From authoritative news source, The Onion, one of the quotes of the year:

“Why the fu** do you want me to do a speech in Wisconsin?”  Hilary Clinton


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