Today’s Blog – Monday 9th January 2017

The Blog is back – but will be interrupted over the next few weeks due to travel commitments


Its the time of year when oil patch pundits are invariably called upon to make predictions about the year ahead.  So here goes:

  • The oil price will be, gulp, volatile.
  • OPEC members will cheat.  But possibly more numerically important, will Libya and Nigeria bring back on significant shut in capacity – and/or will Venezuela’s production collapse further?
  • US independents (and their financiers) will be optimistic and rush to drill more wells at the drop of a stetson hat (whilst cynics will continue to wonder whether current shale oil economics rely on unsustainable targeting of sweet spots and the supply sector working for nothing).
  • Our own optimism of a couple of years ago about the inevitability of a large price rise in the “medium” term – as the effects of massive capex cuts bite – has been tempered by the threat of broader energy sector “disruption” to oil demand.  In our view, the most important energy industry “number” of 2016 was a successful reverse auction for large scale solar in the UAE which came in at a stagering less than US$30/Mwh.
  • “Disruption” is arguably worse for oil than gas.  Gas is the balancing fuel for intermittent renewables – and a clean source of electricity for EVs.  The increasingly gassy Super-Majors will benefit from this dynamic – and the others may follow Total in adjusting strategy to be more renewables inclusive.
  • We are not holding our breath waiting for Aramco’s prospectus – full of juicy independent reserves reports.  The KSA’s Game of Thrones could mean that planned economic liberalisation might be inversely correlated to a rising oil price.
  • The Donald will not make much difference to energy markets in the short term (unless he bumbles into a war).  However, he will still provide fertile ground for those blogs seeking newsworthy quotes.
  • The weekly EIA inventory numbers will be the only semi-decent guide to determining whether reduced supply and growing demand can eat into stock overhangs and bring about a sustained price rise.

Commodity markets

Over the last two weeks since our last blog, oil has tended to burble upwards in thinly traded markets.  Brent closed at US$57.10 on Friday night whilst WTI finished at US$53.99.

The London/New York spread has widened – likely due to fears in the US that too much light sweet crude will be produced by bullish shale operators and refineries in the US will want more heavy oil (a collapse in Venezuela could exacerbate this – maybe by a lot).

“Numbers” over the last few weeks have been somewhat thin and unreliable given various Festive season effects.  Weekly rig count numbers have gone up.  Inventories have been somewhat strange – last week crude was down by 7.1 mmbbls but product was up by 18.4 mmbbls.

Henry Hub had a cold weather spike, but has since settled down to US$3.28 as the climate has got warmer in the US.  Punxsutawney Phil may have stuck his nose out early.

LNG and international gas

The spot price for LNG in Asia has recently soared to over US$9 – due to cold weather in North Asia – and the resultant horrendous air-borne pollution from coal has bloomed in China in particular.

The gap between US$3.28 and US$9 provides a very very tasty zone for the US liquefaction players to make large trading profits in.

Company news – various

Santos’ large strategic shareholder, China’s ENN, does not seem to have lodged an amendment to its significant shareholder disclosure notice – which it presumably should have done by now.  The dynamics of a potentially unhappy Chinese billionaire holding up to 15% of this company will be the most interesting thing to watch at Santos this year.

Santos has participated in a highly successful recent gas well in PNG with partners Oil Search and Exxon – presumably authorised but off the record leaks to the media have indicated that > 2 Tcf of gas has been found – with a side-track to potentially add to this.  This should find a ready PNG LNG home given its ownership.

The Australian Financial Review has an article today on Origin Energy’s (ORG) proposed IPO of its non-core oil and gas business (“Crapco”) later this year – presumably sourced off the record from ORG and/or its advisers.  The IPO is said to be aiming for Q2 this year – and apparently progress has been made recently in appointing a Board and CEO.

Rumours abound in the industry about everyone’s favourite heroes or villains taking up the plum postings.  The location of the company will of course await the appointment of the CEO and his/her consultation with his/her spouse, err, we mean a rigorous process of optimising shareholder value.

Quote of the day

A quote recently purloined from Moby Dick which resonated in the impecunious world of blogging:

“And there is all the difference in the world between paying and being paid.  The act of paying is perhaps the most uncomfortable affliction that the two orchard thieves entailed upon us.  But being paid – what will compare with it??


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