The Australian business media has recently contained a few stories on the potential threats from the new US President’s policies to Australia’s LNG industry.
The thinking seems to be that: an easing of the energy regulatory environment in the US will bring on more and lower cost shale gas, which will engender the construction of new liquefaction plants, which will seek customers in the Asian LNG market through spot as well as contract prices, which will lower spot prices, which could lower Australian contract prices through price review arbitrations.
This appears on the face of it to be feasible – at least in the medium to longer term – an immediate regulatory bonfire will not necessarily translate into low cost gas production surge straight away. However, in our view the impediments to the expansion of the main po sources of lower cost US shale gas are State and locally driven rather than under the control of the Feds. For instance, the Marcellus shale potential of New York State is arguably far more important than e.g. marginal Federal lands in the Rockies. Washington will not be able to do much to change the former and the latter has much less potential.
So overall we find the threat to be overblown.
Crude prices traded up on Friday, with Brent closing up ~2.4% to US$55.49 and WTI up ~3.5% to US$53.22.
This was notwithstanding two sets of very bear-ish numbers released on Thursday and Friday:
- The EIA’s inventory numbers were a crude build of 2.3 mmbbls (surveys earlier in the wek had anticipated a decline) a gasoline build of 6 mmbbls, which was only partly offset by a distillate reduction of 1 mmbbls.
- The BHI rig count had the largest increase for nearly 4 years – oil rigs up by 29 and gas rigs up by 6.
All other things being equal these numbers would have sent the market sharply down. However, the bulls prevailed due to reports from OPEC/Russia (it must be true!) about solid production cuts. To us it seems that if the inventory numbers in the US don’t turn around soon, then the market could be setting itself up for a Wil E Coyote off the cliff moment.
Henry Hub had a poorer day – closing down~3% at US$3.20. Arguably here the fundamentals are better than for crude just now – rapidly declining inventories even in the face of a mild US winter.
Company news – FAR
FAR announced this morning the spud of the SNE-5 delineation well in its Senegal oil asset (to be followed immediately by SNE-6).
Unfortunately for those of us watching the game, the announcement said nothing about the ongoing dispute with Woodside Petroleum (WPL) about FAR’s pre-emptive rights over WPL’s purchase of Conoco’s stake in the Senegal asset.
Company news – AGL
The Australian Financial Review (AFR) today reported on AGL’s sale process for a suite of upstream and midstream assets in the Surat Basin in Queensland – including the Silver Springs gas-field (which is now a gas storage asset). The assets to be sold appear to be somewhat of a neither fish/nor fowl combination of late life upstream fields and infrastructure assets – that might struggle to attract a single buyer.
Quote of the day
For some reason the recent performance of the White House’ new press secretary over the size of the inauguration crowds (Sad!) brought to mind the Iraqi Propaganda Minister’s bravura efforts in the 2003 Gulf War, which included the following:
“There is no presence of American infidels in the city of Baghdad”.
“It has been rumoured that we have fired scud missiles into Kuwait. I am here now to tell you, we do not have any scud missiles and I don’t know why they were fired into Kuwait”.
Mohammed Saeed al-Sahaf