Today’s Blog – Friday 3rd February 2017

Editorial

One of the lesser reported stories from Washington just now is rapid progress through Congress of a bill to reduce requirements imposed on US oil and gas companies to disclose payments made to foreign Governments.  The policy intent of the current law is to discourage corruption – but the industry representative body, the API, claims it presents an unfair barrier to competition for American companies (as we have noted on a number of occasions recently, US Majors and IOCs are rapidly retreating to the US anyway – with this as being only a tiny if not zero factor).

This development has led the blog to consult Lord John Browne’s book “Beyond Business” to check on the history of this sort of disclosure practice.  JB described how BP initiated the practice in Angola in the late 1990s – much to the disgust of the (slightly less than pristine) Angolan Government.

Browne added – “Lee Raymond said BP had made things difficult for Exxon in Angola”.  The Private Empire clearly has a very long memory – and with Raymond’s successor now in the Cabinet (although that is likely to be coincidental from his point of view), the hardline Raymondesque Exxon world view appears to be winning.

It is ironic given the normal place at the top of the pantheon of villains that Exxon occupies for some progressives, that its ex-CEO is now one of the main bulwarks against the lunatics taking over the asylum.  Additionally, Exxon’s recent Board appointment of a climate scientist happened almost on the same day that the White House seemed to remove all references to global warming from its relevant websites.

Will Exxon shortly be the idol of the likes of the Occupy Movement?

From the personal point of view of this blogster – who occasionally operates in developing nations who have a view on corruption that is somewhat loose – this development in Washington sends a terrible message: “you foreigners are all the same, you Westerners are just more hypocritcal than the Chinese – so pay up”.

Commodity price news

Crude prices rose ~2% on Wednesday and were largely flat on Thursday, with Brent closing at US$56.69 overnight, whilst WTI finished at US$53.64.

The weekly EIA inventory report was again bear-ish – crude was up 6.5 mmbbls, gasoline 3.9 mmbbls and distillate 1.6 mmbbls.

The bulls are winning in the market – largely on news from OPEC about compliance – allowing inventory numbers to be ignored.  However, to us that risks building up some sort of “pressure” in the market – which could be released with a sharp correction downwards if the numbers keep building and a bad news item emerges about OPEC cheating.

Henry Hub closed up ~1% at US$3.19.

LNG and international gas

Reuters has just reported that Japan’s leadership is looking at ways to reduce the headline numbers of the country’s trade surplus with the US at present (we wonder why?!).   The Japanese are no doubt too polite to echo the recent German view that if the US wants to export more cars it should simply “build better cars”.

One idea that has come up is for Japan to import more US gas and oil.  The latter is said to be hard given the country’s existing LNG overly long contract position.  Solution – smart traders should arrange contractual swaps such that US gas does “go” to Japan in terms of how it will be measured in whatever law Trump comes up with – but physical flows will remain unaffected.  Consulting work accepted for a small royalty on each trade.

Quote of the day

An extract from BP’s recently issued annual Energy Outlook, which reflects what we have been talking about for a long time (and which should provide an environment to undertake the “Great Trump LNG Swaps” outlined above):

“The development of a deep and competitive LNG market is likely to cause long-term gas contracts to be increasingly indexed to spot LNG prices.”

 

 

 

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