Today’s Blog – Monday 6th February 2017


The media has recently reported on some changes to the leadership of Shell in Australia, with vocal current Chairman, Andrew Smith, heading off to Singapore to run the Super-Major’s Trading and Supply group.  Following the acquisition of BG Group last year, Shell is the largest LNG player in the world and we presume this will be the strongest focus for his new role, particularly given the dynamism in the liberalising global LNG markets.  Yet again Singapore demonstrates it is ground zero for global LNG trading.

Smith’s replacement is Zoe Yujnovich, who currently manages oil sands operations in Canada.  Shell’s assets in Australia have typically been largely non-operated – but that has changed post BG with the QCLNG asset in Queensland and the Prelude FLNG asset to come off Northern WA – so this is a big role within the giant Super-Major.

Shell is also said to be looking at combining gas and solar assets in Australia.  Details are scant at present.   However we note that Queensland has recently become the most expensive State for electricity in Australia – largely driven by increases in demand from the 3 LNG projects.

At current electricity spot prices, Shell would be better off sourcing (daytime) electricity from new solar plants rather than from the Queensland grid.  We presume that is part of its thinking and will watch with interest as to what the flow-on consequences will be for the other LNG players, the electricity market – in Qld and points South, etc.

Commodity prices

Crude traded fairly flat on Friday, with Brent closing at US$56.81 and WTI at US$53.83.  The overall direction for the week was just positive (up 1-2%) as news of OPEC compliance – and Iran tensions with Washington – overcame poor inventory numbers.

Friday’s BHI rig count “numbers” were again bear-ish – a build of 17 oil rigs (and no gas rigs).

Henry Hub had a poor day and week, closing down 4% and 9% respectively, to US$3.06.  Poor inventory numbers reflecting mild weather were the key driver.

LNG and international gas

As we noted a week or so ago, a trade war between the US and Mexico could have consequences for international gas markets.  This was illustrated by recent analysis from the likes of Houston based investment bank, Tudor Pickering Holt, who concluded that if US imports to Mexico were blocked, then the Henry Hub gas price would be smashed down to ~US$2.

That would almost certainly flow through to global LNG spot prices, as discretionary buyers would want a piece of that cheap action, whilst US liquefaction companies would maximise through-put and attract lots of willing US sellers.

Governments, fracking, etc

The mighty Advertiser newspaper contained one of our most hated Orwellian words today – “mining” – used when referring to oil and gas exploration and production.  The specific reference was to “mining” in the Great Australian Bight (by Chevron, etc).

“Mining” is for minerals – its use in such a context is a deliberate political tactic to invoke images of dirty open pits, etc, not holes with a small diameter.

Unfortunately its an effective tactic – the Australian Prime Minister used the word in the context of onshore gas exploration only last week (Rhodes Scholars are clearly not what they used to be – or was he still reeling from his friendly call to the White House…).

Company news – Santos (STO)

STO has closed the share purchase plan element of its recent equity raising – with funds secured of A$200M (out of A$500M sought).  That is more than we expected given the lack of dividends for small shareholders and confusing messages given out late last year about whether the company needed new equity or not.

Company news – Beach Energy (BPT)

The Australian Financial Review (AFR) reported today that BPT is looking at acquiring some parts of Origin Energy’s (ORG’s) “Crapco” which is due to be IPOed later this year.

We presume that ORG would prefer to sell it all at once – which could be a financial stretch for BPT.  However, as we reported last week, the securing of a large financing package by fellow Cooper Basin player Senex Energy illustrates that there could be money coming back to the oil patch.  This news would therefore surely have increased the chances of BPT effectively being able to “double-up” in size through this deal.

Quote of the day

From BP’s recent annual Energy Outlook – which even Shell is likely to read:

“Renewables have been revised up 15% (220 Mtoe) – the largest revision in percentage terms – as the prospective path for costs continues to surprise on the downside.”

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