Today’s Blog – Thursday 9th February 2017

Editorial

Various reports from a gas conference held in Indonesia this week are of interest not only to our most important neighbour – but also reflective of broader developments in the international LNG market.

Speakers noted that Indonesia had in recent years been adding the importation of LNG to its multi-decade and large LNG export position – and that energy demand growth would greatly add to imports in years to come.  That presented great trading opportunities for the country’s national oil company, Pertamina – as it had for its Northern neighbour, Petronas.

Pertamina’s traditional Government owned culture (and dare we say it, in some quarters an appetite for some no doubt well earned facilitation payments) does not present it in great shape to seize this opportunity, but hopefully for it and its owners it manages to pursue at less some of the potential benefits.  Liberalisation of the company’s ownership would seem to be hard in a political environment which rewards nationalism over economic efficiency – but perhaps some other players in the country such as PGN could work with Pertamina to jointly develop these LNG trading opportunities.

Indonesia is one of a growing handful of countries that both import and export LNG – the group includes Malaysia, the US, soon to be Russia, possibly soon to be Egypt – and of most interest to us – possibly soon to be Australia as well.

Commodity prices

Crude prices slightly strengthened overnight, with Brent up ~0.2% to US$55.18 and WTI up ~0.5% to US$52.45.

This was despite a very large crude inventory build reported by the EIA in its weekly report – of 13.8 mmbbls (which was maybe less than the market feared).  This was offset by a reduction in gasoline of 0.9 mmbbls and flat distillate numbers.

One confusing piece of news on US inventories was a report that Shell and Philips 66 had just bought nearly 7 million barrels from the strategic petroleum reserve (under a flagged process whereby the funds received would be used to maintain the SPR’s physical facilities).  The EIA report noted no change in the SPR, so we wonder whether there is the potential for error in this week’s overall report if different timing methodologies are used for commercial and SPR numbers.

Henry Hub closed up slightly (~0.3%) at US$3.13.

LNG and international gas

Its hot (damn hot! – thanks Robin Williams) here in Australia just now – and that has led to large spikes in electricity prices – and lesser but still high spot gas prices.  The latter are now ~A$14 in Queensland – or around 3.3 times the price at Henry Hub in Louisiana.

Asian LNG spot prices have been volatile recently – but have not been more than this.  Net-back pricing from Curtis Island therefore implies a negative cost for liquefaction, which is a strong indicator of market inefficiency.

Governments, fracking, etc

In a spineless display of lack of political principle, the Liberal opposition in Victoria has heartily and formally supported the Labour Government’s permanent ban on fracking and temporary (maybe) “moratorium” on conventional oil and gas activities, as legislation to enshrine these has passed through the State Parliament.

We mistakenly thought evidence-based policy making and a respect for the rule of law were principles that might have carried at least some weight.  How naive.

Company news – AGL

AGL issued its half year results today.  The company reiterated its commitment to move towards the FID of an LNG importation asset in 2018/19 – with a decision on a site to be made by mid-year.  Nearly all of the above news items separately support this:

  • Liberalising international LNG markets and more countries becoming both importers and exporters.
  • Very high local gas prices.
  • Politicians acting directly against indigenous gas options.

Furthermore, a small electricity load shedding action in South Australia yesterday may have had elements (the news is of course focused on blaming one’s bete noirs – renewables, privatisation, etc – for this rather than concentrating on the more complex facts) that would also encourage gas importation.  We will see if any facts actually emerge.

Quote of the day

Its a sad day when an Indonesian politician seems to better understand how economics works better than her counterparts in Victoria:

“Indonesia will need to be careful – it needs to ensure stable regulatory and investment frameworks, which is easy to say, but a very challenging situation to implement.” – Archandra Tahar, Indonesia’s vice minister of energy and mineral resources

 

 

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