Today’s Blog – Tuesday 21st February 2017


Today’s Australian Financial Review (AFR) somewhat breathlessly reported on solutions to the current East Coast energy crisis – as formulated by the CEO of Bluescope Steel, Paul O’Malley.  However, the illiteracy of these proposed fixes showed how even supposedly well informed parties are capable of coming up with guff.

Mr O’Malley’s 3-point plan is as follows:

  1. Mandate a certain amount of base load generation “required” in each State.  Our view: base load does not meet peak demand; which geniuses will be mandated to determine what is the “right amount”? (none of that market solution stuff!); what about inter-state connectivity? and, who pays for all the new redundancy?; etc.
  2. Determine an optimal mix of coal and gas fired power stations to meet this base load by examining gas and coal future price curves.  Our view: most coal used in current plant is stranded and has no forward curve; Australian gas has no forward curve; the history of oil price future curves is that they effectively have zero predictive power; etc.
  3. Have a national renewable target, not State based ones.  Err – we do.

Mr O’Malley is not alone in putting out panglossian solutions – some Federal politicians are currently promoting coal fired power stations in North Queensland – apparently because of the small probability that Indian coal company Adani will win some secret lottery and actually have enough money to develop its Galilee Basin resources.  Forget about transmission costs, water, thermal efficiency in the sub-tropics, etc, etc.

Commodity prices

Crude rose slightly in London overnight, with Brent closing at US$56.15.  WTI was flat at US$53.40 (those Americans had yet another public holiday).  The bulls in London took some succour from statistics from Saudi Arabia about its meaningful reductions in output over the last month or so.

Henry Hub was also flat at US$2.83.

LNG and international gas

Various LNG related news stories are emerging from Iran at present – which are worthy of taking with a pinch of salt – but which also bear watching by the LNG world given the sleeping giant nature of the country’s massive and low cost gas resources.

The Iranian Government has said that it is negotiating with 3 parties at present about bringing in international partners for LNG projects.

Trumpian geo-politics could interrupt such discussions – but arguably not if they are with parties such as the Chinese NOCs or the Russians.  Both of these have gained LNG experience in recent years through non-operated positions in the likes of Australia, Sakhalin Island, etc.

Company news – Beach Energy (BPT)

BPT issued its half year results yesterday.  The company is generating more cash than it can spend – and in our view the company faces a crunch within the next year where it has to pick one of the following choices:

  1. Do a meaningful deal – of which the only one that appears to be on the table is the acquisition of Origin Energy’s upstream “Crapco”.
  2. Give money back to shareholders.
  3. Or – change strategy, tell the market that Australia has limited opportunities – and seek to deploy capital and expertise outside the country with more discipline than in previous BPT eras.

Management will prefer option 1 (“my pay needs to reflect the size of company I am running”), hate option 2 – would not mind option 3 – but would need to make a persuasive case to the market about how “this time is different”.

Company news – Senex Energy (SXY)

It was SXY’s turn to put out its half yearly results today. In many ways they were similar to BPT’s – but with the addition of a growth project in the form of a 100% owned CSG development in the South Surat in Queensland.

SXY had previously entered into a conditional gas sales agreement (GSA) with the Santos led GLNG project for gas from this area.  However, SXY’s tone today signalled the potential for possibly re-setting that arrangement, with phrases like “conditional”, “up to”, “option”, etc.

Current East Coast gas spot prices are well in excess of an LNG net-back price payable by GLNG.

Quote of the day

P G Wodehouse’ buffoonish would-be-dictator, Roderick Spode (leader of the black-shorts – all the shirts were taken), had various prescriptions to sort out Britain – which were as well thought out as some energy market solutions currently being spruiked for Australia:

“He also planned to ensure that every citizen owned a British umbrella and an ‘honest, British-made bicycle’ (to be manufactured solely in Norfolk, along with motorcars), thus ensuring a mobile workforce adequately protected against the elements.”



Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s