Today’s Blog – Tuesday 14th March 2017

Editorial

The usually boring, nay arcane, subject of energy continues to dominate the media in Australia – assisted greatly by the recent intervention of one Elon Musk.  A master of modern social media, Musk seems to have persuaded many that he will fix South Australia’s electricity reliability in short order and possibly even for free.  What’s not to like about that?

However, Musk is a canny operator who did not become a billionaire by being too generous – he is saying if someone else pays for a battery array and takes the market risks of how it will earn money – then, sure, he will make risk-free profits for Tesla in supplying and installing said batteries.

The media ability of the likes of Musk contrasts sharply with the old school energy companies who appear to have little ability to cut through to the public with clear and memorable messages.

Also, we think the current ability of many IT related companies to source capital very easily (and arguably for free) compares strongly with the difficulties in procuring funds for the likes of oil and gas investments.  This too shall end, but markets can famously stay irrational for very long periods.

Commodity prices

Friday’s crude oil trading was another day for the bears, with a fall of ~2% (and up to 9% for the week).  Monday was a flat day, with Brent closing at US$51.37 and WTI at US$48.49.

Friday’s weekly BHI rig count did not help, with another 8 oil rigs and 5 gas rigs being added to the growing US rig count.

The influential CERA conference held in Houston last week also did not help the market, with the Saudis ominously suggesting any possible extension of the 6 month OPEC production cut was not be taken advantage of by the US tight oil companies.

Henry Hub has now traded above US$3 for a couple of days and closed at US$3.02 on Monday.

LNG and international gas

Kogas’s CEO told Reuters last week that his company was looking for more flexibility in its LNG purchase contracts – echoing moves made by Japan Inc recently.  Reuters noted that many of Kogas’s contracts did not allow re-negotiations until mid next decade.

We note an interesting juxtaposition – Kogas is a buyer of LNG from Queensland’s GLNG project – and hence a contributor to the high domestic gas prices that is causing much angst at present (and which will be debated by the Prime Minister and the CEOs of various gas companies – including GLNG operator Santos – later this week).

Perhaps a trade-off could be negotiated to give Kogas its desired flexibility and Australia its desired gas (I hear the sighs of those who know these parties and whispers of “if only it were that easy”).

Governments

The South Australian Government has this morning released a new energy policy – we will review it in more detail tomorrow. We note that a lot of spending of “other people’s money” is involved….

Company news – Santos (STO)

Various news reports out today indicate that STO is acting pre-emptively to the meeting with the PM noted above – it appears to be mooting a joint gas and solar generation project in South Australia in partnership with private solar/storage company Zen Energy.

Details are scant – the project seems to be at the post-it note stage – but the overall theme of the complementarity of gas and solar echoes recent statements from the likes of Shell.

Company news – Seven Group (SVW) and Cooper Energy (COE)

SVW was reported in the media over the weekend as being keen to bring back on gas supplies from its offshore Victoria Longtom field.  Any such efforts would require processing through COE’s Orbost gas plant.  COE is in the process of selling this plant to APA Group – who will then spend $250M on it to allow for the processing of COE’s Sole gas-field gas.

How Longtom would fit into such a process is far from clear……

Quote of the day

From the Chairman of Zen Energy, Ross Garnaut:

“In this Trump era we have a world where nothing is real until an American billionaire tweets about it.”

 

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