Today’s Blog – Thursday 16th March 2017


Yesterday the Prime Minister convened a meeting with the heads of East Coast gas companies (apparently also including some who aspire to be material gas suppliers rather than incumbents).  The key points were:

  • He advised them of the Constitutional ability of the Federal Government to control exports and therefore suggested that it would be prudent to make gas available to the domestic market when required, particularly for electricity generators at times of peak demand.
  • The Origin Energy led (ORG) APLNG and Shell led QCLNG joint ventures promised to make net contributions to the domestic market.  The more challenged Santos (STO) led GLNG JV was “put on notice” to try harder to also do so.
  • We note that neither ORG nor STO felt these commitments were sufficiently material to warrant ASX releases advising their shareholders of this new world…..
  • The PM told the gas producers that it would be embarrassing for Australia to import gas through a FSRU at the same time as exporting LNG.  We think AGL should be pleased that its well publicised FSRU plans have helped contribute towards greater domgas supplies.  And this new business could still be profitable as well as embarrassing.
  • Pipeliners are next.  We note that the normally very vocal CEO of monopoly pipeline company APA Group, Mick McCormack, has been uncharacteristically quiet recently.
  • Victoria and NSW were encouraged to open up exploration. We don’t expect a positive response.  Shell’s Chairman for some reason believes on-shore Victoria is highly prospective – but we doubt he would invest there professionally or personally.

Today the Government announced a major energy development in terms of adding ~2,000MW of pumped storage in the Snowy Mountains.  The media is already confused about this adding more energy to the system – it does not, it only adds (valuable) deliverability.  This new capacity will compete with other sources of energy deliverability such as gas storage – and indeed AGL’s planned FSRU.  This is said to cost ~A$2B – which seems very optimistic to us.  Another project at the post-it note stage?

Commodity prices

Crude prices jumped around 2% overnight, with Brent closing at US$52.00 and WTI at US$49.01.  The good news was some very healthy inventory “numbers” from the weekly EIA report.  Crude inventories were down by 0.2 mmbbls, gasoline down by 3.1 mmbbls and distillate down by 4.2 mmbbls.

Additionally the SPR was drawn on again – this week by 0.8 mmbbls, which all things being equal meant that the net normal crude draw was 1 mmbbls.  Interestingly Chinese NOC PetroChina was one of the purchasers of SPR crude.

We think that if these numbers had come out one week earlier then last week’s ~10% fall would not have happened.  However, the recent bear-ish sentiment will now likely require a few good weeks’ of positive “numbers” to be reversed.

Henry Hub closed up ~1% at US$2.97.

LNG and international gas

Darwin’s Ichthys LNG project (operated by Japan’s Inpex and with Total as a partner) is suffering from likely further delays and cost over-runs.  An industrial dispute has recently boiled over, with 800 workers being stood down.  The already late start date of September 2017 now seems optimistic (phew, say other LNG suppliers).

Company news

Apparently nothing material is happening in ASX listed oil and gas land.  What is required to get out news to shareholders?  We suspect that good news would be more material….

Company news – Alinta Energy

PE owned downstream energy company Alinta has been planning an IPO on the ASX for some time.  However at the last minute a cashed up Chinese (Hong Kong) buyer has come in – apparently with a cheque for A$4B.  The buyer is a property (what else in HK?!) billionaire. No doubt a few hurdles present themselves before completion – such as FIRB clearance.

Quote of the day

A quote from early 1970s classic, Enter the Dragon, when rich Hong Kong types had private islands, martial arts armies and a focus on drugs rather than Australian energy assets.  Still has the business plan changed much?

We are investing in corruption, Mr Roper. The business of corruption is like any other.” Arch-villain Mr Han

“Oh yeah! Provide your customers with products they need and, uh, charge a little bit to stimulate your market and before you know it customers come to depend on you, I mean really need you.”  Karate expert Mr Roper



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