Today’s Blog – Thursday 30th March 2017

Blogging services will be intermittent for a few weeks due to travel commitments

Editorial

Troubled Japanese conglomerate Toshiba has just put its US based nuclear development division Westinghouse into Chapter 11.  Its share price in Tokyo has been on a downward spiral for months and was smashed again on this news.  this clearly begs questions as to the solvency of the overall group.

And the relevance of this to oil and gas circles?  Regular readers will recall that Toshiba has contracted for liquefaction capacity in the US (at the Freeport LNG plant – due to start deliveries in 2019).  We have previously speculated as to what effect on global LNG markets the already sunk costs could have when Toshiba (and others) come to market their US sourced LNG.

A financially on the brink Toshiba could make this worse.  A default by it on contracts with Freeport could send the latter into bankruptcy itself.  If that happened the Freeport liquefaction assets would still be there – but then with a lower capital base in a new entity that could require lower tolling fees to liquefy gas – with a resultant new and highly competitive gas source coming into the market.

Financiers to other under-construction – or looking for FID – US LNG ventures will no doubt be dialing up their risk notches – making new ventures less likely to get the go ahead.

Commodity prices

Crude prices have rallied in recent days – with particularly material moves overnight, as Brent moved up ~2.1% to US$52.42 and WTI went up even more to US$49.51.

The key driver was the weekly EIA inventory report, which had a better than predicted increase in crude stocks of 0.9 mmbbls – and large inventory draws of 3.7 mmbbls of gasoline and 2.5 mmbbls of distillate.  The headline crude figure was even better than it seemed – as the SPR was drawn down by 0.7 mmbbls, making for an adjusted “normal” crude draw of close to zero.

“Events” are helping as well as “numbers” – with Libyan production being again materially interrupted by that country’s interminable factional fighting.

Henry Hub has risen even more than crude over the last few days – with another major rise of ~4% overnight, closing at US$3.23.

LNG and international gas

Another secondary market development adding to and boosting the liberalising LNG primary market – coming from major players in US financial markets rather than Singapore this time.  This is a plan to launch a futures product by as soon as May linked to ex-Gulf Coast LNG prices.  The data for the price will come from major industry player Platts and be traded on ICE (home of the WTI contract).

It will be interesting to see how this contract will compare with the Singapore “Sling” LNG contract – in terms of volume, trends to convergence, etc. (At least Singapore has the best name).

Governments

Much media band-width in recent days has been taken up by executive actions by the Trump administration that are aimed at encouraging more US coal production.  Claims by those for and against this move ignore the bigger impact of what “the money” will actually drive.  And there the main issue is the competitive impact of cheap natural gas rather than regulatory costs.

US coal should do OK again if gas prices rise – but if they don’t, the industry will likely continue to decline – with another factor being that “the money” – as represented by growing sectors of key gatekeepers in capital markets such as sovereign wealth funds and fund managers, have weightings against coal qua coal.

Company news – Cooper Energy (COE)

COE’s amazing run continues up the rankings of Australian E&P company market capitalisations.  It has just announced a fully underwritten equity raising of A$151M to fund its Sole gas-field development and says that FID on this is imminent (post finalising debt funding – which should follow this equity raise).

We had expected COE would sell this project down – but it seems that equity market appetite for the very easily grasped story of “East Coast gas prices are high – read the front page of the paper” – means that has not been required.

Quote of the day

Possibly the second most effective user of Twitter on the planet is Elon Musk.  Putting shorters of Tesla into a tail-spin in recent days, Chinese company Tencent (not the rapper – that’s 50 Cent) has just purchased a confidence boosting US$1.7B stake in the company – which Musk indicates could be more than just passive:

“Glad to have Tencent as an investor and advisor to Tesla.” (emphasis added)

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