Today’s Blog – Monday 3rd April 2017

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

Editorial

And in a single bound Nick Xenophon has saved the Australian energy market – delivering lower prices and greater reliability – all at no cost to anyone!  Who knew it was so easy to fix!

In return for supporting the Federal Government’s corporate tax reduction plans, Xenophon procured a vast list of promises on Friday, including the following:

  • An acceleration of changes to electricity market rules.  What these actually are is unclear.  But apparently they will both reduce prices and increase security.  Hurray!
  • Potential Government support for a pipeline from Alice Springs to Moomba. Hang on says Jemena, currently spending a lot of money building a pipeline from the Northern Territory to Queensland – if that happens it will almost certainly mean we lose $100Ms.  Sovereign risk anyone?
  • Intervention to stop gas companies “sitting on” gas reserves – including in Bass Strait. Those silly companies not investing money which would otherwise generate a positive return just to spite consumers!
  • Speaking of Bass Strait – joint gas marketing should be reviewed again.  This would be interesting – especially if the Government could try and be smart and get BHP on its side – it might have a few levers there.
  • A low interest loan of $110M to support a solar thermal plant at Port Augusta.  Over to you potential equity suppliers……
  • Sundry other interventions into gas markets.   Naturally none of these will increase sovereign risks and depress private sector investment.

We think these promises were easy to give but will prove hard to implement.  But will Xenophon case?  Publicity has been garnered now and delivery will only be measured over years.

Commodity prices

Crude markets had one of their best weeks for some time last week – they closed up 5%. Brent closed at US$53.53 and WTI finished at US$50.60.  Various positive signs of an OPEC deal extension built on the fundamentals of a good inventory report from the EIA.

Numbers from the BHI weekly rig report were shrugged off on Friday – an increase in oil rigs of 10 and a rise in gas rigs of 5.

All the new rigs added since the OPEC deal have not (yet anyway) greatly increased US tight oil production (Permian increases have been largely offset by Bakken and Eagle Ford declines).  Total US production rises have largely come from large scale offshore developments in the Gulf of Mexico which have been years in the making (and which now have a distinct lack of medium term successors due to the multi-year investment strike).

Henry Hub also had a good week – closing up 4% over the week at US$3.19.

LNG and international gas

The world’s first floating LNG plant, operated by Petronas offshore Malaysia, has just commenced its first load-out.  A few years ago FLNG units were expected to play a much larger role in global LNG than now appears to be the case – with the Petronas unit and Shell’s Prelude vessel due to operate off North West Australia being the only material players.

US LNG has arguably killed FLNG (for the short/medium term anyway) – it is cheap, quick to construct, commercially flexible, undertaken largely by new and competitive entrants, etc.

Company news – AGL

AGL held an investor day last week and the media has reported that the company’s plans for investing in new gas-fired plant, etc, in South Australia have – wait for it – been put on hold due to Government plans to intervene in the market in that State.  Who could have foreseen such a possibility?!

Company news – Comet Ridge (COI)

CBM focused junior COI has just announced that Santos (STO) has effectively sub-licenced it operating rights over the Mahalo joint venture in Queensland for the next few years.  As part of the deal, STO will not be cash-called until a large reserves booking has been made.  So micro-cap COI will have to finance medium sized IOC STO.

The latter is the company which will go to see the Prime Minister next week and tell him about its plans to supply more gas to domestic markets, “or else”.  This announcement does not seem to fit with that messaging requirement.

Quote of the day

Nick Xenophon’s ability to solve all of Australia’s energy policy issues on the back of a beer coaster are only bettered by The Onion’s reporting on the following quote from the PUSA’s son-in-law, Jared Kushner:

“I was really hoping to at least knock out the Arab-Israeli conflict before the weekend, but this week’s kind of gotten out of hand. It’ll be fine, though—I’ll just carve out an hour or two next week, hunker down in my office, and sort it all out then. If I can push back a couple business calls, I can definitely get this whole Middle East situation ironed out by Wednesday—Thursday at the latest.”

 

 

 

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