Today’s Blog – Wednesday 5th April 2017

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

Editorial

Today’s Australian Financial Review (AFR) reports on lobbying to expand the gas transmission pipeline connecting Melbourne with the gas storage (and processing) facilities located at Iona to the West of the city.  Naturally the owner of the Iona processing facility, QIC owned SPV, Lochard Energy, is keen for the energy regulator to approve a new $150M expansion of the pipeline network – increasing its access to markets at no cost to itself.  In this part of the Australian pipeline network, authorised capex is recovered from consumers through a tariff pass through arrangement.

To us this demonstrates the value of underground gas storage – and more interestingly, could also provide a demonstration of the potential value of a Floating Storage and Regasification Unit (FSRU) that was favourably located in a manner to mitigate pipeline system limitations.

For instance, AGL, Australia’s current leader in promoting a FSRU, could seek to locate a vessel in Melbourne harbour – and lobby Governments and regulators, for some or all of the economic value of the $150M noted above to be instead provided to it given the de-bottlenecking this new asset would provide.  That is, the FSRU could provide the same benefits as the proposed new pipeline investment – the delivery of gas when required into the heart of the demand node.

To us, the value of FSRUs rests on their deliverability capabilities more than the possibility they will provide access to “cheap” foreign base load gas.  FSRUs arguably threaten the competitive position of pipeline and gas storage asset owners as much if not more than gas producers.

Commodity prices

Crude prices fell just over 1% on Monday but then recovered strongly yesterday.  Brent closed up ~2.5% at US$54.17 and WTI was up ~2% at US$51.03.  The bad news was an up-swing in the rapidly yo-yoing Libyan oil production numbers.  The good news was a prediction of a draw in US inventories (with the official numbers due tonight).

Henry Hub had a very strong day yesterday, closing up nearly 5% at US$3.29.

LNG and international gas

The major Gastech LNG conference is currently taking place in Japan and the usual news from the likes of Woodside’s CEO, Peter Coleman, seeking to defend the practice of long term gas contracting (“Project Canute” anyone?), has been completely over-shadowed by Qatar’s announcement that its longstanding freeze over expanding production from its massive gas-fields will now be lifted.

Qatar has denied that this move has anything to do with moves by its cross Gulf neighbour Iran to accelerate production from its half of the shared gas-field between the two countries.  Mandy Rice-Davies anyone?

This is the lowest cost LNG source in the world for a variety of reasons (brownfield cost structures, large liquids component, near-slave labour costs, good market location, etc). Qatar now moves to the top of the pre-FID LNG queue and every other project around the world is accordingly demoted.

Company news – FAR Ltd

FAR has gone into a trading halt this morning as it organises a capital raising.  This follows a swag of good news – including another announcement yesterday that flagged it taking an increased equity position in a joint venture in Guinea-Bissau.

Cynics will complain about news-flow designed just to boost the share price before a placement.  Optimists hope for a placement at a premium – possibly to new ally CNOOC.

Company news – Santos (STO)

STO issued its formal AGM notice yesterday.  Some signals had previously emerged from the company about its Chairman possibly retiring this year – but the notice signals he is formally up for re-election.  Any successor is not apparent – which might suit him just fine.

The company’s strategic Chinese shareholder’s demands for Board representation appear to continue to be studiously ignored.  The casual observer can only hope for some entertainment on this front at some point.

Quote of the day

Tesla’s market cap passed that of Ford this week (its enterprise value was already much higher) prompting the following observation from Michelle Krebs of Autotrader – that touches upon the ir-rationality of markets:

“The stock market has always treated Ford like an industrial stock while Tesla has been considered a tech stock.  Let’s remember — Ford earns money — lots of it. Tesla does not.”

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