Today’s Blog – Tuesday 11th April 2017

Editorial

Last week we reported on the Qatari announcement that the No. 1 gas exporting nation (but not quite No. 1 footballing nation) was lifting its 12 year moratorium on increasing gas exports.  Of course this had nothing to do with Iran’s joint ownership of the world’s best gas-field – called either North Field/South Pars, depending on what side of the Gulf one is looking from.

We stress again that the importance of this development for globally traded gas cannot be overemphasised.  Not only does this put a large amount of new Qatari LNG capacity right at the top of the LNG project queue (pushing everyone else down) – but it also signals that the Qatari’s fear Iran also aggressively entering the same market in the short/medium term.

One further issue that might be driving the Qataris – and again which has consequences for the global gas market – is a potential view that unless gas is produced in the next few decades it might just stay in the ground for ever.  Such a view could be driven by politics in the form of international carbon emission limitations.

Possibly more importantly, it could also be driven by economics – with the Gulf in particular providing an excellent vantage point to observe the rapidly falling cost of a key competitor to gas – solar.  The latter now has a lower levelised cost of production (at least in very sunny locations with buyers with good credit ratings) than gas fired generators.

If this view is correct, then Australia may never see another greenfields LNG development – with the best hope for large resources like Browse being brownfields back-fill into existing liquefaction infrastructure.

Commodity prices

Crude had a solid 3% rise last week – with “events” in the Middle East beating poor US numbers on the inventory and rig count front.

That momentum continued into Monday’s trading, with markets again rising by around 1.5%.  Brent closed at US$56.03 and WTI at US$53.08.  Libyan production continues to oscillate rapidly and fell again a few days ago.

Henry Hub has been somewhat more sedate.  It closed last night at US$3.24.

LNG and international gas

A major LNG conference in Japan last week was completely overshadowed by the news from Qatar.  However, other interesting vingettes also emerged.  One such was a promise by Charif Souki that his new company Tellurian could deliver gas to Asian customers at fixed dollar prices.

The exuberant tone of this Soukian “guarantee” reminds us of nothing less than the recent promise from Elon Musk to fix South Australia’s battery needs – or your money back.  We welcome this little bit of New Economy showbiz in the otherwise very dry world of LNG.

Company news – Origin Energy (ORG)

ORG has provided an update on its planned spin-out of part of its upstream assets.  It has formally confirmed what was widely understood – that it will consider formal trade sale offers prior to the planned IPO (whose timing has slipped).

ORG has dubbed its Newco (known more widely as Cr*pco”) as “Lattice Energy”.  Us neither.

The mooted potential buyers for the Lattice assets that have been named in the press are a pretty thin list – Beach, Senex,  Cooper and Seven – all of whom would struggle to finance the mooted sale price of ~A$1.8B.  In the normal course of asset marketing, if a Chinese waiter had as much as smiled at an investment banker over lunch then there would be news reports of keen Chinese interest.

Company news – BHP

BHP is the latest subject of share activist investors seeking a quick buck. New York hedge fund Elliot Associates has suggested BHP listing solely in London and splitting off the company’s E&P assets into a NYSE listed vehicle.

Australian legal and political barriers to any such move are presumably too far away to be spotted by these smartest guys in the room.  We think this will just fizzle out – but it does demonstrate that BHP’s unique position in holding material assets in both the petroleum and minerals resources sectors is always the subject of external questioning.

Our solution for BHP – acquire Canadian tar sands assets – with their petroleum product and mining extraction techniques they would appear a prima facie good fit.  And these assets are currently being sold pretty cheaply by the likes of Shell and Conoco.

Quote of the day

JERA’s chief fuel transactions officer Hiroki Sato on Charif Souki:

“….is a genius (for) throwing a stone in the pond and creating a ripple. I don’t know how I evaluate that or if it is good or bad.”

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