Today’s Blog – Thursday 27th April 2017


We have been closely following the recent politics of Gladstone LNG exports occurring at a time of massive gas price increases (well above LNG net-backs) on Australia’s East Coast.  We had noted that the Federal Government’s policy armaments choices seemed to be between pop-guns and nuclear weapons.

Last night the Prime Minister announced a new “Australian Domestic Gas Security Mechanism” – and it is not clear what weapon’s category this falls into.  It looked tough – and was very squarely aimed at the Santos (STO) led GLNG joint venture – but very little detail has been released as to how it will actually work.

So far today’s STO’s share price has been hit hard – down nearly 8%.  STO has just released a short announcement which indicates it is seeking further information as to what the new policy might actually mean.  It has pointed out its long time serving of the domestic market – but it seems unlikely that history will sway Canberra on easing up on the company when its denizens are receiving much flack from gas customers about prices trebling and more.

STO’s current weakness might provide a more fertile environment for its disgruntled Chinese strategic investor to agitate for more change.  STO’s AGM is next week – but will likely be dominated by such irrelevant items such as protests against New South Wales CBM; etc.  However, we would love to see the Chinese version of Gordon Gekko stand up and take the Board to task in a modern Wall Street moment.

Commodity prices

Crude oil prices have bobbed up and down this week on fears that OPEC might not extend its current cuts – but on the other hand has been helped with some OK crude inventory numbers.  Last night Brent closed at US$51.51 and WTI at US$49.62.

The weekly EIA report was bullish on crude itself – a draw of 3.6 mmbbls (or 4.1 mmbbls when adjusted for SPR sales).  However, product numbers were bear-ish – a 3.4 mmbbls increase in gasoline and a 2.7 mmbbl increase in distillate.  Its still too early for the Griswolds to get into their gas guzzlers and head for Wally World.

Henry Hub has had a couple of down days but rallied strongly last night to close at US$3.26.

LNG and international gas

Our readers are more used to hearing about Senegal in the context of its large oil discoveries – but in addition the country has hosted some LNG scale gas discoveries in recent years.  BP has just increased its equity in the ~15 Tcf Tortue gas discovery on the Senegal/Mauritania border – bringing JV interests on each side of the border into line.  That moves this project up the LNG pre-development ranks a bit.

Could more West African LNG be developed before East Africa?  The Atlantic and Indian/Pacific markets are coming together – but still face differing dynamics (for instance, West Africa more directly competes with the dynamics Gulf of Mexico liquefaction owners), but has an existing LNG track record.

Our view that the Power of Siberia pipeline would struggle to meet its intended first gas target of 2018 received a fillip with recent news that a 8 billion ruble (~US$150M) contract for certain services required for the pipeline’s construction had just been awarded to a tiny new company called Inter Management.  Don’t ask who ultimately owns this newly enriched venture…….but it will not exactly help a very difficult project meet a very tight deadline.  Other rival gas suppliers to China will be pleased.

Company news – FAR Ltd

On matters Senegalese, FAR has recently announced that it will shortly move to drill a new exploration well – FAN South-1.  This part of the world is being more and more closely watched by the international oil industry (says we, hoping for a large takeover offer for our FAR shares).

Quote of the day

Another recent quote from Tellurian’s Martin Houston, which manages to make a few rather more interesting points in the one statement than he would have allowed to do at BG:

“It’s making sure that the golden age of gas doesn’t pass by and then becomes the golden age of coal. That worries me. We’re not driving policy makers towards the outcomes we need in the industry. Gas should be punching much further above its weight than it is. I worry about the industry’s ability to rally around the new order. The new order is cheap LNG from America. Not expensive LNG from projects in East Africa”.





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