We usually address some of the current very rapid changes arising in the non oil and gas parts of the energy sector under the heading “disruption”. Today we report on a few different news stories which all fall under this heading and which provide support to the thesis that non hydrocarbon competition to E&P companies is arguably as high as it has ever been over the last 150 years. These were as follows:
AGL made a strategic presentation at an investor conference hosted by Macquarie Bank yesterday which was notable for the following claims:
“Transition will be from big coal to big renewables, skipping big baseload gas….Big renewables plus big storage will dominate our energy landscape.”
The energy market paradigm in Australia (if not the planet) for at least the last 10 years is that gas will be the “bridging fuel” to a renewables future. AGL is effectively now saying that solar will push gas out to the margins. Naturally it is talking its own book – but more money has been going into solar than gas projects in Australian recently.
Gas’ role may therefore be more to provide a responsive energy “storage” tool to supply peaking generators when renewables are offline. Given that, we note AGLs’ FSRU plans and our previous comments about the large scale energy storage/deliverability of such vessels.
Although less material news, it is interesting to note that Origin Energy (ORG) has just appointed a new Director – whose background seems to be almost entirely from the energy disruptive industries.
In big company land, Total’s Chief Economist has joined the chorus from other Super-Majors such as Shell in noting that the expected large growth in electric vehicles could mean peak oil demand by 2030.
We think that the under-stress Australian E&P companies do not seem to have the current band-width (at Management and Board level) to adequately deal with the risks and potential rewards from “disruption”.
Crude prices have fallen over the last few days by 2-3%. Brent closed at US$51.16 and WTI at US$47.66 (its worst for 5 months). All the price gains from the OPEC cut deal of late last year have now evaporated in the face of growing US production fears. Even the perennial news of Libya coming back on line has been seized upon by the bears (more than countermanded by risks of chaos in Venezuela in our view).
Henry Hub gas prices have fallen by ~3% overnight to US$3.19.
LNG and international gas
LSE listed Ophir Energy seems to be quietly making progress on its West African FLNG project – one that is somewhat smaller in size than Shell’s massive Prelude asset which due to be deployed off northern WA. Ophir has just signed an umbrella agreement dealing with taxes, etc, with the Equatorial Guinea Government and is aiming for FID within 6 months. If achieved this would demonstrate a lot of market support for this type of venture compared to the traditional LNG mega-project.
Right wing (or is it left wing – who knows?!) Australian politician Pauline Hanson has recently called for offshore gas assets to be nationalised and PSCs put in place. Apparently we should be aiming to be like “successful” peers such as Nigeria. I don’t think she has gone there somehow.
This should have zero chance of getting any traction (but what about your 2016 Presidential election predictions you say?).
Company news – Santos (STO) and Central Petroleum (CTP)
STO has just exercised an option to acquire increased equity in licences in the NT’s Amadeus Basin from CTP. This seems somewhat bizarre given the company sold out of the only production hub in the region last year. Possibly STO’s explorationists have nowhere else to look at.
Quote of the day
Saudi Aramco has a more bullish view on peak oil demand than others (not surprisingly given politics and a planned US$2T IPO valuation…..):
“The global economy is forecast to double in size by 2050 so overall demand for energy will be higher. The idea that oil demand is close to its maximum level is equally as misleading as now-discredited theories about peak oil supply”. Chief Executive Officer Amin Nasser