Today’s Blog – Thursday 1st June 2017

Editorial

The Australian Government is seeking to change the scope of what its Clean Energy Finance Corporation (CEFC) can advance concessional funding to, to include carbon capture and storage (CCS) projects.  The media narrative that has ensued has typically been driven by political allegiances rather than science – with on the one hand the left concerned that CCS will extend the life of its disliked fossil fuels (coal in particular) and on the other hand the right seeing this as a panacea for its beloved coal.

What is missing (in the Australian context anyway) is an answer to the question – where will the captured CO2 be stored? – with an apparent widespread assumption that there are many large caves underground just waiting to be stuffed with mega-tonnes of carbon dioxide.

The unfortunate reality is that the only proven underground storage sites are those that have held hydrocarbons for many tens of millions of years and in Australia they are basically:

  • Off the North West of Western Australia – far too remote to have any material CCS potential.
  • Off Victoria – although we are no subsurface experts – we understand that the nature of Gippsland reservoirs is such that the pore space previously occupied by oil and gas is now largely occupied by water – and an awful lot of energy would be required to displace that.
  • In the Cooper Basin. Again this is very distant from large CO2 emitters (other than from the operations at Moomba, but that’s a story for another day).

So never mind the politics – we can’t see the CEFC funding a genuine large scale CCS project – as no such projects will arise – even if its mandate its changed.

Commodity prices

Oil prices have fallen steadily over the last few days, with Brent closing overnight at US$51.04 and WTI at US$48.32.  An overall fall in the month of May was the third such monthly fall in a row.

The weekly EIA inventory report was OK – crude down 4.4. mmbbls (or 4.8 adjusted for SPR sales), gasoline down 0.8 mmbbls (likely a disappointment given the run into driving season) and distillate down 0.5 mmbbls.

However, the bears shrugged this off in the light of an Oliver Twistian ongoing disappointment that OPEC did not do “more” last week and news of growing Libyan and US output.

Henry Hub has had an even tougher time – its now down to US$3.07.

LNG and international gas

The recent election in British Columbia has now led to a left leaning coalition taking the reins of Government.  All things being equal, this is bad news for the Province’s many LNG projects (including Woodside Petroleum’s) – but good news for the other members of the “100” pre-sanction global LNG projects.

Putin’s favourite (“I don’t own any of it – that share certificate was just resting in my bank account!”) gas company, Novatek has announced progress in what appears to be a fairly fanciful new Arctic LNG project near its existing very expensive Yamal project – the floating Arctic-2 project.  Titantic LNG might be a better name.

Disruption

The tsunami of large scale solar PV projects continues – with Telstra just saying it will underwrite a new 100 MW plant.  Virtue signalling you might say (like Google, et al in the US) – but motives don’t count, market outcomes do – and more and more solar hollows out the economics of traditional base load gas and coal plants – and hence demand for the traditional flat delivery of their feedstock.

Company news – Strike Energy (STX)

STX’s new CEO made a strategy presentation this morning which included phrases no shareholder likes to see: “technical success”, “legal dispute”, “funding under review”, etc. Quelle surprise!

And, Ouch!, said the share price.

Company news – Cooper Energy (COE)

COE has announced that it has executed a suite of contracts with infrastructure giant APA Group over the sale and upgrading of its Orbost gas plant.   These contracts will complete upon the imminent FID of COE’s Sole gas field development.

Welcome APA to the world of taking reserves risk!

Quote of the day

From the disruption side of the ledger – but importantly from a hedge fund, not a hippy:

“This clean energy disruption has just started and what is striking is how much of a financial impact it is already having on some companies.  It hit the electricity sector first, in Europe in 2013 and then the US two years later. Now it has spread to the auto sector and I think the oil industry is next.”  Per Lekander, portfolio manager at London’s Lansdowne Partners hedge fund

 

 

 

 

 

 

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