Today’s Blog – Monday 5th June 2017

Editorial

Last week President Trump generated much news-flow following his “you’re fired!” response to the Paris climate agreement.   This over-shadowed a development that could have a more material impact on changes to the global energy system – a strong signal about priorities to Exxon from its institutional shareholders, in terms of a vote being overwhelmingly carried at a shareholder meeting that will require the oil and gas giant to publish analysis on the risks of climate change to its business.

As we have noted from time to time, the likes of super-giant fund manager Blackrock (who voted to change Exxon’s thinking on the issue) have immense power in terms of capital flows – and it is often “the money” that shapes things more than a political announcement.

That is arguably especially so in this case – where US emissions are low and getting lower due to cheap gas, the rapidly falling cost of renewables and more granular policy and business decisions in the likes of States like California and companies like Google.  The only real consequence of the US leaving Paris is a diminishment of its global soft power – it will not change the energy mix in the country itself.

Commodity prices

Crude prices fell in both Thursday and Friday’s trading, closing at US$49.95 in London and US$47.66 in New York.  Overall they were down ~4% for the week – notwithstanding some good “numbers” from the weekly EIA’s inventory report (which we incorrectly reported on last week – the real numbers were a draw of 6.4 mmbbls of crude, 2.9 mmbbls of gasoline and an increase of 0.4 mmbbls of distillate).

That was the 8th week in a row of declining inventories – all up a bullish trend.  What was not so bullish was the weekly rig numbers from BHI – an increase of 11 oil rigs and a decrease of 3 gas rigs.

Henry Hub was down ~9% for the week (driven by poor inventory numbers of its own) – closing at U$$3.00.

LNG and international gas

An ENI led LNG project off Mozambique reached FID last week – the first one globally in 2017 to our knowledge.  This is a FLNG project and hence of smaller scale than a full blow multi-train onshore development that the country would no doubt prefer to see.

However from our perspective, the most interesting item about this project is not that it is Africa’s first floating LNG development – but rather that the underwriting off-taker was BP rather than the traditional utilities.  BP is obviously not a consumer, so is presumably highly confident that it can sell the contracted gas in short and long term LNG markets.

Disruption

As Elon Musk is pulling out of a Trump advisory council following the President’s “Pittsburgh not Paris” decision, he is also copping some flack from a person who is not absolutely not The Donald’s friend, no sirree bob! – one Igor Sechin.  The Putin pal and Rosneft boss has joined the chorus of Tesla short sellers in saying:

“The market’s assessment of the prospects of electric car producers, in our view, is significantly overestimated.  The unconditional truth remains in the fact that the hydrocarbon power industry has been and will be in demand.”

Company news – Comet Ridge (COI)

Junior ASX listed explorer COI reported an unusual event for the E&P sector last week – an oversubscribed capital raising.  COI has contingent resources of gas in Queensland that should be able to readily find a high priced market if/when developed.  Investors can easily understand an East Coast gas investment story when they read about it on the front pages of the newspaper rather than in the dull business section.

Quote of the day

The pressures on US inventories appear to be strong according to the following recent quote from EIA analyst Mason Hamilton:

“Refinery runs are ridiculous. I posted a meme where it’s the line from Top Gun: ‘I feel the need – the need to run the refinery full out.’ “

 

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