Today’s Blog – Wednesday 7th June 2017

Editorial

Oil – and LNG – markets have over the last few days been focused on the medieval – dare we say Game of Thrones-ish – political “events” in the Middle East.  It seems that House Baratheon has taken offence with the Eastern Kingdom, at the urging of the Mad King over the water.  Or something.

That something maybe being to think twice when someone says “hey lads, lets go and do a bit of hunting with our cool pet Falcons in ISIS controlled Iraq. If we get caught then Daddy can pay dip into his small change jar and pay >US$1B to release us.”

Upon news breaking of the Saudi led embargo over the average football fan’s favourite World Cup location ever, beer-drinker welcoming Qatar, oil markets did not know what to think.  First prices went up, in the usual response to Middle Eastern “events” – then they went down as markets feared OPEC unity might crack.  Then they went back up again.

Qatar is an OPEC minnow but an LNG giant.  The Saudis fear it is too close to Iran politically (encouraged by the US President but not the Pentagon it seems) – but that is after Qatar decided to lift its self-imposed moratorium over LNG expansion – arguably at Iran’s expense.

A few days ago the Qataris were publicly advising the Japanese not to rattle the cage over changing LNG contracts.  Now they might need a few more friends – so all things being equal LNG prices might fall in the medium term as a consequence of these events – or maybe more likely, the trend of contract term liberalisation will be strengthened.  But they also might rise in the short term if a physical embargo tightens.

We are watching with interest.  “High cost, but reliably boring”, could be a new marketing slogan for Australian LNG suppliers.

Commodity prices

As noted above, crude prices rose then fell on Monday’s trading on the Qatar news – and were overall down on the day.  Then in Tuesday’s trading a ~1% rebound took place, with Brent closing at US$49.96 and WTI at US$47.99.

“Technical” support apparently came to the rescue.  Hopefully “numbers” support will come in overnight from the weekly EIA inventory report.

Henry Hub closed overnight at US$3.06.

LNG and international gas

With all LNG eyes on Qatar, a more unusual story is a Gulf of Mexico floating LNG project called Delfin.  This is not designed to monetise otherwise stranded gas, but locate a liquefaction facility just outside the jurisdiction of US regulators that may limit where US gas can be sold to.  Some interesting entrepreneurial thinking – but our initial response is to think there is a lot of gas sloshing around the world anyway and ways and means can be readily found to effectively swap US gas into any market anyway.

Governments

Over recent days the Queensland Government has released a multi-pronged energy strategy that contains the currently popular mix of encouraging more renewables and energy storage with specific measures to support short term reliability (an election may be called in the next 6-12 months you will be surprised to hear).

Reliability should be increased by de-mothballing the 385 MW CCGT at Swanbank E owned by Queensland Government company Stanwell.  The latter will have the interesting challenge of procuring gas & pipeline capacity within a few months.  In a region where liquefaction plants are running well below capacity.  And prices are high.  And negotiations are slow.

This could be one more cross to bear for the Santos led GLNG JV.  It used to supply Swanbank E from the Scotia field – but bought out the relevant contract.  A legal position is one thing – but a Government seeking an important political outcome is another.

Company news – AGL

AGL announced today a new 210 MW gas fired power station (at a cost of A$295M) to be built next door to its old Torrens Island plant in Adelaide.  AGL should be able to readily source gas for this from its existing portfolio – potentially to be enhanced by its proposed FSRU.

Interestingly for the engineers out there, the power station will use reciprocating engines rather than gas turbines – the former’s energy conversion efficiency is impressive these days – and multiple engines provide more flexibility and resilience than one or two larger turbines.

Quote of the day

Well known journalist Alan Kohler on the current wave of “disruption” hitting the energy sector:

“A lot of people, myself included, had hoped that newspapers wouldn’t be disrupted by the internet, but it happened…..the coal miners will find something else to do, along with the journalists and the other workers disrupted out of their jobs.”

 

 

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s