Today’s Blog – Tuesday 13th June 2017

Editorial

Last Friday saw the release of a long awaited report on Australia’s electricity systems and markets by the country’s Chief Scientist, Alan Finkel.  To us this sought to find a middle ground of what might work politically whilst subsuming optimal economic efficiency to what might garner the most support.  That approach has not surprisingly enraged the extremes of both the left and the right who want to sacrifice the good for their versions of the unattainable perfects.

At the heart of the recommendations in the report is a system replacing the current renewable energy target scheme with a technology agnostic low energy target – with a carbon intensity level still to be set by politicians.

Much media comment has concluded that this will be good for gas and bad for coal.  We agree with the latter – but think the former could be a bit over-cooked if the scheme takes account of the growing carbon emissions associated with the total gas cycle.

The unfortunate reality for Cooper Basin gas in particular is that its methane production is associated with very high associated CO2 production – which is separated and vented. Counting that CO2 (as well as any CH4 involuntary emissions) can make gas no better or even worse than coal.  Although not as bad, Gippsland gas is also increasingly burdened with a growing waste CO2 by-product.  East Coast low CO2 gas from Queensland is largely exported.

Commodity prices

Crude oil prices on Friday closed down ~4% for the week – largely on the very poor weekly EIA inventory numbers.  Yesterday prices inched back up a few notches to close at US$48.28 in London and US$46.00 in New York.  This week’s EIA report will be especially closely watched – another bad week could send prices materially down again.

The BHI weekly rig count indicated that the US oil  patch keeps on coming on, despite the gloom, with Friday’s numbers being another increase of 8 oil rigs and 3 gas rigs.

Henry Hub is fairly flat in the ~US$3 range at present – closing at US$3.02 overnight.

LNG and international gas

In what was a rare piece of positive news for LNG companies, Reuters reported late last week that Sino-Russian talks about new gas pipelines to the PRC (the Altai pipeline to the West and a Sakhalin Island backed pipeline to the East) had stalled.

These projects have a mix of major technical and commercial challenges – and a desire by China not to become too beholden to the Bear.

Disruption

One of the most important – if not the most important – questions for the overall energy sector is whether the path of cost reductions in solar PV will follow a Moore’s Law type path of ongoing exponential reductions – or might plateau.  Moore’s Law is of course not a Law of nature  – but rather a successful prediction.

Research recently reported on by the IEEFA – by a couple of economists who investigated the history of development of a number of technologies to see which might follow Moore’s predicted path for transitors – found that solar PV costs exhibited similar patterns.

If solar costs continue to follow a Moore like path for a sustained period – than every other form of energy needs to take account of that competition.

Company news – Origin Energy (ORG)

The twists and turns of ORG’s plans to off-load a parcel of its upstream assets through the Lattice Energy spin-off – as revealed by leaks to the media – continues.  Last week it was the turn of The Australian to flag a lowering of price expectations – now ~A$1B rather than the nearly A$2B that was previously hoped for.  And the hoped-for “Chinaman with a cheque-book” is still nowhere to be seen.

Quote of the day

The inevitable emergence of the likes of Tony Abbot to bemoan the Finkel Report reminded us of this classic Churchill quote about the ever dreary disputes of Ireland following the end of The Great War:

“The position of countries has been violently altered. The modes of thought of men, the whole outlook on affairs, the grouping of parties, all have encountered violent and tremendous change in the deluge of the world. But as the deluge subsides and the waters fall short we see the dreary steeples of Fermanagh and Tyrone emerging once again. The integrity of their quarrel is one of the few institutions that have been unaltered in the cataclysm which has swept the world.”

 

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