By Leith van Onselen Robert Gottliebsen (“Gotti”) is at it again confusing the debate over Australia’s gas supplies: With the exception of Western Australia every state in Australia is going to suffer from much higher gas and electricity prices. Investment in energy using industrial plant will be curbed and consumers will be forced to cut
Australian LNG has a long history of pioneering investment. From the North West shelf to the first floating LNG project ever constructed.
Like other Australian commodities this history aligns with that of development economics of Asia. The first wave of Australian LNG development grew to service a modernising Japan and its demand for energy. This bilateral relationship has a long history of cordial relations, share-equity investment and oil-linked contract pricing to satisfy both parties.
The second wave of Australian LNG was far more chaotic, matching the staggeringly swift rise of the much larger Chinese economy. It began along with the pre-GFC oil boom and Malthusian assumption that the world was going to fall short of everything as the enormous Chinese and then Indian middle classes ballooned and consumed more energy per capita.
Multitudinous LNG projects were sanctioned in Australia which found itself by 2010 developing no fewer than seven LNG project simultaneously. Needless to say this did not end well with gigantic cost blowouts for all as they competed for labour and other resources.
Yet, as the commodity super cycle peaked in 2011, demand suddenly fell well short of expectations and kept doing so over the next four years. Making matters worse, the US shale revolution suddenly turned that nation from net LNG importer to net exporter of a magnitude equal to Australian LNG. The global glut from 2015 was enormous.
The Australian LNG boom included a particularly cavalier offshoot in QLD where coal seam gas was liquefied via three projects on Curtis Island. As the boom subsided, and oil-linked prices crashed, the companies involved were all either sold or destroyed.
The legacy left by the projects was one of very high Australian gas prices with very low Asian gas prices, also delivering an huge blow to the competitiveness of the east coast economy. Thus the $200bn investment proved to be the greatest single capital mis-allocation in the history of the Australian economy (and surely global energy markets) and was little more than a monument to Banana Republic economics as tax takes failed, income fell and hollowing out transpired on raised local costs.
MacroBusiness was the only analytic house to call the Australian LNG bubble early, track it and predict its demise. It continues to cover the LNG sector with daily updates and a large grain skepticism and is a must read for anyone that needs to know the economic forces coming to bear on the sector.
Chinese bonds are bid a little today: And Dalian is flat: Under the surface, trouble still lurks, via Bloomie: Here’s another Chinese financial practice that’s prompting high-decibel warnings. So-called entrusted bond holdings are a way for financial institutions to skirt rules on using borrowed money to invest in bonds. How? By getting a third party
Dalian has opened under pressure again: As Chinese bonds keep selling: And authorities are warning that liquidity will remain tight through the Q1 lending season: Tight liquidity in the interbank market is expected to continue until early February It recommends monetary authorities take steps to prevent the situation from getting worse Liquidity is forecast to get
Dalian is unchanged today but my sense is that the bubble is in a spot of bother as liquidity issues spread: Chinese yields are moon-shotting again today: Caixin is downright gloomy: China’s central bank stepped in to urge major commercial banks to lend to non-bank financial institutions on Thursday afternoon after many suspended interbank operations
From Citi: As outlined in Global Commodities Focus: Reflation, Risks and the Rocky Road to Recovery, while Citi’s Commodities Team continues to forecast an oil price recovery over coming years, is has reduced its Brent oil forecast by US$3/bbl in CY17 & CY18, to US$57/bbl and US$61/bbl respectively. More meaningfully for our coverage, we have
Dalian is down a little today: And Big Iron is following with BHP 0.8% but RIO -1.6% (despite big price upgrades from MS), FMG -2.2% and WHC 0.9%: Nothing in my view has changed. This bubble will burst when it’s ready. With coking coal joining the thermal crash, WHC looks vulnerable… Big Gas is fading
Damn right from Alan Kohler today: The word “urgent” appears six times in the independent review of the future security of the national electricity market led by the chief scientist, Alan Finkel, and the words emissions intensity or emissions trading schemes don’t appear next to any of them. The review reserves its most pressing language
The Brent oil price has not moved much in the past few days, finishing Friday at $54.30. Henry Hub gas, however, continues to rocket, hitting $3.74mmBtu: However, over the weekend, we say more production cut commitments, via Bloomberg: Saudi Arabia signaled it’s ready to cut oil production more than expected, a surprise announcement made minutes
Dalian is slightly off its overnight limit down effort today and not even it cares about the Chinese inflation shock on its doorstep, rising after the print: Likewise, Big Iron seems to think that nothing can stop it now with BHP -0.5%, RIO flat, FMG -0.7% and WHC -1.5%: I can only repeat, China does
Extraordinary circumstances today with the iron ore bubble unchanged from overnight: But Big Iron headed for the heavens with BHP 1.7%, RIO 2.7%, FMG heading for $7 up 3% and WHC 1.4%: When it will end nobody knows given it has no underpinning but bullshit is certainly mounting up: Fortescue shares jumped from $6.70 to
The AEMO has released an alarming new report on the eastern gas market: The Australian Energy Market Operator’s (AEMO) third annual National Gas Forecasting Report (NGFR) released today highlights some of the uncertainties and challenges complicating gas demand forecasts for eastern and south-eastern Australia’s interconnected gas markets over the next 20 years. The 2016 NGFR
From Macquarie: Electric car sales are booming and will soon enjoy a large market share. This will soon have major implications, negative and positive, for a whole range of commodities. Such is the received view, although our analysis of monthly sales data, which we have compiled for all of the major markets, suggests that
Via The Australian: Australian east coast gas producers are making more money selling into domestic spot markets than selling their gas as LNG, while domestic prices rise to levels necessary to compete with gas being exported from $70 billion worth of LNG plants being built at Gladstone. Consultants EnergyQuest said the short-term LNG netback price
Minister for Industry, Greg Hunt, has summoned the east coast gas cartel, from The Australian: Greg Hunt has summoned the nation’s leading energy executives to Melbourne for crisis talks today on looming gas shortages that are causing spiralling prices and threaten manufacturing jobs. The Industry Minister will use the meeting to increase pressure on the
Donald Trump has appointed his Secretary of Defense, from WaPo: President-elect Donald Trump has chosen retired Marine Gen. James N. Mattis to be secretary of defense, according to people familiar with the decision, nominating a former senior military officer who led operations across the Middle East to run the Pentagon less than four years after