The triumph of Santos

From the AFR’s Angela Macdonald-Smith talking with outgoing Santos CEO David Knox about GLNG:

“When you do something as big and innovative and imaginative as this, don’t imagine it is going to be easy – it’s not easy,” Knox said from Santos’s Brisbane office ahead of Friday’s sailing of the first GLNG cargo from Gladstone.

“We’ve risen to that challenge, we’ve demonstrated we can do it. I think what will happen over the next 20 years people will say, well thank goodness Santos did that, it was a great outcome for the company.”

The halving of oil prices over the second half of 2014 has slashed the revenues Santos and its GLNG partners can expect to receive from initial exports, given LNG prices are directly linked to crude prices. JPMorgan energy analysts this month cited likely rates of return from GLNG at just about 6 per cent at current oil prices, about half the hurdle return rates typically used in the industry.

“If the price stayed at $US50 that would be right, but I don’t believe and I don’t think our investors believe the price will stay at $US50,” Knox says in response.

Codswallop. GLNG does not have a return on capital at Brent $50. It has a cash return at $50, so long as its supply contracts hold up. If you add the cost of building the plant then the break even for any return is around $80.

GLNG and the other Curtis Island plants were a bubble. They rushed in with their silly projections of endless demand growth and built everything three times over, in the process engineering the greatest single capital mis-allocation in the history of the Australian economy.

GLNG has destroyed Santos and it is disintegrating before our eyes. Someone else may ultimately turn a buck from GLNG but not in a hurry.

And the AFR punch line is:

The writer travelled to Gladstone as a guest of Santos.

Houses and Holes
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Comments

  1. I’ll bet she travelled out faster than she travelled in.
    This hasn’t received much MSM coverage, But Senator Lazarus is pushing ahead with a call for a Royal Commission into the CSG industry following the suicide of a prominent farmer out Chinchilla way, over the encroachment of csg onto his land and water issues with his water bores.
    Now as anyone who has followed this epic knows the required gas will require much more drilling of wells and workover of existing to extract the most gas. (my call is they will still be short). This will with out doubt lower the water table and most probably destroy the ability of the farmers to use the ground water as they have in the past. The outcome will invariably pitch people on the land against Govt and the CSG industry.
    The Last Govt was turfed out over environmental concerns, expect the next one to follow suit.
    I think Lazarus has just drawn the battle lines.WW

    • Yep, many many more wells needed to meet those production projections. In the tens of thousands.

      With respect to current development, some of the initial field developments have turned out to be very expensive indeed…

    • Cue morons saying CSG is safe blah blah no risk to water table

      Some poor bloke has killed himself over CSG and lack of private land rights

      Royal Commission Now
      Lock the Gate

  2. greatest single capital mis-allocation in the history of the Australian economy.

    BIgger than the housing bubble and the over-investment in additional I/O capacity across both majors plus Twiggy and Gina? Just asking.

  3. “We’ve risen to that challenge, we’ve demonstrated we can do it. I think what will happen over the next 20 years people will say, well thank goodness Santos did that, it was a great outcome for the company.”

    This is what delusion looks like.

    • LOL I thought the same, meanwhile here (where I sit as I write this) in Silicon Valley they are building driverless cars. 🙂