Via The Australian:
MST Marquee analyst Mark Samter told clients Mr Liveris’ remarks deserved a gold medal for the most stupid comment ever made publicly, and had sparked an offer to the Australian businessman.
“From what I can see he got paid ~$100m in just his last year alone as CEO of Dow. Now capital is pretty hard to come by for exploration and production companies these days so, how about, if the economics are so great to sell gas to manufactures at $4/GJ, he puts a measly half of that money into one of these projects. If they make money at $4/GJ then he will be providing more than 12.5 petajoules to the market, enough to run a fertiliser plant for a whole year, or the equivalent of 2 per cent of the entire east coast market,” Mr Samter said.
“How philanthropic that would be, not to mention presumably lucrative. Indeed, if he isn’t willing to do it, one might be quite tempted to say shame on him? What is more, perhaps those manufacturers could join him, given the logic to sanction these projects is so shamefully obvious?”
But Mr Liveris, a director of resources engineer Worley, said these claims were based on incomplete data, and that his manufacturing taskforce’s work across the industry – which he said included information that was considered commercial in confidence and therefore not publicly shared – suggested that the $4/GJ target was achievable, given the right settings.
Mr Samter said he had spoken to his wife and they had agreed to pay $20,000 to buy Mr Liveris’ primary residence from him.
Mrs Samter “is a logical lady, so she is confident such an upstanding member of the Australian business community would apply the same logic to this transaction as he did to the gas market yesterday and sell to us – after all, manufacturers need 100 per cent certainty, with no risk, on economic transactions, but why would anyone else be expected to bring financial logic into their transactions if someone is willing to come to the table, right?,” Mr Samter said.
Mr Liveris said on Wednesday his conversations with gas-hungry manufacturers – including producers of cement, fertiliser and explosives – showed reliable gas supplied at $6GJ would make the difference between companies choosing to invest in new plants locally rather than offshore. At $4GJ, these manufacturers “would actually expand for export”.
I think $4Gj is possible but it would certainly trigger further big writedowns for the cartel. The issue is do you think that that is reasonable in a political economy sense. I do, given the cartel has shredded its social license to operate. Mark Samter used to as well at Credit Suisse:
■ Our preferred option is to reclaim the third-party gas currently being exported: Aside from the Horizon contract between GLNG and Santos, there was no evidence in the EIS or FID presentations that more non-indigenous gas was required. As such, one could argue reclaiming what has only been signed due to a scope failure, is equitable. Including the Horizon contract GLNG will be exporting >160PJa of third-party gas in the later part of this decade. Whilst we get less disclosure these days, BG previously said that after an initial 10–20% in the early days (now gone) QCLNG would use ~5% third party gas – 20–25PJa. APLNG is self-sufficient, but as can be seen the other third party gas would get extremely close to balancing the market. Clearly these things are far better done by mutual agreement from all parties, rather than a political mandate.
■ GLNG loses but can all be compensated? We estimate that, at a US$65/bbl oil price, GLNG as an entity would lose US$447m p.a. of FCF if they could no longer toll third party volumes. Interestingly, if Kogas and Petronas could recontract their offtake on a slope of 12x (doable in the current LNG market) then their losses as an equity partner are all offset (not equally between the two albeit). Santos would see ~50% of its US$134mn net GLNG loss offset if the Horizon contract could move up to a slope of 8x from 6x. The clear loser would be Total. We wonder whether cheap government debt, a la NAIF, could be provided at the (new, lower volume) project level or even to take/fund an equity stake in it? In reality all parties (domestic buyers included) have some culpability in the situation, so a sharing of pain does not seem unreasonable 02 March 2017 Australia and NZ Market daily 31
■ If these contracts were then all diverted domestically, at US$65/bbl oil, they should deliver gas at Wallumbilla at $7.50 gj. This is highly competitive gas in the current environment we think and should certainly not be considered unreasonable by domestic buyers.
Obviously, this is more expensive than $4Gj but that is really only down to how aggressive you want to be with reservation. Once the infrastructure is in, the cash cost of extraction for gas is cheap. I don’t know what happened to Samter’s former view when he left CS.
For me, the clincher is the national interest:
“Australia cannot become more resilient if we are a one-trick-pony in trade,” he said.
“We cannot be singly reliant as an economy on selling commodities to China.”
Building on comments he made this month in an interview with The Australian Financial Review, Mr Liveris said China was going to exert itself both militarily and economically for many decades to come.
Does Mark Samter want his kids to live under CCP house arrest in Andrew Liveras’ house?