Thermal coal and LNG futures both came off overnight. The former: The latter: Oil was still strong as we await the return of hurricane shuttered US production: Beijing continues its campaign to reduce power output. After steel cuts, which have curtailed a lot of EAF production, next is cement: Several Chinese regions have imposed restrictions
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.
It’s wondrous what can pass as rational if you have no memory. Decontextualised information can be made to sound…sound…even though it is completely bonkers. Take this from the poisonous Australian: Special payments will be needed to keep ageing coal-fired and gas power stations in business to avoid future spikes in electricity prices, under a national
Via the ACCC: This is the July 2021 interim report of the Australian Competition and Consumer Commission’s (ACCC’s) inquiry into gas supply in Australia (the Inquiry). Gas prices in the east coast gas market through to February 2021 remained low. However, domestic spot and LNG prices have since risen considerably, and the supply outlook for
Over the past few months, as iron ore has peaked and dropped, coal has gone the other way, providing some offset to Australia’s falling terms of trade. Thermal coal has been trading at a very high price near $170 and coking coal at high prices above $200. However, there are signs already that both booms
Iron ore is down by one quarter. Oil is falling. Base metals are rolling. Australia’s terms of trade have topped and are falling as expected. Chart from Goldman on the commodity basket currencies: However, things could be worse. In the last few weeks, COVID has delivered the world a new commodity bubble in energy, preventing
EY Australia has a new report out on the prospects for Aussie cola over the next three decades and the news is good: Two-thirds of jobs will be lost. Under an orderly scenario, fossil fuel demand falls 42% globally by 2040. Under the disorderly scenario, which delays action until after 2030, fossil fuel demand collapses
Australian thermal coal has suddenly joined the ranks of crazed commodities. In the past two weeks it has literally gone vertical to prices unseen since pre-GFC: There are heats waves from Europe to China straining power grids triggering this price spike. It is also following the recent LNG price spike given the two energy sources
Goldman with the note: The UAE and Saudi Arabia appear close to reaching a production agreement, with Reuters reporting progress towards a deal that would allow for both the higher baseline requested by the UAE (of 3.65 mb/d starting in April 2022) as well as an extension of the output agreement requested by Saudi (through
The Morrison government’s own competition regulator, the ACCC, is apoplectic about the outrageous behaviour of the east coast gas cartel: Mr Sims said that while the spike in spot gas prices on the east coast was “extremely unfortunate” for those buyers exposed to them, his main concern was in relation to contract prices… “I’m not
I have described at length how the Morrison government’s pivot away from China was largely the luck of having a motormouth airhead for PM. The stunning pace of the China decoupling is very welcome. There are still vast interests in Australia that would sell Australian freedom to the CCP if they could. Including most of
It’s foreign-owned and sure ain’t working for Australia’s national interest: Scott Morrison has been urged to “pull the trigger’’ on capping gas exports by the powerful Australian Workers’ Union and a leading employer group, as a spike in prices threatens plans to expand the nation’s manufacturing capacity. AWU national secretary Daniel Walton said the Prime
Don’t worry, Josh Frydenberg will pr0tect you and your kids: Treasurer Josh Frydenberg has agreed with a pessimistic assessment by the White House that Australia should settle in “for the long haul” of “harshness” from Xi Jinping’s China. The deputy Liberal leader said Beijing’s assertive approach had influenced his decision making on investment proposals by
Forex markets are beginning to show some interesting stress as a developing global slowdown converges with early central bank tightening. DXY still looks poised for higher versus EUR: Australian dollar was universally weak: Gold did OK as oil was smashed: Base metals were hit: Big miners too: EM stock were pounded: And something might be
Oil is the last bastion of the commodity scoundrel. A completely manipulated market upon which just about any fantasy can be projected. Take BofA for instance: Brent prices should average $68/bbl in 2021 but… Back in June of last year, we argued that crude oil prices would be on an upward path into 2021 as
Is funding a new gas-fired power plant in the Hunter Valley “a grab for votes” in the upcoming by-election? #QandA pic.twitter.com/OSov1ZLeWa — QandA (@QandA) May 20, 2021 It’s pretty simple and not funny: East coast LNG exporters lied about having enough gas when they built their export plants. They then bought all of the cheap
I long ago ran out of pejorative adjectives to describe the Morrison Government machete hacking into the Australian energy market. Today it swings another stroke into the pulpy corpse: $600m will spend on the Hunter white elephant power pork station. The 660MW beast will fill a notional shortfall predicted by the AEMO to 150-200MW, easily
There have been many opportunities to save Australian manufacturing at little cost and great gain: The property bubble could have been reined in 2003, 2008, 2013, 2019 and today to stop the financialization of the economy that was driving up the currency. Mining might have been taxed properly and recycled as an SWF offshore in
More good news today on the Australia/China divorce from the anti-Australian nutters at SCMP: China aims to cut more Australian LNG imports. Turkmenistan is already China’s largest gas supplier. That will expand. There will also more trade, investment and connectivity. That’s more like it. Turkmenistan is a semi-communist dictatorship so fits right in with the
Australia’s China divorce hits another milestone today. Following recent Morrison Government warmongering and ripping up VIC’s BRI deal, the blowback has arrived as the next commodity to be targeted is LNG: Two Chinese importers have been told to avoid Aussie LNG. China imported 29mt in 2020. About 10mt of that is above contract obligations. Recall
For years we have fruitlessly pointed out the folly of Australia’s east coast gas exports. For the nation, the three LNG export plants built on Curtis Island were a shining example of Banana Republic commodity economics gone drastically wrong. The exports made no money for the producers, who were forced to write down tens of
Not that it was ever in doubt. The gas cartel long ago captured the Morrison Government so this was a foregone conclusion: There will be no intervention in gas prices by the Morrison Government. It prefers to lift supply and let “the market” drive prices. Except that there is no market. There is an export
The Morrison Government’s “gas-led recovery” has been rubbish from the outset. It was a fix, not a policy process. Nobody is going to accuse me of being anti-gas. I’ve been campaigning for more of it for two decades. But, instead of undertaking consider economic process to extract more of it, the Morrison Government has butchered
Morgan Stanley with a note I very much agree with: Inventory draws and demand recovery have supported oil prices in recent months, but two factors are starting to take some wind out of the sails of this bullish thesis: Iranian exports and US drilling activity.We moderate our price forecast for 3Q and close our long
TS Lombard with sounds analysis: Until not that long ago, the idea was still taken seriously that peak oil would be supply-side driven and triggered by sky-high prices: but as it is now clear that the oil case will resemble all previous energy transitions, useful lessons may be had from the most recent such precedent–peak
For anyone that has been living under a rock with no utility bills for eight years, today’s gas cartel drivel might make some sense: The Morrison Government must not engage in gas market central planning, said pipeline monopolist, APA. We need transparency for prices from consumers, said the oil and gas lobby. Only 3% of
It is the favourite trick of investment banks to set their own forecast so that they can be “surprised” when data misses come about. They all use it to manipulate price action to benefit their trades. A nice example is Goldman in the oil market today. The pre-Easter OPEC was bearish for prices as OPEC
Here it is in black and white from the Australian Energy Market Operator: This GSOO forecasts an improved gas supply outlook compared to last year, largely due to Australian Industrial Energy’s (AIE’s) commitment to the Port Kembla Gas Terminal (PKGT) in New South Wales. This is Australia’s first liquified natural gas (LNG) import terminal, and