by Chris Becker It’s crunch time for the oil cartel as they attempt again to shore up their own individual fiscal black holes by fiddling with the supply/demand curve of black gold. Both Brent and WTI crude prices rallied throughout the latter half of 2017 before a correction in early May this year. WTI: Brent:
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.
The one great thing about capitalism is that it abhors any area of excess profitability, unless of course it is distorted by policy, as in the case of nearly every Australian “market”. But at least we can say today that one such area of rent seeking is under sustained attack, via the Australian Energy Market
Via the FT: When China last week set out a list of US exports threatened with retaliatory tariffs, almost all fossil fuels were covered, including oil, coal and liquefied petroleum gases such as propane. There was, however, one conspicuous exemption: liquefied natural gas. Beijing’s decision not to impose additional tariffs on US LNG shows the
Via the AFR: AGL Energy’s proposal to import LNG into Victoria is understood to be driving a push to force a restructuring of the utility or impose conditions around the plant’s operations amid worries it will only cement the company’s strong market position in the state suffering most from high gas prices. The debate around
Never mind the appropriate divisions of public policy and private business. Never mind market integrity or rules. Never mind science or evidence-based policy. The Coalition energy loons are in town. We begin at the top with Josh Frydenberg and the AFR: A deal struck in late 2015 by AGL Energy under its then relatively new
Man, this guy is bloody crooked, via The Australian: “My message to the retailers is unless they get prices down and they pick up their act, you will see more intervention because that is what the public will demand of their political leaders,” Mr Frydenberg told ABC Radio National. …Mr Frydenberg also lashed AGL specifically,
Via the IEA’s OMR: In this month’s OMR, we publish our first estimates for global oil demand and non-OPEC supply for 2019. Rapidly rising prices in recent months have raised doubts about the strength of demand growth, and we have modestly downgraded our estimate for 2018. Prices are unlikely to increase as sharply as they did
Via The Australian: Chinese LNG demand is set to drive a global shortage in the next three or four years and push Australian east coast gas prices back above $10 a gigajoule, according to global energy consultant Fereidun Fesharaki. The looming shortage, which may be coming faster than most had expected, is good news for
Yes, somehow the farce has doubled in just a few days. Last week it was Twiggy Forrest importing gas to NSW. Now it’s AGL to Victoria: AGL Energy has struck several deals for its proposed liquefied natural gas import jetty at Crib Point in Victoria, which could help deliver more gas to Victoria and South
Via the ABC: Plans for the first liquified natural gas (LNG) terminal in New South Wales are being hailed as a “game changer” that will address the state’s energy supply issues. A consortium backed by billionaire Andrew Forrest and Japanese energy giants has announced Port Kembla, near Wollongong, as the preferred site for the LNG
Andrew Forrest’s new east coast gas play is just another disastrous chapter in Australia’s gas monstrosity. Via AFR today: AIE is the sponsor of not one of but three separate plans to import LNG for sale into domestic gas markets. Forrest has involved himself though his privately owned energy play, Squadron Energy. He was introduced
They are tortured by energy even when the answer stares them straight in the face. At The Australian: The Coalition’s energy wars erupted today in the joint Liberal-National party room, with Josh Frydenberg forced to defend the fact that COAG would see the National Energy Guarantee legislation before Coalition MPs. Six Coalition MPs raised the
Since it has had a pretty decent correction let’s ask the question: Goldman remains very bullish: Saudi Arabia and Russia signaled today that they would likely ease their production cuts in the second half of the year. Comments by their Energy Ministers suggest that such a decision would be driven by concerns that high oil
More absolute garbage today on gas, via The Australian: Oil and gas giants Royal Dutch Shell and ExxonMobil have been urged to consider the development of liquefied natural gas import terminals on Australia’s east coast as the race to build the first of the facilities intensifies. Saul Kavonic, the principal Australasia analyst for international consultancy
Via The Australian: Woodside Petroleum chief Peter Coleman has warned of further east coast gas price rises as a global LNG shortage hits markets in as little as two years — much sooner than forecasters were previously expecting. After visits to Asian buyers in recent months, Woodside has brought its February forecast of a global
Straya has dodged a bullet thanks to STO management: The Santos move to reject Harbour Energy’s $US14.4 billion offer and to disengage from further negotiations arrived a stunning and unexpected blow to the ambitions of its US private equity pursuer. Santos was scheduled to be the gas fired boat that would carry to Harbour on
It’s all bodice ripping, hair pulling and hysteria now, at The Australian: Craig Kelly, backed by Tony Abbott, called for the competition watchdog to be given new powers that would make it “crystal clear” that closing down a essential service utility when there were “other options”, such as selling to another player, was anti-competitive behaviour.
It appears One Nation has killed the company tax cut. Via The Australian: Pauline Hanson has dealt what appears to be a fatal blow to the government’s company tax cuts by withdrawing support for the package and producing a list of near impossible demands, declaring that Malcolm Turnbull has failed to sell the reform’s benefits.
Josh Frydenberg is either lost or corrupt on energy. All we need is a little domestic gas reservation. The insufficient amount that we have had has already lowered the wholesale electricity price by one third, via The Australian: Electricity retailers are on notice to pass on sharp falls in the wholesale price of electricity after
Via the AFR: Planned changes to toughen the Petroleum Resources Rent Tax are being temporarily withheld, in part so they can be used as leverage should One Nation waver in its support for the remainder of the company tax cuts, senior sources have revealed. Petroleum and gas giants have told The Australian Financial Review that
Via The Australian: Leading gas market analysts Wood Mackenzie and EnergyQuest are tipping east coast gas prices to rise above $10 a gigajoule, despite federal government and gas industry moves to divert more supplies to domestic markets. …Wood Mackenzie said east coast prices were forecast to head to between $10 and $13 a gigajoule. …Mr
Pardon me while I puke. From Santos boss Kevin Gallagher today: Gas users and trade unions have expressed concern that Territory gas might simply flow out of Gladstone as LNG, with no benefit for domestic gas users. A blanket reservation policy would render development of the NT’s shale gas resource uneconomic, since it would prevent the
Via the AFR: Industrial gas users representing more than 10 per cent of east coast domestic demand are at risk of closure because of high gas prices, with upward pressure on tariffs only set to worsen, according to leading industry consultancy Wood Mackenzie. Senior analyst Saul Kavonic said the most at risk are about seven
Ambrose Evans-Pritchard has the bit between his teeth: Donald Trump could hardly have chosen a more treacherous economic moment to tear up the “decaying and rotten deal” with Iran. The world crude market is already tightening very fast. Joint production curbs by Opec and Russia have cleared the four-year glut of oil. There is no
Oil is off the hook post-Iran deal: Is the price run legitimate? Life without the Iran deal isn’t whole lot different given everyone except the US remains on board. Via the FT: The EU is committed to salvaging the 2015 deal intended to curb Iran’s nuclear ambitions and Tehran has said it would stick to
Via The Australian: The corporate watchdog’s latest efforts to improve transparency in the east coast gas market should help gas users secure better deals, according to Orica chief executive Alberto Calderon. “We’ve been supportive of the plans of the government to put the (gas) market in control, and lately the ACCC and the initiative of
Via Domainfax: Oil and gas multinationals would pay an extra $4.2 billion in tax over four years under a royalty policy costed by the Parliamentary Budget Office, as resource giants prepare to be hit by new taxes in Tuesday’s budget. The independent assessment of the policy submitted by the Greeens shows a 10 per cent
Via the AFR: Santos chairman Keith Spence said the substantial rise in the oil price since US predator Harbour Energy made its indicative buyout overtures will need to be reflected with a higher proposal if it makes a firm and binding bid after due diligence is finished in the next two weeks.”I’d say clearly the
Gas cartelier, Origin Energy released results yesterday, via the AFR: For the first nine months of 2017-18, sales from APLNG were up 48 per cent at $1.48 billion. Maintenance work carried out in March on the second LNG train at the $25 billion APLNG project in Gladstone meant more gas was sold into the domestic