Well done OPEC: OPEC agreed to extend production cuts through the first quarter of next year, as many had expected, but in traders’ eyes that wasn’t enough. Members of the Organization of the Petroleum Exporting Countries agreed to keep their output-cut deal in place through March of next year, that generally matched market consensus, but
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.
Via The Australian: Indian energy giant Adani will be offered a reworked royalties deal at a discounted rate during the early years of coal production at its $16.5 billion Carmichael coalmine, after a meeting of senior Queensland cabinet ministers last night. A compromise was struck between Queensland Premier Annastacia Palaszczuk and her deputy, Jackie Trad,
Via Citi: Citi continues to believe that the market is mispricing the potential impact of a 6-month roll-over to the current OPEC deal, and it is this that should provide the impetus for higher prices and a firming curve structure. In 2Q’17, our global stocks monitor indicates that crude and clean refined product stocks are
Dalian is soft today: No obvious reason for it beyond good sense and the looming wipe out of Noble Group which may be forced into inventory liquidations!…Big Iron has eased: Big Gas is firm on OPEC: WPL and OSH look bullish on the charts but they’re still way overvalued assuming $65 oil. Big Gold is
Let it go: Indian coal aspirant Adani has delayed an investment decision on its Carmichael coal mine after claiming the Queensland Government did not clarify the royalty regime the mine would operate under. Adani has been keen for the Queensland government to delay the start of royalty obligations on the coal mine it hopes to
Via Gotti today: Energy anger is Australia is rising rapidly. The business community’s dismay over the disastrous energy situation boiled over at the Australian Leadership Retreat on the Gold Coast at the weekend. But so did the deep anger from the Indian delegates who pulled no punches when explaining that India saw what was happening
From the AFR: Gas industry leaders have sought to paper over the cracks that have split the sector under political pressure over east coast gas shortages, with the chief executives of Santos and Origin Energy calling for unity to find a collective solution to balance LNG export and local gas demands. But at the same
Oil is up a dollar just now, from Reuters: Saudi Arabia and Russia have agreed that oil output cuts need to be extended until March 2018, Saudi energy minister Khalid Falih and Russian oil minister Alexandra Novak said on Monday. Three moths longer than expected. Who cares. Via Bloomie: OPEC is going to have to
From the excellent team of Mark Samter and Co at Credit Suisse: What is the aim of the mechanism? Whilst the list of intended and unintended consequences from the Australian Domestic Gas Supply Mechanism (ADGSM) are potentially never ending, we do believe the most important factor to determine, as a starting point at least, is
Via the AFR: Queensland’s high-cost LNG exporters may have to curtail production as some drilling becomes uneconomic amid depressed prices caused by a worldwide supply glut, global energy consultancy Wood Mackenzie warns. In what he describes as the coming “LNG wars”, analyst Saul Kavonic will tell the APPEA oil and gas conference on Monday that the ongoing need
Chinese yields are putting on an extraordinary display. Interbank markets remain tight for SHIBOR and repo: But what’s really going nuts is bond yields: You will have noted, I’m sure, that such bond bear markets have preceded all three major Chinese slowdowns in 2009, 2012 and 2015. The further this runs the more likely it is
Dalian is still bid a little today: So is Big Iron ever hopeful: WHC breaking as coking coal spot fell another 3%… Big Gas is sideways: Big Gold bouncing: Big Debt is getting hit again and now doing chart damage: MQG downgraded the sector today. What’s to buy? Highly leveraged utilities exposed to a massive
More gas investment is flowing from the east coast gas cartel but it is more remarkable for its caution that its magnitude. Via the AFR: Queensland’s almost forgotten international gas joint venture, Arrow Energy, has started work on a plan to throw $500 million at new onshore production in an initiative that demonstrates that Shell
The Brent oil price rebounded a little last night but remains under pressure: The news is bearish. Libya is pumping nicely: The Waha field in eastern Libya has covered lost production to a 75,000-barrel-per-day (bpd) level as of Friday, according to a field engineer who spoke to Reuters on Friday. Fighting between militia groups affiliated
Paul Kerin is Adjunct Professor in the University of Adelaide’s School of Economics appears at The Australian today with some atrocious gas market analysis: LNG export restrictions recently announced by Prime Minister Turnbull were based on false premises and ignored the dynamic consequences. Consequently, they’ll diminish — not improve — Australia’s overall economic welfare. Turnbull
Nice, from AGL: AGL Energy said it will lock workers out from its Loy Yang A power station and shut its operations down indefinitely from May 15 after failing to resolve an enterprise bargaining dispute which has dragged on for more than two years. The closure of the black-coal power station and mine – which