The Citi oil uber-bull is no more: As outlined in Commodities 3Q’17 Market Outlook: Searching for Summer Sunshine, while still constructive on oil, the unanticipated drop in disrupted oil supply (Libya and Nigeria) in parallel to a more productive Permian has led Citi’s Commodities Team to revise down its expected price path for oil through
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 AFR has a nice story today illustrating the death of Australia: The Turnbull government’s strained relationship with corporate Australia has come under more duress following some heated exchanges between the Prime Minister and the nation’s leading chief executives at a private dinner in Sydney on Monday night. …The dinner was attended by board members
Paul Kelly today: In his speech yesterday, Deputy Prime Minister Joyce said a “conclusion” from Finkel was vital. He called for compromise all around, from the Nationals, the Liberals and Labor. He said policy must bring renewables forward as well as coal and gas in baseload power. The central task, Joyce said, was to secure
The world’s crappest bourse knows a policy error when it sees one. As the Aussie flies on RBA wings today: The ASX200 is down firmly and still sporting a nasty head and shoulders topping pattern with a neckline around 5600: Bond yields are getting hosed: Dalian is going nuts: Big Iron is mostly up but
From Judith Sloan: On one side of the debate is the assertion that rising electricity prices are not related to the increase in the penetration of renewable energy but are the result of rising gas prices. The proponents of this argument point out that electricity price increases have been higher in Queensland, which has very
Thanks to The Australian, the gas oligarchs have a free run today: Gas producers have warned that the reputation of Australia is falling so quickly amid political indecision creating sovereign risks for investors that the country could become an investment pariah like Argentina. They have also cautioned that gas prices for the Australian consumer would
Via MB’s new best friend, Andrew Bolt: Michael Lee of the Brighton Savoy sends me the quotes he’s got for his hotel’s electricity next year: We are a family owned hotel currently in our 50th year of business. Just a heads up of electricity prices for business at the coalface. The Brighton Savoy has an
Via Peter Martin today comes the Australia Institute: “When the rises flow through, retail prices will be the highest ever in real as well as nominal terms,” writes Australian National University specialist Hugh Saddler in a report to be released on Thursday by the Australia Institute. “More detailed analysis shows that market wholesale prices are consistently
Via Goldman: A US$3.5bn annual power bill facing upward pressure Our analysis indicates that the Australian mining industry pays c.US$3.5bn p.a. for their electricity requirements (ex-fuel oil for trucks etc.). A confluence of factors including large baseload coal power station closures (e.g. Northern, Hazelwood), rising gas prices, increased renewables penetration and Queensland LNG-related power demand
Dalian is a little soft today: Big Iron is still firming: Big Gas has all but ignored the oil rebound. Very sensible: Big Gold is marking time: Big Bubble is down despite the steepened Aussie yield curve: Big Liar is threatening a little convergence as high flyers come back and MEA mulls a bottom: Finally,
Judith Sloan thinks so: So what can federal Energy and Environment Minister Josh Frydenberg offer by way of electricity price relief? He claims to have a three-pronged strategy, although there is no discussion of changing or suspending the renewable energy target, which has been one of the main drivers — arguably the main driver — of higher
Brent tumbled Friday night: As the US shale count rose seven to 793: Permabullish brokers are slowly waking to the new reality. Morgan Stanley is the first to capitulate to the thesis that US shale growth must be switched off: If OPEC doesn’t balance the market, the oil price will have to force it somewhere
Grid scale batteries are not a Tesla speciality but pollies do love a little celebrity: South Australia has announced Elon Musk’s Tesla as the principal builder of the world’s largest lithium ion battery to expand the state’s renewable energy supply. The company’s battery boss says SA’s power woes can be solved in 100 days while launching
All quiet on the Dalian front: Not so Big Iron, getting bashed, except BHP on corporate action, classic pennies on front the steamroller there: Big Gas looks about to break new lows across the board: Big Gold not looking too hot either, forming downtrends: Big Bubble not happy today which is not a good sign
Last night we got more signals of the increasing oil glut. US data was price supportive as we saw a big draw in inventories: However, shale production rebounded strongly after weather disruptions: And Nigerian crude is flooding into the Atlantic, via Reuters: Nigerian crude for August loading is proving slow to find buyers amid rising
Via the AFR: The normally meek June quarter for electricity markets has been turned on its head with wholesale prices breaking records to an extent that is appalling experts and should scare energy users, regulators and governments. Market trader and analyst Global-ROAM has described the price surges as “gut-wrenching” for energy users in states such
Via the ABC: Four Arab nations seeking to isolate Qatar over its alleged support for extremist groups have been angered by what they say is a “negative” response by the tiny Gulf nation to their demands for ending crisis in the region. Ministers from Saudi Arabia, the United Arab Emirates, Bahrain and Egypt met in
Big news from Qatar overnight: Qatar Petroleum on Wednesday announced plans to significantly raise natural gas production in the coming years, creating an obstacle to President Donald Trump’s goal of “energy dominance.” The move threatens to add to a projected glut of liquefied natural gas, or LNG, as a wave of new projects come online in the coming
As always, look past sectarian and other rationales to the national interest to determine what is afoot in Qatar, via Bloomie: An alliance led by Saudi Arabia apparently enjoys Trump’s full support. Iran heads a coalition of America’s enemies. But a third bloc, looser and harder to classify, is at the heart of the dispute
Via the AFR: East coast gas buyers say the federal government is likely to trigger its new powers to limit LNG exports at the earliest opportunity to help bring an end to a situation that Australian Industry Group describes as “disastrous” for manufacturers. …”We strongly expect that the ADGSM will be invoked for 2018 unless there