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| Open those valves |
There is a pronounced and timely surplus of natural gas right now, with no obvious end in sight. With even Gazprom having run up the white flag on oil-price indexation, now is an excellent time for the utilities to be buying.
Centrica, a company of mixed virtues (check the tag for past examples) but always exceptionally shrewd in its purchasing - of assets as well as commodities - has just taken the opportunity to back up the truck to Qatar for a big contract roll-over, which is intelligent. They'd already done the same with Gazprom last year.
Interestingly, for the first time in years gas-fired power plants are back in-the-money (hence all the big coal-plant closures this year). It's not so surprising in the UK with our 'carbon price floor' (a tax devised by Osborne) which boosts gas at the expense of coal. What's more surprising is that there is a small window of gas being in-the-money in Germany, where they still have only the perennially depressed Emissions Trading Scheme carbon price to contend with. That really is somewhat unexpected, and probably won't last for long into the coming winter as gas prices rise, both seasonally and with the time-lagged effect of the upward nudge to oil prices since January (Germany still buying a bunch of gas at oil indexation).
This is real energy business, and to hell with Hinkley and the EU 'Energy Union'!
ND
Even as a consumer (with an augmented short-oil position), I find it hard to be insouciant about oil prices as low as this. Something's gonna give. Politically, economically, socially, all three ... Saudi, Russia, Nigeria, all three ...
Then there's Shell and its BG gambit. Trying to emulate John Browne's BP (1998) by cleverly buying assets at the bottom? A hopelessly mis-timed play.
(Incidentally, in moving on gas-heavy BG they were doubling-up on their already humungous mistake of pouring $$$ into Qatar LNG, which Shell insiders swear they never would have done if they'd seen this coming ...)
Then, there are the legions of very nasty people who've made their 'livings' from quietly skimming off oil profits (which ain't too difficult @ $120, but altogether harder just now). A bit like when drug dealers can't deal drugs any more, they will be looking for the next source of ill-gotten $$$: and what, do we think, might that be? We won't enjoy it, whatever it is - because it's our money either way.
'Interesting times' doesn't get close.
ND
I have a fair amount of time for Michael Fallon (pity about the EDF nuke deal), but ...
"We are looking for more long-term gas supply contracts with Qatar – they have proved a very reliable partner," Mr Fallon told The Sunday Telegraph. "It's very important we strengthen our relationship with them."
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| A bit close to, errr ... |
Hmm. The article goes on to say that LNG accounted for 28pc of the UK's gas imports last year**, 98pc of those from Qatar. Reliable, yes - but the geography is worth considering, too.
Diversification is kinda important, Mr F. As Churchill said à propos of the Navy's one-time near total reliance on oil from Persia: “Safety and certainty in oil lie in variety and variety alone.”
ND
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**I thought it was more, actually, but can't be arsed to check just now
