Energy reality trumps knee jerk propaganda

By now I am weary posting on the energy reality at present impacting Trinidad and Tobago (T&T) especially since I am fully occupied with running from vagrancy giving the no-work for me campaign presently in motion. But as long as this crude knee jerk propaganda driven by the assumption that we are brain dead and will believe any fabricated “good news” to keep the party going: run ah food card emanates from those charged with defending this present government whilst we face the paradigm shift without clue nor plan of action I have to post. The big news the past week was the fourth quarter 2014 results of BG group. OGJ February 3 reported that for every USD 1 movement of the oil price results in a USD 60-70 million impact at the earnings level of BG and a USD 70-80 million impact at the post tax operating cash flow. The second largest energy operator in T&T is then deeply affected by the collapse of the oil price. All the old talk about T&T being a gas based economy is just then fact taken out of reality’s context. BG expects an effective tax rate of 40-50 % in 2015 given the commodity price reality that they trade in. Good news eh! for T&T whilst lower net production volumes for energy were projected for T&T in 2015. All the talk about Starfish again the issue is “lower net production volume” for 2015. It is time to level with all of us the people of T&T and show us how you intend to deal with this reality Prime Minister. For the 4th quarter 2014 BG applied a pretax asset impairment charge of USD 6.8 billion to its Australian assets with USD 4.1 billion charged to its LNG assets as a result of the fall in oil prices. This application of impairment charges is expected to be adopted by other owners of LNG assets in Australia in the future given market realities. The application of impairment charges on  a pretax basis impacts tax liabilities but more importantly it impacts negatively the value of assets created with debt thereby leveraging the companies even more than they are. Post impairment the issue is then cash to fund exploration and production and that is what impacts T&T. On February 6 the Asian spot market price for LNG fell to USD 6.90 per MMbtu creating the European premium as European spot prices were higher that that of Asia. Traders are now calling for the reduction of LNG cargoes moving from West to East in order to reduce Asian supply in a bid to talk up Asian prices. The  pressing question is the sustainability of the present European premium as this premium is driven by the question over the supply of Russian gas to Ukraine thence Europe and the European winter. Winter will soon end and Russian now needs to sell as much as possible of its commodities given its economic realities at present. The Merkel and Hollande push over Ukraine wants to settle the issue of Russian gas supply to the EU as it is the unspoken imperative. The reality is that the most vibrant LNG market, Asia, is in glut, the European market is the premium market but its demand level cannot absorb displaced supply and the Latin American market is quiet. The perfect storm is formed. But don’t worry T&T is a gas based economy duh!!! Finally in the last week the growing size of the US inventory of crude oil was reported whilst production is not appreciably slowing. The rise in the oil price in the oil pits is not reflecting US production/inventory realities because this is a new paradigm being rolled out this is not business as usual. Click the links

http://www.ogj.com/articles/2015/02/bg-s-2015-budget-significantly-lower-than-2014.html

http://finance.yahoo.com/news/global-lng-asia-discount-europe-114813456.html;_ylt=AwrBEiIfZtdUUTYAkyPQtDMD

http://www.worldoil.com/news/2015/2/4/oil-s-biggest-rally-since-2009-stalls-as-us-supply-glut-grows

http://www.kiamaindependent.com.au/story/2861357/wave-of-australian-lng-write-downs-looms-amid-oil-slump/?cs=4115

February 14, 2015 As of February 13 the price of LNG fell again in Asia. The question now arises how longer will it fall especially given the new supply coming on in 2015. The so-called European premium is now increasing supply to Europe but how long will the premium last? Whilst this week the US EIA report showed the US inventory of oil is the highest in the past 80 years. The issue now is removing some 2 million barrels per day of oil supply to the market in a bid to raise prices but who is going to that? Why must the  US surrender its strategic advantage of being energy independent for the sake of oil prices? Much less why must the US remain addicted to an oil supply sourced from nations faced with the threat of instability? Such as that from the House of Saud. Whilst in T&T denial is the word. Technocrats and politicians who all believed in the long lasting demand boom for gas from the US blinded to the reality of shale energy have yet to face the nation and confess the mortal sins committed against the future of T&T. The latest propaganda is economic diversification as if this is done overnight painlessly. Click the links

http://finance.yahoo.com/news/global-lng-prices-fall-further-171434586.html;_ylt=AwrBEiLeXt5Uw3EAYpHQtDMD

http://ir.eia.gov/wpsr/wpsrsummary.pdf

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