Diesel powered XPT from Melbourne to Sydney

Before the Oilholic hit Sydney, there was Melbourne. However, given that flying to Melbourne from London, via Hong Kong had given one a fair collection of air miles, it was time get some rail miles into the mix and travel from the heart of Victoria to the hub of New South Wales with assistance of a diesel-powered Paxman VP185 12-cylinder locomotive.

Flying would have taken one up in the air and down into Sydney in little over an hour, but the train journey took 11.5 hours zipping past mountain sides, streams, woodlands, lush green farming country, industrial heartlands, the odd wallaby, countless sheep and towns not normally on tourists’ itinerary accompanied by with changeable weather.

Leaving Melbourne’s Southern Cross Station at 8:30am, the 'XPT' or express train headed to Benalla, Wangaratta, Albury, Culcairn, Henty and The Rock stations in that order.

If you know your cricket, next came Wagga Wagga, birthplace of Aussie greats Geoff

Lawson, Michael Slater and Mark Taylor, the first major town you hit when the train crosses into New South Wales.  

Following Wagga Wagga, came Junee and Cootamundra (birthplace of the late cricketing great Sir Donald Bradman), followed by Harden, Yass Junction, Goulburn and Mossvale bringing the suburbs of Sydney in sight some 10 hours later.

Forever etched in one’s memory – that where were you moment when Donald Trump won the US presidency – well the Oilholic was in Campbelltown just prior to hitting Sydney central!

There was no Wi-Fi; but a purser on the train bellowed the results to I must say, a very surprised carriage!

The Oilholic’s assessment – the journey might well have been between Victoria and New South Wales, but in a cool eclectic sort of way, a throwback to 1980s British Rail.

 

Afterall, it was the British Rail intercity service that its Aussie cousin was modelled on back in April 1982, and all those years later it still exudes that rustic charm, which may or may not be to your taste.

In 2016, the XPT yours truly got on at Melbourne saw the Paxman locomotive with four low-pressure turbochargers and two high-pressure turbochargers giving it 1,492 kW / 2,000 horsepower lug six clunky carriages (seven during peak times) between Melbourne and Sydney, with one being a sleeper car for those who can’t handle the arduous journey sitting up. Two trains go in each direction dialy. 

There’s a pantry car too, serving hot meals, cold beer and plenty of sausage rolls. This blogger loved a throwback to the old days. Some, including Aussie mates, say it’s for the train buffs only or a dumb touristy move. 

If that’s the case, the Oilholic is guilty as charged. That’s all from Australia folks as an amazing week comes to a close, New Zealand calling next! 

One leaves you with a view of the Sydney Opera House (Click on all images to enlarge); seeing it means one more item off the bucket list. Keep reading, keep it ‘crude’! 

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© Gaurav Sharma 2016. Photo 1: XPT Melbourne to Sydney service. Photo 2: XPT Melbourne to Sydney morning service destinations and departure board. Photo 3: Australian countryside. Photo 4: Arriving at Wagga Wagga. Photo 5: Train station in New South Wales. Photo 6: Sheep in Australian countryside. Photo 7: Sydney Opera House  © Gaurav Sharma, 2016, Australia.

Sun, Sea and Aussie LNG

The Oilholic finds himself 10,600 miles away from London in Sydney, Australia via stopovers in Singapore and Melbourne, for a much needed vacation in the sun. Away from vacationing, one finds oil and gas analysts here in a dour mood given the state of affairs in the market. 

The crude price continues to tumble, and for the record, few here have faith in OPEC’s ability to change that bar a short-term reprieve of some description in tandem with Russia. However, more of an immediate concern to the Aussies is the incremental volume of US natural gas entering the global supply pool to compete with both its and Qatar’s exports to Asia Pacific. Simply put most expect the global natural gas glut to escalate. Long-term contracts seem to be the order of the day, as the Oilholic noted in his comments via a column for Flame conference blog last month.

While pricing arrangements attract a premium to Henry Hub prices stateside, it is prudent to flag up the sub-$3 Mmbtu prices currently being noted. Sources suggest prices for LNG delivery for Asia from Australia aren’t that far off, but a mere $1.20 above Henry Hub, down almost 40% in year-over-year terms from what the country’s exporters were charging Asian importers in 2015.

Problem for Australia is that project sponsors have pumped as much as AUD$200 billion (US$150 billion) to AUD$ 250 billion, over the last decade, towards LNG projects depending on which local industry gauging parameter one uses as a benchmark. Analysts are more inclined to agree with the upper end of the range.

Many of the project commitments and investments were made during the boom times. Some are hard to retreat from in leaner climes. Australian Petroleum Production & Exploration Association (APPEA) says nearly AUD$80 billion worth of LNG projects – namely Prelude, Wheatstone and Ichthys – are under currently under construction.

When in March just as Chevron’s Gorgon LNG project shipped its first cargo, Woodside Petroleum and its consortium partners Royal Dutch Shell, BP, and PetroChina, cancelled the Browse LNG project, having pumped billions into it. Local opponents and environmentalist cheered the decision. However, what ultimately killed the project was the unworkable economics of it all in the current climate.

The decision also came as no surprise to analysts in Australia. There is a natural gas glut, and with the Qataris, Russians and Americans also vying for contracts in the no-longer so lucrative Asian market, most here expect more pain and fewer monetary gains for LNG proponents.

That’s all from Australia for the moment folks! The Oilholic leaves you with a view of the imposing Loch Ard Gorge, part of Port Campbell National Park, Victoria, Australia; a few hours drive from Melbourne, which one had the pleasure of visiting earlier in the week before leaving for Sydney.

The gorge is named after the ship Loch Ard, which ran aground in the region's perilous waters on 1 June, 1878 approaching the end of a three-month journey from the UK to Melbourne. Only two - Tom Pearce and Eva Carmichael - of the 52 passengers and crew onboard survived, creating a local legend. Courtesy of the global gas glut, the Aussie LNG industry faces similar metaphorical perils. Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2016. Photo 1: Bondi Beach, Sydney, Australia. Photo 2: Lock Ard Gorge, Victoria, Australia © Gaurav Sharma, 2016.

‘Cash-all-gone’ project and [Too Much] Oil and [Less] Money Conference

After billions of dollars being spent, delays and pipeline leaks, Kazakhstan's offshore Caspian Sea located Kashagan oilfield – often dubbed ‘cash-all-gone’ by the wider energy industry – is back onstream with its first cargo having been dispatched and a gradual uptick in production to 370,000 barrels per day (bpd) expected by the fourth quarter of 2017.

Discovered at the turn of the millennium, the much maligned Kashagan has cost at least $50 billion so far. A report by CNN Money back in 2012 claimed a staggering $116 billion had been spent, something that those involved hotly contest. Deemed the main source of supply for the Kazakhstan-China Oil pipeline, the field also has a $5 billion stake in it owned by China.

While its good news all around, the only issue is that one of the most expensive offshore oil projects in the world is coming onstream at a time when the oil price is lurking around $50 per barrel and the market is wishing there were fewer barrels of the crude stuff rather than more.

With all gathering and processing infrastructure in place for a 2013 start, including 20 pre-drilled production wells, Kashagan could have captured the upside of record high oil prices if had production continued as planned back then, say the good folks at research and consulting outfit GlobalData. However, a pipeline leak scuppered it all back then and triggered another protracted delay.

Anna Belova, GlobalData’s Senior Oil & Gas Analyst, says,"Instead, the project has restarted in today's oversupplied market, and while the oil price has rebounded, the current levels would not justify Kashagan's full cycle capital expenditure (capex), which exceeds $47 billion to date."

One thing is all but guaranteed; more oil barrels are on their way to the global supply pool. Belova adds: "Current processing capacity for Kashagan’s Phase 1 with all three lines online targets 370,000 bpd, potentially increasing to 450,000 bpd but under the 495,000 bpd capacity.

"With a large number of pre-drilled wells and a multi-stage processing build-up, Kashagan is well positioned to reach its targeted capacity for Phase 1 by 2018. This paves the way for negotiations on full-field development that has a potential bring over 1.1 million bpd to global crude markets."

Wonder if someone has sent the projections to Russia and OPEC? For a real-terms cut of say 1.5 million bpd – should there by one from the first quarter of 2017 onward coordinated by Riyadh and Moscow – would be more or less made up by Kashagan alone within 12 months, forget other non-OPEC producers. What's more, much of it would be going straight via pipeline to China, currently the world's largest importer of crude.

As for the oil price, despite net-shorts being at their lowest in weeks, if US Commodity Futures Trading Commission (CFTC) data is anything to go by, we are still stuck pretty much either side of $50 per barrel. Here's the Oilholic’s latest take in a Forbes post.

Meanwhile, a veritable who’s-who of oil and gas industry arrived in London last week for the Oil and Money Conference 2016, an industry jamboree that could well have been renamed – "Too Much Oil and Less Money" Conference for its latest installment. Beyond the soundbites and customary  schmoozing, this year's Petroleum Executive of the Year was Khalid Al-Falih, who has been in his job as Saudi Energy Minister for a really long five months, but the accolade one suspects was for his role as Chairman of Saudi Aramco.

However, the good thing about these annual industry shindigs is that you get to meet old friends, among whom the Oilholic counts Deborah Byers, EY’s Oil & Gas Leader and Managing Partner of its Houston Practice as one.

While EY is not in the business of price forecasting, Byers suggests the industry is adjusting to a new normal in the $40-60 per barrel range, one that would be hard to shake-off over the short-term barring a high magnitude geopolitical event.

“Even if OPEC cuts production in November, I believe market rebalancing in its wake would only last for a little while, with non-OPEC production also benefitting from any decision taken in Vienna.”

The pragmatic EY expert also doesn’t buy the argument made in certain quarters that the US either is or could be a swing producer. "In a classic sense, Saudi Arabia is the only global swing producer – it has significant reserves, the tapping of which it can turn up or down at will. You cannot replicate that scenario in non-OPEC markets, including the US. What the American shale sector can do is put a ceiling on the oil price and keep the market in check."

Away from oil prices, one final snippet before the Oilholic takes your leave; Moody's has upgraded all ratings of the beleaguered Petrobras, including the company's senior unsecured debt and corporate family rating (CFR), to B2 from B3, given "lower liquidity risk and prospects of better operating performance" in the medium term.

In a move following the close of markets on Friday, the ratings agency said that Petrobas' liquidity risk has declined over the last few months on the back of $9.1 billion in asset sales so far in 2016 and around $10 billion in exchanged notes during the third quarter, which extended the company's debt maturity profile

However, Moody’s cautioned that plenty still needs to be resolved. For instance, sidestepping existing financial woes, low oil prices, a class action lawsuit, the US Securities Exchange Commission (SEC)'s civil investigation and the US Department of Justice (DoJ)'s criminal investigation related to bribery and corruption will negatively affect the company's cash position. Afterall, ascertaining the settlement amount remains unclear, and won't be known for some time yet. That’s all for the moment folks! Keep reading, keep it ‘crude’! 

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© Gaurav Sharma 2016. Photo: Abandoned petrol station in Preston, Connecticut, USA ©

Todd Gipstein/National Geographic.

OPEC’s cut is not an oil market panacea

Manic few weeks of travel and speaking engagements meant the Oilholic could not pen his thoughts on the Saudi-Russian agreement over the need to lower oil production, and other OPEC shenanigans sooner. 

Plus the last fortnight has given much food for thought news-wise, with the oil price registering a noticeable uptick (see chart left, click to enlarge).

Forget, the world’s two leading producers, it appears all of unruly OPEC is onboard for a production cut too, going by recent soundbites. But is it? Really?

For starters, while the market has been told there is consensus among the cartel's members about the need to cut oil production; details on how OPEC would go about it would only be provided on 30 November, after the conclusion of it’s next ordinary meeting. 

It implies that until December, everyone within OPEC can keep pumping regardless, ahead of its pledge to limit “production to a range of 32.5m to 33m barrels per day (bpd).” Seeing is believing, as the old saying goes.

Secondly, how is OPEC going to enforce the quota? That's something it has been particularly poor at going by recent form. The market has not been given individual members’ quotas since 2008, and OPEC's latest monthly report acknowledges the prospect of rising production from Libya and Nigeria. 

So assuming Libya, Nigeria, Iraq and Iran would not partake in either cutting or freezing production – will it be left to Gulf oil exporters, led by the Saudis, to cut production? The Oilholic finds that very difficult to believe, but stranger things have happened. 

Thirdly, will the latest attempt succeed and are the Russians really in agreement this time around? That is anybody’s guess, but if it fails – OPEC and Russia will have a serious credibility problem for the future, as it would be the third attempt at capping crude production this year alone to falter. 

For all intents and purposes, it appears both OPEC and Russia are aiming for a $60 per barrel oil price. If that is their aspiration, it would suit North American players just fine, whose pain threshold - in the Oilholic's opinion - happens to be around $30 per barrel. 

Anyway you look at it, non-OPEC production will rise. So such short-term overtures, should they materialise, are bound to reap only short-term rewards. That's all for the moment folks! Keep reading, keep it 'crude'!

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On the Firth of Forth with an ethane tanker

As a mad month of travelling nears its end, the Oilholic was up earlier today in the small hours of the morning sailing on the Firth of Forth, Scotland, observing Panamax tankers load up Forties crude from the North Sea at the Hound Point Terminal at sunrise (see left). 

If you are lucky enough to catch the morning din with the weather holding up, it is quite a sight. However, the main purpose of being anchored in the middle of the Firth of Forth so early was not to see Panamax tankers fill-up, but rather to take a peek at the Ineos Insight; a ship carrying ethane sourced from the Marcellus shale stateside to British waters. Lo and behold she surfaced soon enough too (see below right).

This first consignment of US shale gas to the UK has given yours truly plenty of talking points for better parts of a fortnight. So here’s a take on its geopolitical significance for IBTimes UK, and a chat with Ineos director Tom Pickering. And well here is a spot report of the day’s event too, bagpipes, boat rides, canapes and all. 

However, if the back story is your thing, here it is as described for Forbes, and a more holistic account on this blog. 

With plenty of column inches dedicated to the event by yours truly to it, there’s little more to be done other than to pass on the links above to you and enjoy a view of oil and gas industry history in the making. That’s all from Scotland folks! It’s on to Edinburgh and then back to London. Keep reading, keep it crude!

Update 29/10/16: Furthermore, since this historic shale consignment arrived in Scotland, which has a moratorium on shale exploration, here is the Oilholic's IBTimes UK column touching on the hypocrisy of the Scottish Government’s stance on shale.

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© Gaurav Sharma 2016. Photo 1: Sunrise at Hound Point Terminal, Firth of Forth, Scotland, UK. Photo 2: Ineos Insight arrives in British Waters © Gaurav Sharma, September 2016