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Tuesday, 23 December 2014

The impact of oil prices on LNG exports – or why I hope the fuel price goes up soon.

Most motorists have enjoyed a welcome respite from soaring fuel prices for the beginning of festive period. However, the situation that has motorists smiling has LNG proponents nervous and recasting their forecasts.

So why the oil is prices so low?

In the last few weeks OPEC’s (Organization of Petroleum Exporting Countries) 13 members, (Algeria, Angola, Venezuela, Indonesia, Iran, Iraq, Qatar, Kuwait, Libya, Nigeria, the UAE, Saudi Arabia and Ecuador) have had discussions about the curbing oil output. However, those discussions failed to produce a plan to ‘cut oil production’ in a move viewed by many analyst's as an attempt to squeeze the booming U.S. shale oil sector — which has higher production costs than OPEC nations. Analysts are also saying production would need to be reduced by at least 1 million barrels per day (bdp) to steam this current oil over supply.

So, the reason for the happy motorists is not good will at Christmas time by oil producers, but moreover a ‘glut of crude oil’ on the market, putting downward pressure in global oil prices. This is good right? Well not really, because historically LNG prices were intrinsically linked to oil prices because LNG usually displaced oil as a fuel source.

Resources analyst Peter Strachan is quoted as saying “about a 16% of the price of a barrel of oil gives you the price of a gigajoule of gas”. “So, if the price of oil is $100 a barrel, then gas is about $15.50 to $16 a gigajoule. Now that we're seeing oil prices down towards $50 to $54 a barrel, LNG prices are around $8.00 to $8.64 a gigajoule on contract, and spot prices might even be lower.

See the Problem?

At $8 to $9 a gigajoule, two major activities will probably eventuate:
  • There is not enough ‘margin’ to service the proponents debts from ‘CapX’ infrastructure expenditure and proponents will need to borrow more from the banks, extend loan repayment terms or seek additional reinvestment;

  • For that price, resource companies will probably leave more CSG in the ground or stockpile it.
For good reason the world’s larger consumer of LNG, Japan is seeking LNG be unlinked from Oil and indexed to “Henry Hub”. ‘The Henry Hub Natural Gas (NG) futures allow market contributors to significantly hedge activity to manage risk with the highly volatile natural gas prices. (1) However, until this indexing change occurs we are all in the same ‘oil boat’ together.

On top of this, the Aussie dollars has fallen to approximately 81.1 US cents, the lowest it has been against the US dollar since mid-2010. Kochie would say, “the less our dollar is worth against the US, the cheaper our exports are to foreigners and more expensive imports are to locals” (2). The cheaper our exports, the less money we get for those goods we send overseas – meaning LNG.

The Sydney Moring Herald recently warned, “that lower global oil prices could be harmful to future income from Australia's liquefied natural gas (LNG) projects”, which have previously been cited by Westpac as a source of support for the Australian dollar as the ‘iron ore prices continue to slump’. So if our LNG exports are worth less now and the LNG income was part of the solution for a stronger Australian dollar – well let’s just say CSG/LNG proponents, Banks and Canberra will be getting a little nervous.

What has been the reaction of industry?

SANTOS recently reduced planned spending by $700 million and is considering following QGC lead and selling off fixed asset sales and slashing its interest in the controversial NSW Narrabri coal-seam gas project. Oil volatility has impacted SANTOS shares with a 52% hit and as a result the company secured a three-year, $1 billion bilateral bank loan facility from ANZ to provide a buffer for the current uncertain oil price environment. The SANTOS interest in the PNG and GLNG projects are on track and are expected to produce positive cash flow in 2015/16 and this is expected to bolster share prices.

The QCLNG LNG exports are on target for the first LNG loading at Christmas 2014. In fact a 283m LNG tanker the ‘Methane Rita Andrea’ is currently moored off Gladstone harbour awaiting regulatory procedures and clearance from the Gladstone Port Corporation. The Methane Rita Andrea’ is reported to be delivering its first LNG cargo to Singapore. To see pictures and track the tanker Methane Rita Andrea goto: The Methane Rita Andrea

QGC will also be reducing casual-contract staffing levels in the New Year as part of its shift from construction phase to steady state operations. BG Group is also confident in 2015. In a shrewd move BG Group has agreed to sell its Australian pipeline asset to APA Group for estimated US$5 billion. The Group expects the sale proceeds will be used to reduce net debt and to fund future growth investment.

APLNG partners (Origin 37.5%) ConocoPhillips (37.5%) and Sinopec (25%) have increased its loan facility to $7.4 billion and lengthening the repayment terms to place a buffer between itself and failing crude oil prices. The APLNG project is on track for a mid-2015 production and export of liquefied natural gas. In the current climate expenses are being reined in with slowing or stockpiling of gas supplies to insulate APLNG from the current oil prices ready for anticipated price rise in coming years.

The oil price reduction is not all bad. Companies with airline and transport interests will get a welcome boost to their bottom line from lower fuel costs.

As a side note:

Russia is not currently part of OPEC. OPEC members have around 67% proven oil reserves and are responsible for 42% of the global oil output. Russia is a large producer responsible for about 12% of (world) global production or about the same size as OPEC member Saudi Arabia. OPEC is currently courting Russia to join. If they do, OPEC will have control over 50% of Global oil output and over 75% of global oil reserves.(3)



Forecasters expect more of a rebound in oil that the market does. Click below Link
Oil Prices predictions

Tuesday, 16 December 2014

Who to employ? – unravelling Instrumentation qualifications

Over the past weeks many people have inquired about other formal qualifications in the Instrumentation and control field. In this post I hope this clear it all up any confusion from what is a confusing situation. This text applies only to Queensland training as I am not fully aware of when instrumentation training started in other states.
In Queensland instrumentation started in 1979. The course was called CN154 and basically covered many subjects not now in the current qualifications. This was the first of the instrumentation qualifications in Queensland and the outcome was a called a Fitter (instrumentation ) with a full restricted electrical license. Within this course was a full year of electrical training including all electrical theory now in the electrical course including  motors, generators, wiring etc as well as analogue and digital  electronics, pneumatics and all facets of instrumentation used in laboratories, quarries, gas plants, heavy refining industries and water sewage .
Over the years the trade has been minimized in some areas and expanded in others.  So it has been quite  a difficult prospect when one sits down and looks how the subjects related over the years. Having  done this I notice there are many gaps between training packages. .

All the MEM training packages in Queensland were a dual trade, 5 year apprenticeship.  As stated in the earlier blog this equated to the dual trade in the UEE package.
Here is a historical list of Instrumenatation qualifications

CN154 1985-1995 Fitter Instrumentation with full restricted electrical license 4 years
MEM40198 - 1998 Dual trade electrical instrumentation 5 years

MEM30498 - 1998 Instrumentation trade only 4 years
MEM40103 - 2003 Dual trade electrical instrumentation 5 years

MEM40105 - 2005 Dual trade electrical instrumentation 5 years
(UEE) CN100 ELK1C 1990 -1997 Dual trade electrical instrumentation 5 years

CN100 ELK1B 1990-1997 Sugar industry only did stage 2 instrumentation and full electrical course
UEE30809 1997-2009 instrumentation only 4 years

UTE39036 1997 – 2009 Dual trade electrical instrumentation 5 years
UEE31207 2009 March 2012 instrumentation only

UEE31210 (this one was only around for a very short time)
UEE 31211 current qualifications:  instrumentation only 4 years

UEE 30811/31211 current qualification: Dual trade electrical instrumentation 5 years
Now the problem is that over the years the qualifications have changed.  Some subjects have been dropped and others added.

Also there is an issue called “currency”.  Currency is whether the knowledge you have gained is relevant to the modern instrumentation industry today.

When I did my trade in 1979 we worked mostly in 4-20 mA loops, links and levers, electronics, electrical and pneumatic based instrumentation.
Some of the gear I worked on included mercury filled differential pressure flow meters designed by George Kent in the early 20tth century.   Now days that is all different we delve mostly in current /digital loops, protocols, DDC, some pneumatics and internet applications. Hart communicators and process calibrators are the norm today as is PLC applications, SCADA and Distributed control systems. In my day they were new.

So if one was trained in a course older than 5 years it is safe to say that there would be some subjects that that person may not have completed in the trade but could be deemed competent through an RPL activity.   As many instrumentation people I know still work in the industry they have been upskilled over the year. The basics of theory are the same when it comes to flow pressure level temperature process control and valves but the calibration and usage may have changed.  

This is what an RPL activity can do recognise areas that may need revisiting or upskilling in.  So to be current, as well have all done or are doing here now with teachers, we are upskilling through an RPL activity to obtain the new qualification. There has been a lot of change in some process and new solar and renewable energy applications. We are also heavily involved in the internet and networking capabilities now as with the introduction of foundation fieldbus and other protocols.  In my opinion if I was to maintain my currency I would go through an RPL process and see what new areas I would need to learn. This trade is changing all the time and in the future will be the forefront of all communications applications in plants.
Being in the field for over 30 years and being a teacher for half of that I keep my skills up to date by going back into industry and working with the new equipment.  Also where I work we only use the equipment industry now use so that people we train are work ready when returning to their worksite.

There is one qualification I have seen on the blog which I have little knowledge about UEE 42211.  This qualification is the next step for people who have UEE 31211 but it is mostly Hazardous areas subjects.  UEE 40411 only covers stage two instrumentation and UEE 42211 could be used for gaining the stage three instrumentation but will not give you a trade qualification.  I hope this clears it all up any confusion.

Mal in foreground with the SkillsTech Electrotechnology  team.


Malcolm Garrick
Business Manager - Delivery Teams
Educational Delivery
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