Yet another commodity bust is washing over the ASX and Australian economy. Coal, iron ore and even gold are all down and flat. The oil and gas industry was at least a fall-back position and relief for weary resources investors.
But no longer.
With oil prices reaching even GFC lows, the effects are shaking energy stocks to the core.
The chart below shows the extent of the recent fall in Brent crude oil prices.
Brent Crude Oil Price Chart 1970 – 2015
Source: tradingeconomics.com
Market experts are looking for oil to drop to about US$40 a barrel, which is a little more than 10% away from the current US$46.75 spot price. From there, it's anyone's guess whether it will bottom out or keep on going.
Foolish investors shouldn't try to time the market. Even experienced traders have no real idea where it will stop, so don't try to catch the proverbial "falling knife". Let it stick in the floor and wobble awhile before doing anything.
Just when Australia was going to shine with three new LNG projects coming online over the next 12 months, the oil price collapse affects that as well.
LNG prices are linked to crude oil prices. Asian LNG spot prices have plummeted from US$20 per million British thermal units (BTU) in early 2014 to about US$9.90 for February delivery.
Companies like Santos Ltd (ASX: STO) and Origin Energy Ltd (ASX: ORG) will definitely see new cash flows when their respective LNG projects start shipping LNG in the next twelve months, but it may be well less than originally projected unless multi-year supply contracts with set prices are in place. They could still make money, just not as much.
IBISWorld, the market research company, stated coal seam gas (CSG) producers will see a boom in production and revenue in 2015. That would be logical since these producers will be supplying the various LNG projects which are beginning their own production in 2015.
Senex Energy Ltd (ASX: SXY) has producing CSG wells in the Surat Basin in Queensland that will help feed the new LNG projects, so the junior oil and gas producer will benefit from the new revenue stream.
Apart from conventional gas production, Beach Energy Ltd (ASX: BPT) is involved with several exploration projects in the Cooper Basin for coal seam gas. It has teamed up with US energy giant Chevron Corporation (NYSE: CVX) to determine the reserves of very promising recent CSG discoveries, though this would take some time for production. There is speculation now that Chevron could put this on a back burner given the collapse in world oil prices. Beach Energy may have to go it alone in that case.
