Turnbull rocks the gas industry
Stock options expiry today so a busy day on the desk and we also made some amendments to the portfolio, selling our holdings in Star Entertainment (SGR) + we also hoped to offload Ansell (ANN) however that order remained unfilled with a $24 limit price. Overall the market had a reasonable session with banks and other financials once again adding most weight to gains. The BIG 4 adding almost 12 index points to the 200 with all the majors’ trading at their highest levels since 2015. As we’ve discussed recently, we’ve got a high allocation to financial stocks in the MM portfolio and we continue to enjoy upside here, however we’re getting close to reducing this exposure.
On the market today, we had a lower open before a gradual grind higher throughout the session. A reasonably tight range of +/- 17 points, a high of 5924, a low of 5906 and a close of 5921, up +9pts or +0.16%.
ASX 200 Intra-Day Chart
ASX 200 Daily Chart
Energy stocks, particularly those that are exposed to domestic gas were the big movers today, with Santos (STO) down -5.49% to $3.44 and Origin Energy (ORG) off by 3.59% to $7.26 after PM Turnbull announced plans to reduce gas exports in the event of domestic shortages. They call it the Australian Domestic Gas Security Mechanism and no doubt an abbreviation will be forthcoming in the days ahead however the essence of the plan is that if an exporter draws more from the domestic market than they put in they will need to show how they will fill the shortfall as part of their overall production and exports.
Santos is squarely in the cross hairs, given it uses a lot of domestic gas to feed its Gladstone LNG project and theoretically that could cap the amount of LNG that it will be able export. They were vocal today about the new Govt plans and you can understand why – they’ve planned and built a multi-billion dollar project under one set of government regulations and by the time it starts to kick into gear, the regulations have changed. This is called sovereign risk and the last time it was getting attention was during the Government’s plan to tax the ‘super profits’ in the mining sector just as the top was forming.
Clearly there is a shortage of gas available for domestic consumption and this is pushing up prices, however there are many factors driving this, not just export flows. Govt red tape meaning a lack of approvals, cost of exploration etc to name a few. The U.S made energy security a priority for them some time ago and set up a structure during the infancy of gas development in that country. They provided a framework for producers that was known and new ground and facilities were developed under that regime. Changing the regulatory environment after massive investments have been made sends the wrong message, and we can see why energy companies are annoyed. More on this topic tomorrow morning including our views on the companies involved.
Santos (STO) Daily Chart
Have a great night,
The Market Matters Team
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