ASX News Live | ASX Ends 1.4% Lower; Lake Resources Appoints CEO

While energy is making the headlines in terms of the economic impact of the war, food supply is equally in jeopardy. It’s important to understand that food on your table is one end of a long and complex supply chain. The farmers who grow food and raise livestock and the butchers and food processors who prepare that output into meat, poultry, bread, and dairy products are not the source of the supply; they’re intermediaries. The source of the supply chain is fertilisers made from chemicals, especially nitrogen and phosphate. So the complete agricultural supply chain runs as follows:

Chemicals -> farms -> processors -> distribution centres -> grocery stores -> consumers.

Any break or bottleneck anywhere in this supply chain will result in higher prices or empty shelves at the consumer end. These breaks are already occurring. Russia and Ukraine provide more than 25% of the wheat supply in world trade and 20% of global corn sales. Ukrainian exports are already in disarray because of the war, and Russian exports will be handicapped by the financial sanctions imposed by the West.

This summary from Foreign Policy, 22 January 2022, explains the importance of Ukrainian wheat production both regionally and globally:

‘With some of the most fertile land on Earth, Ukraine has been known as Europe’s breadbasket for centuries. Its fast-growing agricultural exports — grains, vegetable oils, and a host of other products — are crucial to feeding populations from Africa to Asia. And it so happens that a substantial part of Ukraine’s most productive agricultural land is located in its eastern regions, exactly those parts most vulnerable to a…Russian attack…

‘Ukraine is a top exporter of corn, barley, and rye, but it’s the country’s wheat that has the biggest impact on food security around the world. In 2020, Ukraine exported roughly 18 million metric tons of wheat out of a total harvest of 24 million metric tons, making it the world’s fifth-largest exporter. Customers include China and the European Union, but the developing world is where Ukrainian wheat has become an essential import. For example, about half of all wheat consumed in Lebanon in 2020 came from Ukraine, according to data from the Food and Agriculture Organization (FAO)…

‘Should [an] attack on Ukraine turn into a Russian land grab from where Russian-supported separatists have already established their so-called republics, it could mean sharp declines in wheat production and a precipitous fall in wheat exports as farmers flee the fighting, infrastructure and equipment are destroyed, and the region’s economy is paralyzed. Whoever controls the land will ultimately extract its riches, but if conditions in the Russian-controlled eastern parts of Ukraine are any guide, instability and paralysis may lie over the region and seriously impact production far beyond the initial invasion.’

https://www.dailyreckoning.com.au/a-food-shock-is-coming/2022/09/07/

Do you remember when the ‘electrification of everything’ was going to make our lives easier…and save the planet on the side? Well, someone forgot to make sure we have enough electricity to do it…

Now that electric vehicles (EVs) are mainstream, my front doorknob uses electricity, electric heat pumps are replacing fossil fuels in places like Canada and the UK, and solar panels cover the skylines of the suburbs, blackouts, energy rationing, and power poverty are hot-button issues. Not to mention booming coal usage…

It’s worst of all in Europe, of course. But we’re talking about global markets here. And, even if the effect is slow and reduced, the Australian Financial Review already reports ‘Industry faces crisis as gas contracts may triple’ here too. As the principal national adviser for the Australian Industry Group put it, ‘most businesses are going to be rolling off existing contracts and into hell’.

But tripling is nothing compared to what’s going on in Europe. Which theoretically makes Europe worse than hell. A German CEO said he is worried about ‘a gradual deindustrialization of the German economy’.

I’m not so sure about gradual. And I’m not sure what a deindustrialisation of Germany leaves Germany with. But the CEO’s comment was with power prices at 530.50 euro. They’ve hit 1,000 euros since and 1,100 in France…no wonder one German city is considering turning off their traffic lights…

The list of companies shutting down or reducing production in Europe is growing very long. And that’s before rationing kicks in for winter.

The irony is that the shutdown of industry over impossible energy prices will only worsen inflation. It’ll create shortages causing Germany’s Producer Price Inflation to soar to impossible levels.

In the UK, the government is busy solving the problem. But not by providing more energy, of course. ‘Once Unthinkable Ideas Gain Traction to Fight UK Energy Crisis’, reports Bloomberg. ‘Orchestrated blackouts’ are on the menu, as are three-day work weeks.

The government wants to shut down the UK to save energy, which is an odd way of prioritising the two…

https://www.dailyreckoning.com.au/the-electrification-of-everything-runs-out-of-gas-in-hell/2022/09/03/

Oil and gas company Byron Energy Limited (ASX:BYE) released a production update to the market on Wednesday.

Net daily oil production exceeded 2,300 barrels of oil per day while daily net gas production exceeded 7,000 cubic feet of gas per day.

Byron said its net daily oil production has doubled in the past 12 months, with CEO Maynard Smith expecting that trend to continue following another drilling program slated for early next year.

The producer said its daily net revenue on 4 September exceeded US$260,000 after royalties but before transportation costs and lease
expenses.

The latest revenue readings indicate Byron’s daily net revenue compared to the same date in 2021 rose 226%.

BYE shares were up 7% in late Wednesday trade.

BYE shares are up 15% year to date.

Byron’s CEO Maynard Smith said:

“Byron’s net daily production and revenue is strong and provides us with a sound financial foundation from which we can continue our reserve and production growth. Our net daily oil production has doubled in the past twelve months. With another drilling program expected to begin January or February 2023, I expect that trend to continue.

“Because both the SM58 G3 and G5 wells are high on structure and the stratigraphic connection to the aquifers is complex, it is taking more time than usual to get full pressure support which will then allow us to optimize the rate from each well. I expect these wells to reach final, stable production levels in the next few weeks.”

European countries have been racing to fill up their natural gas storage sites before the cold hits. Europe uses these gas storages to help during energy shocks, but they also supply about 25–30% of the fuel Europe uses in winter.

The EU had set a goal to fill up 80% of their natural gas tank storages by 1 November. Now, the good news is that Europe hit that goal two months ahead of schedule. At the moment, gas storages are at almost 82%.

So the new objective is to reach 95% by 1 November.

But of course, with flows now stopped from Nord Stream 1, the big concern is not only how Europe will achieve this but also how they can replace natural gas coming from Russia.

Europe has been trying to replace Russian energy with other energy sources such as renewable energy, nuclear energy, and increasing liquid natural gas (LNG) imports.

Now the EU is building several LNG import facilities…which isn’t great news for Russia.

But of course, all this takes time.

According to research from Bloomberg, the EU needs around 118 million tonnes of LNG to replace Russian gas. But their current LNG infrastructure can only take in about half of that.

Not only that, but Europe also faces competition from buyers in Asia. In fact, China has been a big buyer of Russian gas, with their Russian LNG imports rising close to 30% just this year.

And then, of course, there’s the question of where all that LNG being imported is truly coming from…

Here is OilPrice:

‘China has been quietly reselling Russian LNG to the one place that desperately needs it more than anything. Europe… and of course, it is charging a kidney’s worth of markups in the process.

‘As the FT reported recently, “Europe’s fears of gas shortages heading into winter may have been circumvented, thanks to an unexpected white knight: China.” The Nikkei-owned publication further notes that “the world’s largest buyer of liquefied natural gas is reselling some of its surplus LNG cargoes due to weak energy demand at home. This has provided the spot market with an ample supply that Europe has tapped, despite the higher prices.”

‘What the FT ignores, is that it’s not “surplus” — after all, if it was Chinese imports of Russian LNG would collapse. No — the correct word to describe the LNG that China sells to Europe is Russian.’

Not to mention, LNG still makes Europe dependent on gas imports that have to cross long distances.

The best solution is ramping up renewable energy. But there’s lots more we could do.

https://www.moneymorning.com.au/20220907/energy-wars-could-boost-this-boring-sector.html

The S&P/ASX 200 is currently down 1.6%, falling further from market open.

With US stocks also slumping overnight and Bitcoin trading below US$19,000, it looks like bullish sentiment is retreating.

The rally from mid-June to mid-August looks to have been a bear market rally.

After the abrupt departure of former CEO Stephen Promnitz triggered shareholder angst, lithium developer Lake Resources today announced the appointment of a new CEO and managing director.

LKE has appointed David Dickson, who is currently the senior advisor to private equity firm Quantum Energy Partners.

Prior to Quantum Energy, Mr Dickson served as CEO of engineering and construction firm McDermott International.

Mr Dickson has signed on for four years on a base salary of US$1 million with annual potential bonuses capped at 100% of the base salary.

Long-time LKE executive Stuart Crow, who is serving a six-month stint as an executive chairman to oversee additional board hires, is set to receive director fees equivalent to A$1 million per year.

Mr Crow’s revised salary was hammered out at an “informal remuneration committee meeting, and later confirmed at a Board meeting in August.”

The S&P/ASX 200 is currently down 1.1% as investors digest the latest interest rate hikes and souring global economic outlook.

The worst performers at the open:

• Chalice Mining, down 8.5%
• Insignia Financial, down 6.5%
• Viva Energy, down 6.5%
• Alumina, down 5.3%
• Regis Resources, down 4.8%