David Fuller and Eoin Treacy's Comment of the Day
Category - Energy

    Stock Rally Gains Momentum on Risk Bet, Bonds Fall

    This article by Randall Jensen and Vildana Hajric for Bloomberg may be of interest. Here is a section:

    This has become a pattern where you get a big aggressive statement from the administration that might impact trade and then the market reacts aggressively as it did on Monday and then it seems to back off,” Chicago-based Susan Schmidt, head of U.S. equities at Aviva Investors, said in an interview. “Business is still doing well. I think if the market can stay focused on the facts and the data, then I think the market will hold.”

    Strong economic data and earnings, along with hints from the Trump administration that it may be willing to compromise on trade has helped stocks rebound from the battering they took when the tariff battle with China flared. But the headlines have come fast and furiously, most recently President Donald Trump signed an order that’s expected to restrict Chinese telecommunications firms from selling in the U.S.

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    Oil Rises as Drones Strike Saudi Pipeline and Trade Fears Recede

    This article by Alex Nussbaum and Grant Smith for Bloomberg may be of interest to subscribers. Here is a section:

    Oil climbed as drones struck Saudi Arabia’s main cross-country crude pipeline, while President Donald Trump said a trade deal with China is still within reach.

    Futures gained 1.2% in New York, amid assaults on the world’s chief crude exporter. State-owned Saudi Aramco halted operations in the area after the strike on two pumping stations, which was claimed by Iran-backed rebels from neighboring Yemen. The attack followed damage to four oil tankers anchored off the United Arab Emirates on Sunday.

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    Email of the day - on oil prices

    “May I clarify something? The item denoted as Oil (1st West Texas) (CL1 COMB COMDTY) in the Chart Library - is this the Spot Price for WTI? Or is it the near-term futures price for WTI? Thanks in advance.“

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    Shell's Great Natural Gas Earnings Had a Helping Hand From Oil

    This article by Kelly Gilblom and Dan Murtaugh for Bloomberg may be of interest to subscribers. Here is a section:

    Shell is the world’s largest liquefied natural gas trader and sells most of the fuel on long-term contracts linked to oil prices. Some of those agreements are structured with a three-month lag, Chief Financial Officer Jessica Uhl told reporters on a conference call. That means that while global gas prices were tanking, Shell was still reaping benefits from a crude rally that sent Brent prices to the highest level in four years in early October.

    “We have a business structured predominantly around long-term contracts, mostly oil linked,” Uhl said. “The price environment doesn’t have material impact on our business.” In addition, Shell also benefited from trading. The gas business was buoyed by a $234 million accounting gain in the value of its commodity derivatives. Shell’s rival, BP Plc, told investors on Tuesday that its strong trading earnings reflected shorting gas contracts.

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    Email of the day on crude oil prices:

    Please check on my enquiry below (sent to Eoin on 16.4.2019): [On 12/4/2019, you wrote "Nevertheless, a great deal of additional supply, internationally, becomes economic above $80 so that level represents a significant Rubicon for prices." I presume the $80 refers to the Brent crude oil price. What is the equivalent Rubicon price for the WTI? Thanks in advance.] I have not seen a reply to my query above. Can you please check what happened?

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    Perspectives for the Clean Energy Transition

    This report from the International Energy Agency may be of interest to subscribers. Here is a section:

    In contrast to current trends, the Faster Transition Scenario sets out a vision for an extremely ambitious transformation of the energy sector. Energy-related emissions peak around 2020 and drop 75% to around 10 gigatonnes of CO2 (GtCO2) per year by 2050. The carbon intensity of the power sector falls by more than 90% and the end-use sectors see a 65% drop, thanks to energy efficiency, uptake of renewable energy technologies and shifts to low-carbon electricity.

    Electrification plays a major role in the transition, combined with clean power generation. Electricity’s share in final energy reaches about 35% by 2050, compared to less than 20% today. That growth is mainly due to adoption of heat pumps in buildings and industry, as well as a swift evolution in transport. Efficiency improvements keep electricity demand for other end uses, such as lighting and cooling, relatively stable, while access to electricity improves worldwide.

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    On Target

    Thanks to Martin Spring for this edition of his ever-interesting letter. Here is a section on the coal market which I found particularly illuminating: 

    While climate-change activists make a lot of fuss about the US, where emission of greenhouse gases has been in decline, they aren’t demonstrating loudly about China -- which attacks developed countries for not doing enough, while itself doing most to worsen it,

    The New York Times reports that China, the world’s leading emitter of greenhouse gases from coal, now admits it’s burning up to 17 per cent more coal than its government previously claimed when it signed up for the Paris accord.

    And it’s making things worse. Across China the government is building a fleet of new coal-fired stations with 259 gigawatts of capacity, while outside the country it’s financing even more new coal plants, providing $36 billion for 399 gigawatts.

    “Chinese bankers and project planners like coal-backed projects because they are cheap,” says the energy consultancy IEEFA. “While they are restricted by Chinese pollution and emissions targets at home, they are free to fund coal-backed projects abroad.”

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    Chevron Buys Anadarko in $33 Billion Bet on Shale Oil, LNG

    This article by By Kimberly Yuen, Javier Blas and Kelly Gilblom for Bloomberg may be of interest to subscribers. Here is a section:

    "Chevron’s deal for Anadarko escalates the race with Exxon Mobil for the Permian and delivery of synergies and efficiencies will be critical in narrowing or overtaking its peer’s returns." --Fernando Valle, industry analyst, and Jonathan Mardini, associate analyst

    The deal may put pressure on Shell to seek assets in the Permian, where the Anglo-Dutch company has said it wants to grow. Oil executives and bankers had in the past speculated that Shell may buy Anadarko because they have adjacent acreage. Shell has in the past several months held talks with Endeavor Energy Resources LP, the largest privately-owned company in the Permian that bankers say might be valued at $10 billion to $15 billion.

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    Musings from the Oil Patch April 3rd 2019

    Thanks to a subscriber for this edition of Allen Brooks’ ever interesting report for PPHB. Here is a section on coal to gas power plant conversions:

    With an investment of roughly 50% of the value of an operating coalfired power plant, the benefits of converting to natural gas for fuel can make economic sense, based on our estimates.  However, as every technical article we read discussing fuel conversions pointed out, each project is different and requires an extensive analysis before reaching a conclusion.  We will not bore you with the extended lists of issues to be considered.  Natural gas makes for a cleaner environment and operating facility, and also requires less ongoing maintenance.  Gas plants are also less labor intensive, which may become a greater consideration in the future with a tighter labor market and an aging labor force.  

    Given the amount of natural gas resources in the world, it would be nice to say that this conversion option is a panacea for the expensive decarbonization efforts currently being proposed.  A global coal-to-gas conversion effort is not likely, even though we suspect many more switches could (may) be justified.  As the economics of the Joliet conversion highlights, the plant moved from a baseload to peaking status, which could be justified by current energy economics.  We doubt all regions have similar economics that facilitate such a move.  The world will continue to remain dependent on an “all of the above” energy slate for ensuring everyone has access to cost-effective electricity.  

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    Production of battery grade cobalt blows up First Cobalt's stock

    This article from Mining.com may be of interest to subscribers. Here is a section:

    “Producing a battery grade cobalt sulfate is one of our most significant accomplishments as the majority of refined cobalt for the electric vehicle market is produced in Asia. With no cobalt sulfate production in North America today, First Cobalt stands to become the first such producer for the American electric vehicle market," Trent Mell, President & CEO said in the press release.

    “Electric vehicle demand in North America will keep growing," Henrik Fisker, First Cobalt director and CEO of electric vehicle manufacturer Fisker Inc., said. "Companies such as Fisker continue to introduce new, affordable EV models to the market. Automakers and battery manufacturers have a responsibility to ensure any materials we use in our batteries are sourced in an ethical way.  The restart of the First Cobalt Refinery is an important step towards producing battery materials in America with a clean record from mine to machine.”

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