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

    Email of the day - on uranium and investing in illiquid shares

    How do you think about liquidity in the context of a narrow theme like Uranium? And how would you measure it in this case? Volumes picking up and an increase in market capitalization of the sector? Or does it all tie back to the Fed and other central banks

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    German Vow to Cancel Permits Sends Carbon to 11-Year High

    This article by Brian Parkin and Mathew Carr for Bloomberg may be of interest to subscribers. Here is a section:

    “We’ve seen an encouraging rise in permit prices, so it’s no surprise that we see it as essential that the instrument continues to work as it should do,” Schulze said. “That’s logical. It makes no sense at all to implement an exit from coal here, only to export pollution licenses into the wider European system.”

    And

    “Scarcity is central to the aims of the European carbon trading market.”

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    Roubini Lives Up to Dr. Doom Alias With Global Recession Call

    This article by Gregor Stuart Hunter for Bloomberg may be of interest to subscribers. Here is a section:

    On the trade front, deglobalization looms as countries around the world have to choose which country to align with -- the U.S. or China -- once the bilateral negotiations collapse, Roubini said. “This divorce is going to get ugly compared to the divorce between the U.S. and the Soviet Union.”

    On top of that, an oil-price shock coming from Iran tensions would raise the prospect of 1970s-style stagflation as a rise in crude prices coincides with slower growth, Roubini said.

    Speaking at a blockchain summit in Taipei, Roubini reiterated his skepticism toward cryptocurrencies such as Bitcoin.

    “There’s massive, massive amounts of price manipulation” in cryptocurrency trading, he said in remarks at the conference. As for blockchain, “it’s the most overhyped technology ever, it’s nothing better than a glorified spreadsheet,” Roubini said. “Nobody’s using it, and nobody’s ever going to use it.”

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    Musings From The Oil Patch July 1st 2019

    Thanks to a subscriber for this edition of Allen Brooks ever interesting report. Here is a section:

    Growing gas production has also allowed buyers to worry less about having substantial volumes in storage to meet winter demand.  Therefore, buyers see little need to lift gas prices to encourage storage injections.  That dynamic has been demonstrated by the low level of storage we reached last year, and now how quickly we are rebuilding storage, while also meeting increased gas consumption from the power and export markets.  

    The recent gas production growth, which accelerated starting in 2016, appears to be slowing.  To some degree, it is a function of the Permian Basin crude oil pipeline capacity shortage, which has restricted associated natural gas output.  Will that change when the new oil pipelines begin operating later this year?  Only time will tell, but official forecasts call for a slowdown in the growth of gas production.  That means the bigger question for the natural gas market will be demand.

    A recent webinar on the natural gas market and outlook through 2020 had two charts we found very interesting.  The first dealt with the significantly different gas storage picture in Europe.  Today, storage is well ahead of last year, which may have an impact on the amount of future liquefied natural gas (LNG) shipments.  So far, it appears to have had little impact, but the lack of clarity about output levels from the Dutch gas fields could also impact the market for U.S. LNG shipments to Europe.  

    The most interesting chart was explaining the firm’s gas price forecast compared to the NYMEX futures strip price.  The forecasters were able to frame their perspective about the upside and downside to their forecast by listing and quantifying the positive and negative factors for gas demand and supply.  We are not endorsing the forecast, but rather pointing out that there are a number of plusses and minuses that need to be considered when making a gas price forecast.  

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    The Future of Hydrogen

    This report from EIA may be of interest to subscribers. Here is a section

    The time is right to tap into hydrogen’s potential to play a key role in a clean, secure and affordable energy future. At the request of the government of Japan under its G20 presidency, the International Energy Agency (IEA) has produced this landmark report to analyse the current state of play for hydrogen and to offer guidance on its future development. The report finds that clean hydrogen is currently enjoying unprecedented political and business momentum, with the number of policies and projects around the world expanding rapidly. It concludes that now is the time to scale up technologies and bring down costs to allow hydrogen to become widely used. The pragmatic and actionable recommendations to governments and industry that are provided will make it possible to take full advantage of this increasing momentum.

    Hydrogen can help tackle various critical energy challenges. It offers ways to decarbonise a range of sectors – including long-haul transport, chemicals, and iron and steel – where it is proving difficult to meaningfully reduce emissions. It can also help improve air quality and strengthen energy security. Despite very ambitious international climate goals, global energy-related CO2 emissions reached an all-time high in 2018. Outdoor air pollution also remains a pressing problem, with around 3 million people dying prematurely each year.

    Hydrogen is versatile. Technologies already available today enable hydrogen to produce, store, move and use energy in different ways. A wide variety of fuels are able to produce hydrogen, including renewables, nuclear, natural gas, coal and oil. It can be transported as a gas by pipelines or in liquid form by ships, much like liquefied natural gas (LNG). It can be transformed into electricity and methane to power homes and feed industry, and into fuels for cars, trucks, ships and planes.

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    Musings from the Oil Patch June 18th 2019

    Thanks to a subscriber for this edition of Allen Brooks’ ever interesting report for PPHB. Here Is a section on the commodity/S&P500 ratio:

    When we contemplate the market’s assessment of commodities versus stocks, we find the former, which includes oil and gas, to be at the lowest valuation point in at least 50 years.  Does this mean that the commodity market it being disrupted?  Peak valuation points occurred in 1973-74, 1990 and 2008.  Each peak was associated with spikes in oil prices caused by geopolitical events such as the Arab Oil Embargo, the First Gulf War and the Global Financial Crisis, which happened as oil prices traded in excess of $100 per barrel.  Likewise, each low has been associated with low oil prices – either absolute lows, or lows below more recent oil price ranges.  

    With respect to the low points in the valuation of commodities versus stocks, the prior two lows were marked by excess stock market speculation about super-growth stock future earnings.  The 1998-99  Dot.com Bubble, which saw companies brought public with barely any revenues and no earnings, but lots of “eyeballs” on web sites or clicks on shopping sites, happened to also be associated with oil prices falling to $11 per barrel as the Asian currency crisis unfolded and a brief global recession occurred.  The 1970-73 low was marked by the market bubble created by the Nifty-Fifty growth stocks, as price-to-earnings ratios for these 50 super-growth companies soared to ratios in excess of 50 times next year estimates for earnings per share.  Of course, two energy service companies – Schlumberger Ltd. (SLB-NYSE) and Halliburton Companies, Inc. (HAL-NYSE) – were part of this Nifty-Fifty stock group.  Crude oil prices at that point were in the $3 per barrel range, and there was a battle brewing between the seven largest global oil companies that ruled the international oil business and the Organization of Petroleum Exporting Countries over the value of a barrel of oil for tax and royalty calculations.  That tax battle lit the fuse that exploded after the Yom Kippur War involving Israel and Egypt in 1973, leading to the Arab Oil Embargo and the explosion in global oil prices.  

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    Email of the day - on the USA's oil advantage:

    Quick thought, following your comment on America's oil glut, and Morgan Stanley's report you highlighted.

    I have been watching the difference in price between the WTI and Brent Crude for a long time now. The difference seems to vary between 10 and almost 20% depending on the day, with WTI obviously being the cheaper. Is it too SIMPLISTIC to say?

    1) that US factories, offices, homes etc enjoy an enormous advantage over their global competitors with energy costs being so much cheaper, not forgetting it already enjoys a significant tax advantage over many as well.

    2) when the US does become a significant oil exporter, it can make a lot of profit, even by offering only minor discounts to the Brent price to attract business. Possibly more profit than from its LNG exports.

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    Uranium Sector

    Thanks to a subscriber for this report from Eight Capital which may be of interest. Here is a section:

    Enviro Minister Schulze recently said that Germany will stick to its timetable to close the last nuclear reactor by YE22.  Some critics like Volkswagen CEO Herbert Diess believe that it should wind down coal before nuclear. A recent Forbes article “What Does It Actually Cost to Charge Up an Electric Car focused on cost of charging an EV.  We took it one step further and also determined the environmental impact of Germany’s decision.  Given that France’s electricity generation is 73% nuclear and Germany is only 12%, we compared estimated costs and emissions associated with charging a Tesla Model S with a 100-kWh battery. First off, electricity prices appear 45% lower in France.  Secondly, CO2 emissions from electricity generation to charge an EV in France is just 13% of what it is in Germany. Yes, Germans would see a 140% CO2 reduction by using EV’s versus that from an average ICE vehicle, but the French would see a 1,720% CO2 reduction.

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    Shell's Floating Prelude LNG Poised to Load First Cargo

    This article by Stephen Stapczynski for Bloomberg may be of interest to subscribers. Here it is full:

    Shell’s Prelude floating LNG plant offshore Australia is expected to load its first cargo on the vessel Valencia Knutsen, which is currently idled in the area, according to commodity shipment tracker Kpler.

    * The vessel arrived near Prelude on June 4 and was likely attempting to load from the facility, but it left berth range a few hours after arrival, Kpler analysts said

    ** The vessel will probably be moored alongside the Prelude facility before the end of the week: Kpler

    * NOTE: Shipment of the first LNG cargo is “imminent,” Platts reported on June 4, citing Shell’s head of integrated gas, Maarten Wetselaar

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