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

    Gas Glut Upends Global Trade Flows as Buyers Find Leverage

    This article by Tsuyoshi Inajima for Bloomberg may be of interest to subscribers. Here is a section:

    Historically, LNG has been sold on long-term contracts that guaranteed buyers supply and helped producers finance liquefaction plants at a time when less of the product was shipped. Now, a gas glut is causing LNG importing countries to support renegotiating existing deals that can run 20 years or more while suppliers offer more flexible terms to lock up customers spoiled for choice.

    India already is encouraging importers to rework long-term accords to better align costs with spot market prices. Japan, the world’s largest LNG importer, may soon join them. That country’s Fair Trade Commission is in the process of probing resale restrictions in longer deals in an effort that could mean the renegotiation of more than $600 billion in contracts and boost the number of shorter-term agreements.

    “There will be 40 million to 50 million tons of homeless LNG by 2020, which can go anywhere or doesn’t have any fixed customers,” said Hiroki Sato, a senior executive vice president with Jera Co., a fuel buyer that plans to increase spot and short-term LNG deals. “Homeless LNG will provide a great opportunity to improve liquidity in Asian and global markets.”


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    Theresa May may become one of the most radical western leaders of the century

    Thanks to a subscriber for this article by Lawrence Solomon for the Financial Post which may be of interest to subscribers. Here is a section:

    Under May’s approach, shale gas royalties that would ordinarily go to governments and quasi-governmental agencies will instead be directed to the residents in the communities hosting the developments. The BBC estimates individual households will be receiving as much as £10,000 ($16,800) under May’s plan; other estimates arrive at higher sums – as much as £65,000 per household lucky enough to be near large shale gas deposits. May’s plan is now expected to wash away local opposition to fracking and unleash the development of Britain’s massive shale gas resources, estimated by the British Geological Survey at 1,300 trillion cubic feet of shale gas, equivalent to a 500-year supply at current gas consumption levels.

    This torrent of energy will benefit more than the local residents who until now saw only drawbacks to shale gas development in their community. The abundant supply of gas will lower energy costs throughout the country, relieving residential and business consumers alike and convincing British industries – which have been leaving Britain due to its high energy costs – to not only stay but also to expand their operations in the U.K.

    The May approach isn’t limited to shale –  it will apply to developments of all kinds, whether other resource developments, industrial complexes or airport expansions. Through what she calls her blueprint for development projects, May will be converting the development delayer known worldwide as NIMBY (Not In My Back Yard) into PIMBY (Please In My Back Yard), a development accelerator. Residents will effectively become pro-development lobbyists whenever they determine a development personally benefits more than discomforts them.


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    Musings from the Oil Patch August 9th 2016

    Thanks to a subscriber for this edition of Allen Brooks’ ever interesting report for PPHB. Here is a section on the nuclear sector:

    Many of the nuclear power plants that were built in the 1960s and 1970s are now approaching the end of their commercial lives. The challenge is that nuclear power plants have the potential for very long operating lives, often on the order of 80 years, meaning that those older plants might have an additional 20 or 30 years of operating life remaining. The issue is that over their very long lives, these nuclear plants require extensive and costly periodic upgrades and repairs. In order to finance these modifications, the plants must generate significant profits during their operating lives. Low coal and now low natural gas prices have undercut the price of nuclear power, often making these plants the highest cost fossil fuel plants in utility company portfolios. These economic challenges ignore the fact that nuclear power plants have the highest operating ratios of all power plants, meaning that they produce power when people need it and that the power output is carbon-free. 


    Low natural gas prices have seriously undercut the power prices for the nuclear power plants upstate, to the point that the owners – Exelon (EXC-NYSE) and Entergy – have threatened to shut down the plants. If that were to happen, New York State’s plan to have half its power coming from clean energy sources by 2030 would be doomed. In fact, the state has determined that if the nuclear power plants were shut, local utilities would have to rely on power from power plants fueled by dirty gas and coal. That would detract from the governor’s clean energy goal. That goal is why Gov. Cuomo has fought the use of hydraulic fracturing in the state to tap greater supplies of locally produced natural gas. Natural gas, although cheaper than the governor’s favored three sources of clean energy, would have released more greenhouse gases, but it is likely that the cost to consumers would have been less than what will happen in the future. Gov. Cuomo has championed a plan that was embraced by New York’s Public Service Commission and will force utility customers in the state to pay nearly $500 million a year in subsidies designed to keep the three upstate nuclear power plants operating. The Indian Point plant will not receive any subsidy funds because downstate power prices are sufficiently high that the plant can earn a profit.

    According to the Public Service Commission, starting in 2017, the subsidies will cost utility ratepayers in New York State $962 million over two years. However, the overall cost of the clean energy program to utility customers would be less than $2 a month, according to the Public Service Commission. The chairman of the commission said that state officials had calculated the social and economic benefits of the program, including the reduction of carbon emissions, lower prices for electricity and more jobs in the electricity generation business, and that these benefits would be greater than the cost of the subsidies. Environmental groups are fighting back, claiming that while they supported the governor’s plan to mandate the purchase of renewable energy by utilities, they viewed the magnitude of the subsidies that could amount to several billion dollars over the 12 years to 2030 as a mistake. Exelon, the owner of two of the three up-state nuclear power plants applauded the Public Service Commission announcement and pledged to invest $200 million in the plants next year if the plan is approved.

    Environmentalists who are serious about clean energy should pay attention to the comments of Michael Shellenberger, the president of nonprofit research and policy organization Environmental Progress. He said that nuclear power plants produce so much more energy than other forms that they can be more environmentally friendly than even renewables when all the mining, development and land disturbances are taken into account. As Mr. Shellenberger put it, “from the whole life-cycle analysis, it’s just better.” Of course, on the other side of the issue is someone such as Abraham Scarr, director of the Illinois Public Interest Research Group, a consumer advocate group, who said, “We should be building the 21st century energy system and not continuing to subsidize the energy system of the past.”

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    Saudi Arabia Cuts Oil Price to Asia as Iran Battle Heats Up

    This article by Sam Wilkin for Bloomberg may be of interest to subscribers. Here is a section:

    Iran has boosted crude production 25 percent this year and aims to reach an eight-year high for daily output of 4 million barrels by the end of the year. Customers in Asia account for the largest share of Iran’s new sales, according to shipping data. The nation dropped to fourth-biggest OPEC producer after international sanctions that restricted its supplies in 2012. It has since returned to third place after the sanctions were eased in January. Saudi Arabia has responded by boosting its crude and refined products exports.

    “The market share battle between them and Iran is back on in a big way,” John Kilduff, partner at Again Capital LLC in New York, said by phone on Sunday. “This is a throwdown challenge that I’m sure the Iranians will match.”

    Asian demand for crude is stalling as refineries from Singapore to China and South Korea are cutting operating rates amid a slump in margins and rising supply from state-owned giants, which can draw on large crude inventories that have built up over the past two years of low prices.


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    US to create nationwide network of EV charging stations

    This article by John Anderson for Gizmag may be of interest to subscribers. Here is a section:

    The US government has announced "an unprecedented set of actions" to pump up the country's plug-in electric vehicle market, including US$4.5 billion in loan guarantees to create a nationwide network of commercial scale and fast charging stations. The initiative to push for greater electric car adoption calls for a collaboration between federal and state agencies, utilities, major automakers and other groups.

    The initiative will identify zero emission and alternative fuel corridors across the country, to determine the best locations to put in fast charging stations, as part of the Fixing America's Surface Transportation (FAST) Act.

    As part of a partnership between the US departments of energy and transportation, a 2020 vision for a national fast charging network will be developed, with potential longer-term innovations that include up to 350 kW of direct current fast charging. According to the administration, a 350 kW DC system could charge a 200-mile-range battery in less than 10 minutes. For comparison, Tesla just boosted some of its Superchargers' power capacity to 145 kW, which is claimed the fastest currently available.

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    Fracklog in the Biggest U.S. Oil Field May All But Disappear

    This article by Ryan Collins and Meenal Vamburkar for Bloomberg may be of interest to subscribers. Here is a section:

    Crude in the $40- to $50-a-barrel range may wipe out most of the fracklog in Texas’s Permian Basin and as much as 70 percent of the inventory in its Eagle Ford play by the end of 2017, according to Bloomberg Intelligence analyst Andrew Cosgrove. While bringing them online is the cheapest way of taking advantage of higher prices, the wave of new supply also threatens to kill the fragile recovery that oil and gas markets have seen so far this year.

    “We think that by the end of the third quarter, beginning of the fourth quarter, the bullish catalyst of falling U.S. production will be all but gone,” Cosgrove said in an interview Thursday. “You’ll start to see U.S. production flat lining.”

    Drillers that expanded operations in U.S. shale fields found that sidelining wells was the easiest way to cut costs when oil and gas prices plunged. Since then, these wells have been “just sitting around, basically waiting for a better price to come along,” said Het Shah, an analyst at Bloomberg New Energy Finance.

    U.S. oil producers extended the biggest shale drilling revival since last summer as rigs targeting oil and gas in the U.S. rose by 7 to 447 last week, according to Baker Hughes Inc. Dave Lesar, chief executive officer of Halliburton Co., the world’s largest provider of hydraulic-fracturing work, said Wednesday that the market in North America has turned and that he expects a “modest uptick” in drilling in the second half of the year.


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    Started from the Bottom Now We're Here

    Thanks to a subscriber for this report from Clarus Securities. Here is a section: 

    POSITIONING FOR BETTER PRICES: We are of the opinion that we have seen the worst of both the crude oil and natural gas markets and that prices should further improve as we enter 2017. We are currently forecasting ~US$50/bbl WTI for H2/16, which is a level where most producers fail to grow on a per share basis. In our updated growth tracker, we now expect average production per share to decline by 8% (-12% growth on a median basis); this compares to our estimates of -3% (median -8%) and 5% (median -3%) during Q2/16 and Q1/16, respectively. The decline in per share growth has been a result of dispositions to reduce debt, equity financings without concurrent M&A, or some combination thereof. Ultimately, only a few select companies are able to generate consistent per share growth. Most are natural gas operators but some oil-weighted names, chiefly RRX and SPE, continue to grow on a per share basis. 

    IMPLIED OIL PRICES: Despite the ~US$5/bbl pullback in WTI prices, there has not been panic selling of the equities. This benign response is attributed to the belief that the worst is behind us and that any weakness in oil prices will be short lived. However, with equities not pulling back, it is important to estimate the implied oil price by name. We looked at each company’s historical multiple relative to its current trading level in order to back out the oil price needed. Based on our analysis, very few names are pricing in US$50/bbl oil, with most between US$55/bbl and US$65/bbl. Companies with cheaper implied pricing generally possessed higher than average debt, which weighed on valuation. 

    IMPLIED GAS PRICES: Using the same methodology with the gas weighted names results in implied prices mostly ranging between $2.25/mcf to $3.50/mcf. The valuation for the gas names is generally a bit more difficult to assess because some producers are promising very high rates of growth which may be difficult to achieve (versus oil producers, where growth profiles are much lower and more manageable). Regardless, we see some opportunities for investors who are bullish on natural gas going into H2/16.


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    TerraForm Global Rises amid Talks with SunEdison to Sell Stake

    This article by Christopher Martin for Bloomberg may be of interest to subscribers. Here is a section:

    TerraForm Global and SunEdison are in talks regarding “a jointly managed sales process and accompanying protocol for managing the marketing process,” according to a presentation posted on TerraForm Global’s website Tuesday. SunEdison is currently involved in the biggest ever sale of clean energy assets after filing for bankruptcy protection in April with $16.1 billion in liabilities. It has not announced a process for selling its controlling stake in TerraForm Global or its sister yieldco TerraForm Power Inc.

    TerraForm Global, a yield company formed by SunEdison to buy clean power plants built by SunEdison outside of the U.S., owns 917 megawatts of solar and wind energy plants, mostly in southeast Asia and South America. The company had revenue of as much as $52 million in the first quarter, according to the presentation.

    It also reported preliminary losses of as much as $350 million for the second half of last year, and a preliminary loss of as much as $8 million for the first quarter of this year.

    TerraForm Global has not filed results since the third quarter because it relies on SunEdison for some accounting systems, and the parent company’s results are also delinquent.

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    US shale is lowest cost oil prospect

    Thanks to a subscriber for this article by Ed Crooks from the Financial Times which may be of interest. Here is a section: 

    US shale regions that two years ago were in the middle of the cost curve for future oil supplies are now down towards the lower end.

    Investments in the Eagle Ford shale of south Texas on average need a Brent crude price of $48 a barrel to break even, on Wood Mackenzie’s calculations, while projects in the Wolfcamp formation in the Permian Basin in west Texas need $39.

    “There are more opportunities to invest in the US, and that’s where the investment will take place,” said Mr Flowers.

    “If your investment options are in deep water, you’ve got quite a task on your hands. You might be asking: ‘Should we be getting into tight [shale] oil?’”

    Brent was trading at $47.59 per barrel on Wednesday.

    US companies that have shale oil reserves, including Chevron and ExxonMobil, have stressed the flexibility of those assets, which are developed with many wells costing a few million dollars each, rather than the multibillion dollar projects often required for offshore production.

    On Wood Mackenzie’s calculations, Brazil’s deepwater oilfields are so large that some will be commercially viable, but higher cost regions could struggle to attract investment.

    The number of large projects being given the go ahead by oil and gas companies averaged 40 a year between 2007 and 2013 but dropped to just eight last year, according to Angus Rodger, also of Wood Mackenzie. 


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    Samsung in Talks With BYD to Buy Stake in Electric-Car Maker

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

    BYD said Samsung has been actively pushing forward talks about buying its shares in a private placement. Talks are still underway, the Chinese company said, denying a report by the Korea Economic Daily that an agreement was reached to acquire a 4 percent stake.

    Samsung is pursuing the investment after its affiliate was among foreign battery makers left off a list of suppliers approved by China, where sales of electric vehicles are surging and the government has sped up construction of charging points.

    The talks with BYD also add to the global trend of technology companies and automakers collaborating as car buyers increasingly demand more advanced powertrains and features that improve connectivity and safety.

    “It puts Samsung into the electric-vehicle subsystem supply chain for a key Chinese electric vehicle and battery manufacturer,” said Bill Russo, a Shanghai-based managing director at Gao Feng Advisory Co. “BYD gets a technology innovation pipeline partner with a reputable brand.”


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