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

    Donald Trump's Presidency: A Look at His Proposed Policy Shifts

    This compendium from the Wall Street Journal of some of the primary issues facing the incoming US administration may be of interest to subscribers. Here is a section on energy:

    At the top of Mr. Trump’s energy and environmental agenda will be unraveling Obama administration policies that touch on everything from carbon emissions to water.

    Much of the action out of the gate will focus on rolling back regulations. Mr. Trump has said he would withdraw Mr. Obama’s signature policy to address climate change, a rule that cuts power-plant carbon emissions. The rule already has faced legal challenges and has been temporarily blocked by the Supreme Court.

    The Trump administration, with the help of the Republican-controlled Congress, also will work toward repealing an Environmental Protection Agency rule bringing more bodies of water under federal jurisdiction. Also targeted for repeal: Interior Department rules that require tougher standards for coal mining near streams and that set new standards for emissions of methane, a potent greenhouse gas, from oil and natural-gas wells on federal lands.

    While the Trump administration can’t unilaterally repeal most rules right away, it has several options. The EPA and other agencies can immediately start the process to withdraw regulations, and they can relax compliance requirements over time. Meanwhile, Congress can pass measures nullifying rules that have been completed most recently.

    Immediately confronting Mr. Trump is a decision regarding the Dakota Access oil pipeline, which extends from North Dakota to Illinois and is nearly built except for a crossing of a Missouri River reservoir.

    Mr. Trump may also have a decision to make on the Keystone XL oil pipeline if its developer, TransCanada Corp., reapplies for a State Department cross-border permit the Obama Administration denied in 2015.

    On the campaign trail, Mr. Trump said he would withdraw the U.S. from the global climate agreement signed in Paris in late 2015. He couldn’t immediately pull out of the agreement, but he could begin the process of withdrawing.

     

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    Musings from the Oil Patch January 10th 2016

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

    As for a new Ice Age, the Russian Academy of Science’s Pulkovo Observatory in St. Petersburg, considered one of the world’s most prestigious scientific institutions, recently issued a new study titled, “The New Little Ice Age Has Started.” According to the study, the average temperature around the globe will fall by about 1.5o C (2.7o F) when the planet enters the deep cooling phase of this new Little Ice Age, expected in the year 2060. The study goes on to predict that after 2060 the Earth will experience four-to-six 11-year solar cycles of cool temperatures before beginning the next quasi-bicentennial warming cycle around the turn of the 22nd century.

    Habibullo Abdussamatov is the head of space research at Pulkovo and the author of the study. He has been predicting the arrival of another ice age since 2003, based on his study of the behavior of the sun’s different cycles and the solar activity that then results. His model is based on data from the Earth’s 18 earlier little ice ages over the past 7,500 years, six of them experienced during the last thousand years. Based on his model, he began predicting over a decade ago that the next little ice age would start between 2012 and 2015. Abdussamatov’s models have been affirmed by actual data, including the rise of the oceans and the measurable irradiance sent earthward by the sun. Given the accuracy of his predictions, which have been demonstrated in numerous studies since 2003, he now predicts that we entered the 19th Little Ice Age in 2014-2015. This forecast would appear to fly in the face of climate change scientists pointing to 2015 and 2016 as being the warmest years on record – and forecasts that we will experience more record warmth in coming years.

    Mr. Abdussamatov’s views stand in opposition to the conclusions of climate models, as he has tied his forecast of a prolonged cooling spell to solar, not man-made, factors. The recent disappearance of sunspots from the face of the sun, which also occurred during the Little Ice Age in the late 1600s, has made Mr. Abdussamatov’s contention no longer an isolated view. In fact, organizations such as the National Astronomical Observatory of Japan and the Riken research foundation have reached similar conclusions. The battle over whether man-made or natural forces are the primary driving force behind global warming and climate change will likely become more contentious in the next few years. The key point is that the world’s population is at greater risk of serious harm from colder temperatures rather than warm temperatures, which seems to be ignored by government officials and the media. We guess, cold and ice doesn’t lend themselves to as spectacular disaster scenes as heat-related weather events.

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    World's Worst Commodity Radioactive for Investor Portfolios

    This article by Joe Deaux, Natalie Obiko Pearson and Klaus Wille for Bloomberg may be of interest to subscribers. Here is a section:

    “It’s the world’s best asset in the world’s worst market,” said Leigh Curyer, chief executive officer of NexGen Energy Ltd., a Vancouver-based uranium producer. “I don’t think there’s a mine profitable at current spot prices. This short-term spot price isn’t reflective of the cost of producing a pound globally.”

    The outlook isn’t entirely bleak. Losses are forcing uranium mines to cut production or close, which may eventually create a supply crunch, while accelerated building of nuclear plants in China and India could help revive demand. But it may take a while for those developments to take hold, according to a report last month from Morgan Stanley, which said it can’t identify any medium- or long-term driver for prices.

    Uranium extended its fade last year even as most other raw materials recovered. The Bloomberg Commodity Index of 22 items posted its first annual gain since 2010, advancing 11 percent.

     

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    Solar Panels Now So Cheap Manufacturers Probably Selling at Loss

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

    “Certainly it would be a challenge for anyone to make money at that price,” Osborne said in an e-mail. “The blended cost for most last quarter was about 36 cents to 38 cents.”

    The current price is also lower than cost estimates from Trina. The biggest supplier of 2015 expected to reduce costs to about 40 cents a watt by the end of the year, from 45 cents in the second quarter, Chief Financial Officer Merry Xu said in an August conference call. The Changzhou, China-based company’s shareholders on Dec. 16 agreed to a $1.1 billion deal to take the company private. A spokesman declined to comment Friday.

    Some companies’ cost structures remain competitive, even with prices this low. Canadian Solar Inc., the second-biggest supplier, reported costs of 37 cents in the third quarter, down from 39 cents in the second quarter. The company has said its costs are among the lowest in the industry, and it expects to reach 29 cents a watt by the fourth quarter of 2017. Many of its competitors expect costs in the low 30s by then, Osborne said.

     

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    Musings from the Oil Patch December 28th 2016

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

    With the election of Donald Trump as the nation’s 45th president, there are signs environmental restrictions on fossil fuels will be loosened and more room will be made for fossil fuels. That will be a significant shift in the recent trends for environmental and energy regulation. Whether it significantly alters the current trajectory for the dirtiest of our fossil fuels – coal – remains to be seen. Clearly, short of an outright ban on renewable energy plants, the current backlog of new, cleaner power plants will not change, so our near-term energy mix will continue to shift toward more renewable fuels. The issue for the energy industry is whether the economic trends in place boosting renewable fuels are altered and slow down the pace of additions of new renewable fuel plants. That will partially depend on whether current renewable fuel mandates and subsidies are renewed once they reach their expiration dates, or even if they are outright cancelled early.

    At the present time, businessmen, energy executives and consumers are struggling to understand the true economics of electricity. Analysts have strived to produce cost estimates for electricity produced by different fuels in such a way that they can be analyzed on the same basis. Standardized cost estimates provide a means to assess the impact on different fuel sources of various environmental policies. The process is called levelized cost of electricity. This tool enables direct comparison of electricity costs from power plants fueled by either fossil fuels or renewables. One drawback from this tool is that it assumes every kilowatt of power generated has the same value to consumers regardless of when during the day it is produced. It ignores the reality that during summer days in the southern regions of the United States, electricity to power air conditioners in the afternoon when temperature reach their highest levels is of greater value to consumers than during the middle of the night when temperatures drop.

     

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    U.S. shale is now cash flow neutral

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

    Oil prices are probably already high enough to spark a rebound in shale production.

    The IEA says that in the third quarter of 2016, the U.S. shale industry became cash flow neutral for the first time ever. That isn’t a typo. For years, the drilling boom was done with a lot of debt, and the revenues earned from steadily higher levels of output were not enough to cover the cost of drilling, even when oil prices traded above $100 per barrel in the go-go drilling days between 2011 and 2014. Even when U.S. oil production hit a peak at 9.7 million barrels per day in the second quarter of 2015, the industry did not break even. Indeed, shale companies were coming off of one of their worst quarters in terms of cash flow in recent history.

    That all changed around the middle of 2015 when the most indebted and high-cost producers went out of business and consolidation began to take hold. E&P companies began cutting costs, laying off workers, squeezing their suppliers and deferring projects that no longer made sense.

    By 2016, oil companies large and small had shed a lot of that extra fat, running leaner than at any point in the last few years. By the third quarter, oil prices had climbed back to above $40 and traded at around $50 per barrel for some time, replenishing some lost revenue. That was enough to make the industry cash flow neutral for the first time in its history.

     

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    Gleanings

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

    Another theme we think is surfacing is inflation driven by Trump's potential fiscal stimulus program. Hence, a return to "real assets," or stuff stocks, should have an increased weighting in portfolios. Verily, the price of real assets, relative to financial assets, is at historic lows. Consequently, investors' mindsets should be focused towards higher inflation, higher interest rates, and reduced disinflation. As an example, China's PPI hooked up in September for the first time since 2012. We believe the same thing is happening here in the U.S. 

    Accordingly, REITs, timber, agriculture, collectibles (wine, art, diamonds, precious metal coins, farmland, etc.), and MLPs should have an increased weighting in portfolios, in our view. To this MLP point, we recently met with one of the savviest MLP-centric portfolio managers on Wall Street, who believes the midstream and downstream MLPs are ripe for a number of good years going forward. He suggests the bad news is in the rearview mirror: the capital markets are wide open for the MLPs; we are consuming an extra 1 million barrels of crude oil per day, and the MLPs traded at around a 30% discount relative to par.

     

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    Namibia's new uranium mine to boost growth, make it worl's third producer

    This article by Cecilia Jamasmie for Mining.com may be of interest to subscribers. Here is a section:

    The massive project, said to be the third largest uranium-only mine in the world, will boost domestic production from 2,900 tonnes in 2016 to 5,800 tonnes next year, according to BMI estimates.

    Output will be gradually increased to reach the installed capacity of 50-million tonnes of ore a year, Swakop's chief executive Zheng Keping said in September.

    Based on data from Namibia’s central bank, production of uranium will increase 63% this year and 90% in 2017.

    Currently, the African nation is the world’s sixth biggest uranium miner, behind Kazakhstan, Canada, Australia, Niger and Russia.

     

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    In mammoth task, BP sends almost three million barrels of U.S. oil to Asia

    This article by Florence Tan for Reuters may be of interest to subscribers. Here is a section:

    While BP's operations are currently the most sophisticated, others have also begun developing U.S./Asia trade.

    China's Unipec, the trading arm of Asia's largest refiner Sinopec (600028.SS), is shipping about 2 million barrels of WTI to China this month, while trading house Trafigura is also exporting some 2 million barrels of U.S. oil to Asia.

    Incentives to bring U.S. crude into Asia have risen after the Middle East-led producer club of the Organization of the Petroleum Exporting Countries (OPEC) and Russia agreed to cut output, encouraging refiners across the region to seek alternatives to offset potential supply shortfalls.

    "OPEC is putting U.S. shale oil to the test... (and) we will truly see what it can deliver," said Bjarne Schieldrop, chief commodity analyst at SEB. He predicted 2017 would be a "shale oil party" with a surge in U.S. exports after the OPEC production cuts.

    The operation to send the oil, worth around $150 million, to Asia-Pacific buyers lasted four months and involved BP traders in the United States and Singapore, while colleagues from London were responsible for ship chartering, the sources said and data showed.

    BP took advantage of arbitrage between cheaper U.S. West Texas Intermediate (WTI) CLc1 crude and the global benchmark Brent LCOc1.

    The deal was aided by cheap tanker rates and a price/time curve, where future oil deliveries are more expensive than those for immediate discharge, making sourcing oil from as far away as North America profitable.

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