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

    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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    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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    Chinese-Korean group to build $2 billion lithium batteries plant in Chile

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

    Lithium, frequently referred to as "white petroleum," drives much of the modern world, as it has become an irreplaceable component of rechargeable batteries used in high tech devices.

    The market, while still relatively small — worth about $1bn a year — is expected to triple in size by 2015, according to analysts at Goldman Sachs

    That should be great news for Chile, as the country contains half of the world’s most “economically extractable” reserves of the metal, according to the US Geographical Survey (USGS). It is also the world’s lowest-cost producer, thanks to an efficient process that makes the most of the country’s climate.

    Chile is essentially “the Saudi Arabia of lithium,” according to Marcelo A. Awad, executive director of the Chilean brand of Wealth Minerals, Canadian company that also has interests in Mexico and Peru.

    The country, he noted in a recent interview, is perfectly positioned, with ports across the Pacific from the world’s largest car market, China, which is expected to increase electric vehicles production in years to come. There, lithium is also used to manufacture rechargeable ­batteries that power hundreds of millions of smartphones, digital cameras and laptops.

    The challenge for foreign investors, particularly the Asian conglomerate, is to persuade Chilean authorities of making the leap from exporting the white metal to producing lithium batteries at the point of extraction.

    Estimates from the group’s advisors believe opening the proposed plant would make the value of the product 35 times higher than what it could be obtained by just selling it as lithium carbonate

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    New efficiency record for large perovskite solar cell

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

    "Perovskites came out of nowhere in 2009, with an efficiency rating of 3.8 percent, and have since grown in leaps and bounds," said Anita Ho-Baillie, a Senior Research Fellow at the UNSW's Australian Centre for Advanced Photovoltaics. "I think we can get to 24 percent within a year or so."

    The solar cells are made from crystals grown into a particular structure called perovskite. Smooth layers of perovskite with large crystal grain sizes allow the cells to absorb more light. The technology has been advancing fast and attracting plenty of attention thanks to its ease of production and low cost compared to silicon cells.

    "The diversity of chemical compositions also allows cells be transparent, or made of different colors," said Ho-Baillie. "Imagine being able to cover every surface of buildings, devices and cars with solar cells."

    Perovskite cells do have downsides like much less durability, something Ho-Baillie and her team say they're confident they can improve, while also shooting for higher levels of efficiency.

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    OPEC Meeting Review

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

    OPEC has just decided a headline cut of 1.2 million b/d

    We calculate that compared with October secondary sources in the OPEC report, the net OPEC cut from the 11 participating countries in the deal is 0.982 million b/d

    Angola was allowed to use September output as the base instead of October

    The cartel will use secondary sources to monitor output reductions
    Indonesia, Libya and Nigeria is not part of the deal

    Since the cartel has distributed quotas to the different countries, have organized a monitoring committee and are using secondary sources, the deal is very bullish to the oil price


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    Collision Course

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

    While energy market watchers have highlighted President-Elect Trump’s nod towards drilling and fracking, we believe that a Trump administration will have a larger impact on the US demand side of the ledger. The two key regulations which, if repealed, could drive US gasoline demand materially higher are the Corporate Average Fuel Efficiency Standards (CAFE) and the Renewable Fuel Standard (RFS). The potential impact of a Trump presidency on US gasoline demand is not one that should be underestimated. After all, US gasoline demand comprises of nearly 10% of total global oil demand and has been the sole bright spot in the OECD region, which has otherwise been trending lower on a structural basis since the recession. The potential repeal of aforementioned regulations is unlikely to make a difference in his first 90 days in office, but it is a rather bullish potential catalyst in the quarters and years to come.

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    Musings from the Oil Patch November 15th 2016

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

    Another issue that has yet to be addressed is a proposed ban on oil tankers operating off British Columbia’s coastline that would effectively shut down the development of an oil export terminal at Kitimat and thus kill the proposed Enbridge (ENB-NYSE) Northern Gateway oil export pipeline. If the tanker ban is put in place, it will force the development of the Trans Mountain pipeline as the primary West Coast oil export pipeline. That would leave the Trudeau government to deal with TransCanada Corp.’s (TRP-NYSE) Energy East oil pipeline project to move Western Canadian oil to the East Coast where it could be exported to the U.S. East Coast or Europe. Despite being the “environmental” prime minister, Mr. Trudeau is recognizing that without more oil and gas export opportunities, his nation’s economy, which depends on a healthy energy economy, will suffer with many social and financial repercussions.

    The Canadian federal government’s decision about Trans Mountain on December 19th will be an important milestone for the nation’s energy business. There are still numerous other policy decisions that must be addressed before Canada develops a full-scale oil and gas export expansion regime, but the first steps appear to have been taken last week.

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    Is the EV finally coming of age?

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

    One important breakthrough will be increasing the energy density of the battery through being able to cram more cells into the same volume of battery packs. The battery density doubled between 2009 and 2016, and this is definitely not the end. Just like with the technological development of the personal computer, there is something similar to a 'Moore's Law' in the battery development: currently, we recognize an annual improvement rate of 14 percent, which is quite immense."

    Although 14 percent is significant, it's only just a start when it comes to battery technology. At the moment, electric cars make use of lithium-ion batteries, the type pioneered by the Tesla Roadster back in the mid-2000s. Schenk says there's plenty of improvement to come in lithium-ion tech, but greater leaps forward are in the pipe.

    "New technologies, and especially those aimed at material-related improvements, plus ever-increasing production volumes leading to further price decreases, will determine the development stages of the next few years," Schenk says. "Within the next decade a major technological leap is expected with lithium-sulphur systems, and these are set to revolutionize costs and operating range as extraordinarily relevant buying criteria for electric vehicles."

    Already, improvements to battery chemistry are starting to pay off, and people are starting to buy electric vehicles in greater numbers. Renault, one of the largest players in the European electric game, sold 23,087 electric cars in 2015 - a 49 percent increase on its 2014 numbers.


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