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Energy round-up: the next five years
Energy round-up: the next five years
Three things you shouldn’t miss this week
- Article: What will a Conservative majority mean for climate and energy? – Carbon Brief’s essential post-election summary.
- Report: Decarbonizing Development Three Steps to a Zero-Carbon Future – What needs to happen now for the world to have zero emissions by 2100.
- Chart: Low oil prices are making their mark on shale output in the US:
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Energy and climate policy was scarcely mentioned during the UK election campaign. With a new government in place much sooner than expected, what do the next five years hold?
The appointment of Amber Rudd as the new Energy Secretary waswelcomed by environmentalists, with the Renewable Energy Association hailing her as “a champion of renewables and low-carbon economy”. But then, as her predecessor Ed Davey found, policy in this critical area is not exclusively controlled by the Secretary of State.
On low-carbon policy the Conservative manifesto is mixed: it pledges to support value for money renewables while simultaneously promising to abolish financial support for new onshore wind farms – one of the cheapest low carbon energy options. The new government is also a staunch supporter of fracking – but those hoping to replicate US expansion would be wise to notice the tide is turning (see our chart of the week).
Whether the fall in US shale output is temporary or terminal remains to be seen, but at least one prominent financier is scathing about the industry’s prospects. Shares in drilling companies plunged after hedge fund manager David Einhorn, famous for predicting the collapse of Lehman Brothers in 2008, likened the industry’s business model to “using $50 bills to counterfeit $20s”.
…click on the above link to read the rest of the article…
A Plot To Hold Down Oil Prices Or Just A Happy Coincidence?
A Plot To Hold Down Oil Prices Or Just A Happy Coincidence?
The recent unprecedented surge in oil imports has again prompted a review of things here. In a prior story, we wrote that the lack of capacity to process light sweet crude at refineries produced via shale plays could be playing a role in the stock build. As mentioned previously, refineries over the next 24 months are expected to add 700,000 B/D in capacity to handle this type of crude. In the meantime, we have noticed an unusual amount of crude being imported, possibly as a result of this imbalance in refinery capacity. Or could it be that a more sinister plot is afoot?
To quantify the scale of the issue, we turn to Cornerstone Analytics’ work in uncovering the magnitude of the impact of imports on the rise in oil inventory stocks. We haven’t seen this level of import imbalance period since 2013, as the chart below demonstrates via Cornerstone. In the past 6 months, the level of imports relative to the requirement or need by refineries has jumped not once but twice. The 1M B/D “gap” goes a long way in explaining the oil inventory stock build which has been 5MB-10MB per week.
If adjusted, the builds over the past 6 months without such imports would not exist at all or at the very least be greatly reduced. So is this occurring as part of the inability of refineries to handle the mix of output domestically or is this part of some plot to build inventories to crash the prices of oil? Quite frankly we can’t say for sure but anomalies such as this must be exposed so that they can be debated given that there has been ample debate on Saudi motivations for holding down oil prices and the ongoing media cheerleading on lower oil prices.
…click on the above link to read the rest of the article…
The Chilling Thing Blackstone Said about the Oil Bust
The Chilling Thing Blackstone Said about the Oil Bust
Regardless of how troubled oil and gas companies are, “if the assets are good, someone will own them,” explained David Foley, senior managing director of Blackstone Energy Partners.
He expected companies to buckle under the load of junk debt and kick off a long series of bankruptcies and assets sales at rock-bottom prices. The question was when.
That was in February. Private equity firms – the “smart money” – have been out in force for months, raising tens of billions of dollars, with the promise to their investors that they would pick up assets of all kinds on the cheap. They’ve been circling like vultures, waiting to swoop down and pick the best morsels off the carcasses soon to be strewn about the oil patch.
“The timing of having that capital available now really couldn’t be better,” Blackstone CEO Steve Schwarzman said at the time. He expected that it would take one-and-a-half years before oil and gas companies would be completely drained of cash and would get into serious trouble. But some of the service companies could run out of money and topple “very, very quickly,” he said. Over the next couple of years, there would be “all kinds of shakeouts.”
PE firms expected valuations to plunge much further as assets would hit the auction block. And so Blackstone president Tony James said that his people were “scrambling” to invest over $10 billion. They were all singing from the same page.
…click on the above link to read the rest of the article…
Putting the Real Story of Energy and the Economy Together
Putting the Real Story of Energy and the Economy Together
What is the real story of energy and the economy? We hear two predominant energy stories. One is the story economists tell: The economy can grow forever; energy shortages will have no impact on the economy. We can simply substitute other forms of energy, or do without.
Another version of the energy and the economy story is the view of many who believe in the “Peak Oil” theory. According to this view, oil supply can decrease with only a minor impact on the economy. The economy will continue along as before, except with higher prices. These higher prices encourage the production of alternatives, such wind and solar. At this point, it is not just peak oilers who endorse this view, but many others as well.
In my view, the real story of energy and the economy is much less favorable than either of these views. It is a story of oil limits that will make themselves known as financial limits,quite possibly in the near term—perhaps in as little time as a few months or years. Our underlying problem is diminishing returns—it takes more and more effort (hours of workers’ time and quantities of resources), to produce essentially the same goods and services.
We don’t measure our investment results with respect to the quantity of end product produced (barrels of oil produced, liters of fresh water produced, kilos of copper produced, or number of workers provided with sufficient education to work in high tech industries), so we don’t realize that we are becoming increasingly inefficient at producing desired end products. See my post “How increased inefficiency explains falling oil prices.”
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IEA sees renewed pressure on oil prices as glut worsens
IEA sees renewed pressure on oil prices as glut worsens
(Reuters) – Oil prices might have stabilized only temporarily because the global oil glut is worsening and U.S. production shows no sign of slowing, the International Energy Agency said on Friday.
The West’s energy watchdog said the United States may soon run out of spare capacity to store crude, which would put additional downward pressure on prices.
That process would last at least until the second half of 2015, when growth in U.S. oil production is expected to start abating.
Combined with an increase in global demand, the expected U.S. production slowdown would give some support to oil prices and respite to oil producers’ group OPEC, the IEA said.
“On the face of it, the oil price appears to be stabilizing. What a precarious balance it is, however,” the Paris-based IEA said in its monthly report.
“Behind the façade of stability, the rebalancing triggered by the price collapse has yet to run its course, and it might be overly optimistic to expect it to proceed smoothly.”
The IEA said steep drops in the U.S. rig count have been a key driver of the recent price rebound, which saw Brent crude rising to $60 per barrel after falling as low as $46 in January from last year’s peaks of $115.
…click on the above link to read the rest of the article…
Could Oil Prices Plummet A Second Time?
Could Oil Prices Plummet A Second Time?
Are oil prices heading for a double dip?
The surge in shale production has produced a temporary glut in supplies causing oil prices to experience a massive bust. After tanking to a low of $44 per barrel in January, falling rig counts and enormous reductions in exploration budgets have fueled speculation that the market will correct sometime later this year.
However, there is a possibility that the recent rise to $51 for WTI and $60 for Brent may only be temporary. In fact, several trends are conspiring to force prices down for a second time.
Drillers are consciously deciding to delay the completion of their wells, holding off in hopes that oil prices will rebound, according to E&E’s EnergyWire. The decision to put well completions on hold could provide a critical boost to the ultimate profitability of many projects. Higher oil prices in the months ahead will provide companies with more money for each barrel sold. But also, with the bulk of a given shale well’s lifetime production coming within the first year or two, it becomes all the more important to bring a well online when oil prices are favorable. With prices still depressed – WTI is hovering just above $50 per barrel – drillers are waiting for sunnier days.
…click on the above link to read the rest of the article…
Oil Prices Don’t Change Because of Rig Count
Oil Prices Don’t Change Because of Rig Count
Oil prices don’t change based on weekly rig count reports.
Yet every week, there are proclamations by analysts that oil prices are poised to recover because of some change in the Baker Hughes North American rig count. Others state that U.S. tight oil production will continue to rise despite falling rig counts because of the miracle of shale rig efficiency.
What this really means is that nobody has any idea about when oil prices will rebound. As I have previously written, that is because nothing has happened so far to cause a change in oil prices.
What can we learn from rig counts? The weekly U.S. rig count is another data point that, along with other data points, can help us to see potential trends while we wait for something meaningful to happen that causes oil prices to rise…or to fall farther. But we have to do some work with the data before we can hope to get anything from the rig count and, even then, we must not read too much into it.
First, the total North American or U.S. rig count is a practically meaningless number. Rig counts rise and fall all the time whether prices are rising or falling. In the chart below, the rig count shown in red changed weekly whether oil prices were rising or falling.
…click on the above link to read the rest of the article…
Here’s What Will Send Oil Prices Back Up Again
Here’s What Will Send Oil Prices Back Up Again
Oil’s rapid decline since August of last year has been dramatic. To listen to some commentators you would also think it is unprecedented and irreversible. Those claiming that oil will continue to fall from here and remain low for evermore, however, are flying in the face of both history and common sense. The question we should be asking ourselves is not if oil prices will recover, but when they will.
Figure 1: Inflation adjusted WTI since Jan 1985. Chart from Macrotrends.net
From June of 2014 until now, the price of a barrel of West Texas Intermediate (WTI) crude oil has fallen approximately 57 percent. As the above chart shows, there have been drops of a similar percentage five times in the last 30 years. The rate of recovery has been different each time, but recovery has come. In addition, since 1999 the chart shows a consistent pattern of higher lows. In other words, oil is a volatile market, but prices are in a long term upward trend.
…click on the above link to read the rest of the article…
If Oil Prices Are Surprising, Then That Can Only Mean Demand
If Oil Prices Are Surprising, Then That Can Only Mean Demand
Crude oil futures have been quite volatile of late, particularly in the front months where even the slightest changes in expectations of whatever factor (rig counts, CEO comments, etc.) send WTI surging or tumbling by turn. Despite that, however, the outer years on the curve have seen not just more stability but a steady downward pressure of late. I think a lot of that has to do with futures investors reconciling actual contango options with the idea that demand is far more of not just a problem, but a longer-term problem.
At the front end, rig counts have gained most attention but only as they relate to the surge in inventory. The US is overflowing with oil and production remains at a record high, but the two of those factors together don’t actually count as much in terms of price as is made out by most commentary. It is far too difficult for many to discount the entire economics professions’ complete dedication to the US “booming” economy in order to see a huge demand problem in oil prices; far easier to simply repeat the words “record supply” and leave it at that.
If you actually view the futures curve of late, the curves of recent days has crossed in the outer years. In other words, where prices have moved around at the shorter end, out at the long end the curve has shifted significantly downward regardless of short term pricing. That relates to both contango, as noted above, but also I believe growing recognition that supply is overwrought and demand is what may be impaired – perhaps more permanently than anyone thought possible only a few months ago.
…click on the above link to read the rest of the article…
Shale sub-prime and the Ides of March
Shale sub-prime and the Ides of March
“Sub-prime” is the term by which became known the debt market segment that served low quality housing in the US. Essentially these were products supporting mortgages to low-middle class families, that in 2006/07, up against the simultaneous rise in interest rates and commodities prices, produced a wave of defaults that lead to the 2008 financial crisis.
The rise in petroleum prices was a key element to the 2008 crisis, but would eventually bring something positive to the US. Petroleum is usually extracted from large underground cavities known as reservoirs. However, it is formed at greater depth, within source rocks, where organic matter is slowly cooked by the internal heat of the planet until it degrades, first into petroleum and finally into gas. Prices persistently above 100 dollars per barrel meant that beyond traditional reservoirs it also became feasible to drill deeper for petroleum, down to source rocks and other rock formations of low permeability.
In 2010 the US Government and media thus embarked in a promotional campaign for source rock drilling, erroneously calling “shales” to these resources to ease the marketing. Vast amounts of money started flowing to the sector, the industry quivered with activity, plenty of new jobs were created and the country soon emerged from economic recession. The end result: in three years petroleum extraction in the US grew by 50%, returning to levels not seen since the 1980s.
…click on the above link to read the rest of the article…
Energy market madness is the death spasm of the oil age – renewables now!
Energy market madness is the death spasm of the oil age – renewables now!
Current oil price volatility is a symptom of the end of cheap oil, writes Nafeez Ahmed, and it’s destablising the entire global economy. The answer is a major shift to renewables – but the the International Energy Agency, which should be leading the transition, is in the grip of nuclear and fossil fuel interests. Instead the leadership must come from us, the people!
There is, of course, a way out, and it lies in recognizing the growing efficacy and efficiency of renewable energy sources, especially solar, wind and geothermal.
The market price of oil has dipped below $50 a barrel – an event that few anticipated. So low is this price collapse, that it is endangering the profitability of the entire oil industry.
The immediate cause of the price collapse is the US-Saudistrategy of interfering in the oil market. The duo is using oil prices to wage economic warfare by sustaining unusually high levels of production.
With the global economy still limping along in the context of weak demand and slow growth, the supply glut has tumbled the market price of oil with the precise aim of undercutting the state revenues of US-Saudi mutual geopolitical rivals, especially Russia, Iran, Syria, and Venezuela.
Despite the apparent low price of oil on international markets, costs of production remain high. Since the peak of cheap, conventional oil around 2005, production has fluctuated on a plateau as the industry has turned increasingly to more expensive, dirtier and difficult-to-extract forms of unconventional oil and gas, especially shale.
…click on the above link to read the rest of the article…
Cheap petrol prices behind us, modest rises predicted to continue: economist
Cheap petrol prices behind us, modest rises predicted to continue: economist
Motorists may have seen the last of cheap fuel, with the price of petrol rising for the first time in 10 weeks.
The Australian Institute of Petroleum said the national average petrol price rose four cents per litre last week to 112.6 cents.
The cost to fill up increased even more in the capital cities, rising by as much as 20 cents a litre late last week.
Before the rise petrol had been selling at its lowest price in six years.
CommSec economist Savanth Sebastian said the increase was triggered by a rise in global oil prices as well as the resumption of the discounting cycle.
“The discounting cycle has been essentially non-existent since late last year when fuel prices were sliding,” he said.
“But now we’ve actually seen in the past week that the discounting cycle is back in full force.
Average unleaded prices in past week
- Sydney 110.6 (up 8.9 cents)
- Melbourne 107.2 (up 4.6 cents)
- Brisbane 110.6 (up 7.5 cents)
- Adelaide 109.2 (up 9.3 cents)
- Perth 112.1 (up 1.8 cents)
- Darwin 128.4 (down 0.7 cents)
- Canberra 117.3 (down 0.3 cents)
- Hobart 123.0 (down 0.4 cents)
“What that means is we’ve seen in the past few days a huge lift in fuel prices across the capital cities.”
…click on the above link to read the rest of the article…
Why Oil Prices Will Be “Lower For Longer” In 3 Simple Charts
Why Oil Prices Will Be “Lower For Longer” In 3 Simple Charts
History may not repeat… but it does rhyme!
A pattern emerges – from investment to exploitation…
It’s deja vu all over again…
And it’s different this time…
Source: Goldman Sachs
Oil prices fall on market relief over Saudi policy
Oil prices fall on market relief over Saudi policy
(Reuters) – Oil prices fell on Monday, with U.S. crude falling close to a nearly six-year low, as Saudi Arabia’s new King Salman moved to assuage fears of an unstable transition and any policy change in the world’s largest oil exporter.
Salman was quick to retain veteran Saudi oil minister Ali al-Naimi on Friday, in a message aimed at calming a jittery energy market following the death of King Abdullah last week.
March Brent crude LCOc1 was trading down 63 cents at $48.16 per barrel by 1106 GMT, wiping out modest gains made on Friday but off an early low of $47.57.
West Texas Intermediate (WTI) crude for March delivery CLc1 was at $45.10 a barrel, down 49 cents. Front-month WTI touched an intraday low of $44.35, just above the $44.20 hit on Jan. 13, which was its lowest level since April 2009.
Saudi Arabia, the world’s top oil exporter, led the 12-member Organization of the Petroleum Exporting Countries (OPEC) last November in a decision to keep oil production steady at 30 million barrels per day. This has added to a global supply glut that has more than halved prices since June.
“Oil markets will take comfort from the speed and stability of the succession process, and the announced pledge for continuity of policy,” said Majid Jafar, chief executive of Crescent Petroleum, a UAE-headquartered oil and gas producer focussed on the Middle East.
…click on the above link to read the rest of the article…
Why the Hysteria Over Oil Prices Is Overblown
Why the Hysteria Over Oil Prices Is Overblown
Wild stormy weather stops us in our tracks. Factories close. Offices are abandoned. School is cancelled. After the rush to stock up, stores are shuttered. And when the storm hits, it’s all we can think about — especially if the power goes out.
It can seem like an eternity, and can obliterate any pre-storm memory. This sounds eerily similar to the oil price tempest we are in the middle of right now. Today’s price seems like the only reality, except that the plunge is still on. Are we going to survive this thing? Can we ever expect a return to calm?
Dial in to the news, and you’d be tempted to think not. It’s natural that storms bring about their own brand of myopia, but that’s when experience should make us wiser. And we all have a lot of that to draw on. We only have to rewind back to 2008 to see a very similar situation to today’s. Back then, oil prices slid from well over $100 per barrel at the peak to $40 at the trough, all in about five months. Currently, prices are tumbling from just over $100 to just over $40 over a six-month span. Just eyeballing the raw data, the similarity is staggering. So are other key features.
Both episodes were preceded by positive predictions. Back in 2008, fears that we were running out of oil led to very believable predictions of imminent $200 per barrel crude. Supply constraints in the 1970s led to very similar longer-term predictions. In today’s case, predictions weren’t as wild, but in general forecasters preferred to believe that a return to global growth would keep prices in the triple-digit zone. Funny how diametrically wrong pundits can be, even with a wealth of instructive recent experience.
…click on the above link to read the rest of the article…
