bizaro86
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Posts posted by bizaro86
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13 hours ago, SharperDingaan said:
This is a misunderstanding here.
China sells at world price, and pays the costs of gasifying/shipping etc. to get it to Canada; their netback after costs is 75c on the $. As long as their netback is > cost (50-60c on the $), it makes economic sense to ship. Nothing to do with the production cost in the WCSB.
Agreed, just because there is an economic case to ship, doesn't mean they will. Highest and best applications are domestic use first (coal replacement net of solar/wind), then to ship to a Japan, then a Canada/US. However, Russia>China throughput is huge, and they will need to offset it with long-term China(Net)>World throughput as much as possible. Whatever is left feeds spot market volatility.
Point here is that if their netback - cost allows it, and they anticipate having surplus long-term gas, all that China need do to lock up additional throughput is to offer the gas to a refiner at world price minus 5%. Done to move the excess gas and protect the spread.
The problem for the WCSB is that if a big refinery were located in Alberta, a deal like this would cut off the basins west coast gas egress, as gas would flow up the pipe. If there is to be a refinery, feedstock diversification demands that it be located at BC tide water; if excess WCSB gas is to flow down the pipe. And If WCSB gas is to flow .... the netback to a local producer has to exceed what they could get if they just sold locally.
We know there is a big refinery being discussed, the principals have the $ to build it, it will need lots of feedstock and there are two suppliers (Russia/China + WCSB) with a lot of it to offer. 1930's-50's history also tells us that China has a strong incentive to make a deal.
- When Germany lost WWI, the victors made Germany pay war reparations. The problem was that the amounts demanded were so high, that they caused widespread resentment, and went a long way to creating the conditions that enabled a Hitler to emerge, and the subsequent WWII.
- Russian gas can be diverted to China, but when you only get a fraction of its value ... it is the same as paying a war (Ukraine) reparation - at some point, Russia will deliberately turn off the taps. China needs to ensure that costs have been recovered, and as much juice as possible extracted from the orange ... before that eventually occurs. They need to skew the discount structure, and dump as much as possible, as soon as possible.
We're just mindful that as soon as there is a pipe, it is possible for the flow to go either way.
There's a need to keep an open mind.
SD
It's not a misunderstanding, you just made something up that is logically ridiculous and got called out on it.
There are multiple huge flaws with that idea.
I'll start with the idea that the construction of a large refinery could cause the WCSB to need gas imports. The largest refinery in the world is Jamnagar in India doing 1.24 MMbbl/d. That is multiple times larger than anything in Alberta at present, and it's extremely doubtful something that large could be permitted or constructed in Canada. But lets assume foreign money convinces the government to give them permits on the world's largest refinery in Alberta.
On average refineries use 0.2 mmbtu per bbl of refined products. Let's assume our new refinery is less energy efficient than average (to benefit your case) and uses 0.3 mmbtu per bbl. The conversion rate from MMBTU to MCF is ~0.975, so that implies the world's largest but not very efficient refinery uses 241,800 MCF/d, which is 0.24 BCF/d. Exports from Canada of natural gas are around 7.2 BCF/d. Those 7 BCF of gas that the WCSB still needs to export are going to bid pretty strongly for the pipeline space out of the basin.
And while you're correct that the steel in a pipeline is direction neutral, the other infrastructure isn't. Everything from compression to check-valves would need to be changed. The idea that you could get permission to build giant compressor stations on the BC coast to import gas (even through an existing pipeline) is probably the most laughable part of this idea.
Getting back to that 7 BCF of gas. The reason I mentioned the marginal cost of producing gas in the WCSB is that it is extremely relevant to this discussion. That 7 BCF of gas that gets exported either needs to get sold to someone or get shut in - those are the only two choices. As long as the price in the WCSB is above the marginal cost of production it isn't getting shut in. And the cost of liquifying and regasifying natural gas is well over the marginal cost of production. So just the transportation costs from China exceed the cost of WCSB gas, so that 7 BCF of gas isn't getting shut in, which means its going somewhere. Why would the Chinese try and underbid that gas? If that 7 BCF gets exported to the US (as is currently the case) then the WCSB price has to be lower than NYMEX by at least the cost of transportation. Why would the Chinese choose to land LNG cargoes at the cheap end of North America instead of the expensive end? As an example, Mexico imports from the USA, the USA imports from Canada, and the WCSB imports from no one. LNG cargoes landing would land at the high price end of the continent not the low price end of the continent.
Speaking of the Chinese, I think a quick look at their incentives would demonstrate another reason that this whole idea is absurd. The Chinese will be very pleased if they get a supply of cheap gas. The first thing they would do is displace their own LNG imports, which at 16 MT/y are a shade over 2 BCF/d. Now, the entire quantum of Russia's gas exports are only around 24 bcf/d, so that alone is a pretty good start. The next thing the Chinese would be likely to do is to use cheap gas for internal priorities. I believe their primary internal priority is economic growth (to preserve social order for the CCP). Cheap natural gas gives you easy economic growth because you can dominate energy intensive industries. European fertilizer, smelter, etc type industries are shutting down due to extremely high costs for energy inputs. The Chinese have an amazing opportunity to take market share in energy intensive heavy industries by leveraging cheap Russian natural gas along with low labor costs and low environmental standards. Even if they don't use up all the natural gas on that (and I think they would) the Japanese import around 11 BCF/d of natural gas, and that would be the obvious home for the next chunk of it. The Japanese would almost certainly import more were the price lower. Korea imports over 6 BCF/d of natural gas, and that pretty much gets you to the end of the line on that one. The Chinese wouldn't export gas to the cheapest developed natural gas market in the world, because they aren't idiots. They aren't going to fill expensive tankers with supercooled LNG and sail them past expensive markets to sell it into a cheap market.
Basically, this would require the Government of Canada to approve a bunch of energy infrastructure projects over significant domestic objections and against previous precedent. Then it would require Alberta and BC producers to close in their production for no reason and/or the Chinese to sell a product for below what it costs them when they could sell the same product more conveniently at a higher price, or just use it themselves for significant economic and social benefits. Again, China+Japan+Korea existing LNG imports are approx equal to total Russian gas exports, and that doesn't include the huge amounts of Chinese domestic demand that would be incented if they get a bunch of cheap Russian gas. It's one thing to keep an open mind, but math is good sometimes to.
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5 hours ago, SharperDingaan said:
"A net 75c, assuming they pay 50c and given the cost of the pipe/cooling infrastructure and the shipping, is still going to result in a delivered gas price above the cost of developing WCSB gas. China will lose money hand over fist doing this, when they could easily ship that gas to markets that don't have local supply and where they can make significant profits (Japan, Korea, Europe).
To put it another way, redirecting Russian gas from Europe to China does not increase global gas supply. It solves China's supply problems while creating supply problems elsewhere. North American gas will flow to those places. I may be wrong, but I suspect even Mr. Trudeau would see that there is no business case for importing gas to North America when (for example) JLK has never spent much time below $10."
Net 75c, is net of the costs of infrastructure (annual depreciation/amortization) and variable costs of delivery. As long as it sells for more than what China paid for it - they make money. How much, and how soon, depends primarily on the long term take-or-pay volumes they can sell. As they need to recover their outlay as rapidly as possible, they are incentivized to offer the LNG at an below market initial price that progressively rises over time. Obviously, the closer the buyer is to China, the less shipping cost - and the more of a market price discount available - tough to compete against.
A big, and new, refinery in Alberta would need to both diversify its feedstock supply and ensure egress for its refined product. An obvious solution is to lock-up 30-50% of its long term feedstock supply (especially if China is offering it cheap) via an offshore take-or-pay sending gas up the pipe. Alongside issuing a long term take-or-pay commitment to support a twinned line carrying refined product to tidewater. The WCSB supplies the remaining feedstock, and that pipeline take-or-pay agreement acts as a regulator on the long term price they pay for local gas. Canada gets more for its raw materials, higher employment, less environmental risk (LNG + refined product vs crude), etc. Smart for everybody involved.
Of course if there is no refinery ... the WCSB can continue to call its own tune, the basin remains landlocked and dependent on the US for egress, there is little/no change, and local politicians can remain kings in their own fiefdoms. Good if you are the existing establishment, not so much otherwise.
However, it is impossible to damn up change forever - eventually the damn breaks and you drown.
Heretical thinking
but hard to imagine gas not coming up the pipe from time to time.
SD
The cost of liquifying gas, shipping it across the ocean, and re-gasifying exceeds the cost of producing gas in the WCSB by at least 2-3x. The Chinese would have to sell it at a negative price to make the economics work.
And since their domestic demand is huge, and there are large sources of high priced LNG demand in the immediate area (eg Japan) this whole idea is ludicrous.
If WCSB gas was priced high enough to incent imports it would also incent huge amounts of new supply. The shallow gas machine across the prairies would ramp back up, and it is very short cycle. In the longer term, there is plenty of new dry gas that would come into play at those prices as well (eg Horn River).
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8 hours ago, Spekulatius said:
Charging is done mostly at night, if you charge at home and have a smart charger, so may not be that bad from a grid utilization POV.
That would work great if they weren't also removing all the baseload power from the grid.
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45 minutes ago, Paarslaars said:
Yeah solar panels + heat pumps are popular here. You already need a well insulated house for this to be economically attractive though, even at these gas prices. It's quite an investment cost.
Additionally, I like to add that here in Belgium roughly 10% of the population gets what is know as the 'social price'. Which is about 3€/kwh for gas and 15€/kwh for electricity. For these people, the solar panel + heat pump system is simple not lucrative due to the relative cheap prices & big gap between gas & electricity.
Is there a decimal missing on that electricity price somewhere? Surely it isn't 15.00E per kWh? Ie, is it actually 0.15Euro or 1.50Euro per kWh?
I pay $0.059 CAD per kWh...
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11 hours ago, RichardGibbons said:
Well, the Black Swan idea is that they're small positions that can go to zero without affecting your portfolio in a big negative way, but have potentially big upside. So, basically every position size was small when put on, and either ended up as a zero (or close to it), or ended up being a lot of money relative to the typical salary. Think of them as lottery tickets, but with a bit higher upfront investment and a bigger chance of winning.
So, it was never close to the majority of my portfolio--actually never more than about 2%--except when the Black Swan paid off and became a large amount of the portfolio.
Examples of things that offer this skewed risk/reward include exchange-traded options, options and restricted shares from work compensation, and entrepreneurial ventures with a low upfront cost. Often, it's expending sweat-equity (but not much cash) in a venture until there's evidence whether it will pay off or not.Also, it's noteworthy to say that I've lost on probably 75% of the times I've tried stuff like this. That's just intrinsic to the strategy.
Thanks! I've done a few similar type things without really having a formalized idea/strategy around it, and this is definitely food for thought.
I knew you were referring to UAN (and congrats on that!)- I dug into it slightly when you posted it, realized it was a good idea, and discarded it because I wasn't sure how MLPs were taxed in the hands of Canadians. I hadn't realized you were also Canadian - I should have asked at the time! Although I almost certainly wouldn't have rolled that up and out multiple times - that was very impressive.
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1 hour ago, james22 said:
Germany to Keep Last Three Nuclear-Power Plants Running in Policy U-Turn
BERLIN—Germany plans to postpone the closure of the country’s last three nuclear power plants as it braces for a possible shortage of energy this winter after Russia throttled gas supplies to the country, said German government officials.
While temporary, the move would mark the first departure from a policy initiated in the early 2000s to phase out nuclear energy in Germany and which had over time become enshrined in political consensus.
If we can stop doing new stupid things that will at least help alleviate the shortages somewhat...
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4 hours ago, RichardGibbons said:
I retired about seven years ago when I was 43. I did it by having a job that would pay for my living expenses, while repeatedly doing Taleb's black swan strategy (though I was doing it about a decade before The Black Swan explained what I was doing.) The strategy is to look for asymmetric bets, moonshot investments that you can buy for small amounts, and could amount to nothing or to a very large amount. I kept doing this until I had three winners, and that was enough to retire with a 2.5% annual withdrawal rate.
I have a wide variety of investments, both high and low risk, but have some fairly conservative preferreds and dividend-producing stocks to stabilize things and provide a bit of income, though only a fraction of our expenses. We have a friend as a tenant who pays rent. We also have the ability to cut back expenses should that be required, and a house that could be liquidated if necessary. The combination of these things gives me some confidence that we can recover from most disasters.
I do continue to try for low-cost positive black swans, and I've identified one since retirement.
For withdrawals, I tend to convert large chunks of the portfolio to cash, like enough for a year or two of expenses. I do this when it's convenient in the market, convenient for my portfolio, or convenient from a USD/CAD exchange rate perspective.I agree that the sequence of returns for your portfolio matters a great deal--if you get nuked in the first decade or so, you can run into trouble.
I'd be very interested in how you sized these. I've had two ten bagger investments that probably fit that mold, and both were actually my largest positions at the time I bought them. But selling down as they rose (mistake!) and a pretty diversified portfolio means that the gains from that plus 1 more wouldn't be a reasonable retirement income. (In fairness the first was when I had just started investing in 2008/2009 in my early twenties, so the $2.5k ten bagger maybe doesn't count...)
Was the majority of your portfolio in this strategy, or only when you found good/great choices?
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51 minutes ago, stockman500 said:
I wonder if he sells out of his positions when the news of him having those positions moves those stocks up.
Not illegal, but it would seem a bit immoral if he did that.
Like GEO went up 15% in 2 days on the news that that was the only stock position he held.
I don't think the firms he picks on average support that as a primary motivator. I mean, based on his average holding period he probably sells GEO, and that bump probably helps him.
But if you look at what he had the quarter before there was lots of big cap stuff that wouldn't move at all on the news.
If he was trying to make money monetizing his fame in the market, he's definitely smart enough to know how to do so successfully. If he was buying only a few large positions in highly liquid, highly volatile small caps every quarter that would be one thing. As a thought experiment - what do you think would happen if he took a position in something like GME or BBBY? 10% of his fund for 1 day around quarter end and then load up on options the week before the filing drops (and maybe add a tweet or two) and he'd be killing it.
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2 hours ago, CorpRaider said:
Level with me (and my wife more importantly). Beach houses are usually turrible investments?
I think buying vacation property is, on average, a terrible investment. When properly cost burdened it generally trades at low cap rates, and is much more work than long term rentals to manage. People underestimate the maintenance capex type stuff buying new appliances/bedding/dishware/frying pans etc as well.
Lately a large upward move in rental value and low rates have made everyone who owns look like a genius, but I don't think that's sustainable over the long term.
There are definitely exceptions, and the market is not efficient. I also have no qualms with people buying things and using them - but that's a luxury expense not an investment.
The one place where individual usage can be value add is if it isn't in peak rental season. If you want to go the mountains in the summer every year buying a place and renting it for ski season can be the cheapest option. Same if you wanted to live near a northern lake in the winter and travel to Europe in the summer - buy the lake property and rent it during peak summer season.
It's like anything else - there are edge cases that work but on average people just do OK. Personally, my business is asset-light, which is how I like it, as I keep everything above working capital in the stock market.
Edited to add: transformational use can add value as well. If you can convert an outbuilding to 3 more bedrooms that can be a big deal. Or some folks have made $$ converting a hillside into a "hobbit hole" type place.
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2 hours ago, Parsad said:
Isn't Hawaii just stupid expensive right now? I was looking at Maui in January, and the hotel rooms are just through the roof! Thinking maybe somewhere in the Caribbean instead. Cheers!
I'm in the vacation rental business so my personal vacations happen at wholesale rates.
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2 hours ago, RedLion said:
Next week we are going to Kailua-Kona on the Big Island of Hawaii (my first time) for 10 days and then over to Koloa on the island of Kauai (we usually visit once a year).
We just returned from 2 weeks on the Big Island. The value investor in me bought the Ocean Adventures afternoon snorkel on Groupon at a big discount. We stay in Waikoloa, so not much else for Kona recommendations.
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On 8/9/2022 at 12:04 PM, rukawa said:
I have US cash. I'm Canadian but taking a trip to Nashville. What is the best way to buy gold bars. I can buy at a big 5 Canadian bank but then I pay the exchange rate conversion and possibly get a worse price. Is there any convenient options in the US. I would prefer not to buy online because I'm concerned about theft.
Is your US cash physical cash? If not, you can convert USD to CAD at the spot rate using Interactive Brokers (or Norbert's Gambit with a different broker). Then just buy the gold at a dealer in Canada.
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18 hours ago, changegonnacome said:
The great jobs market is a symptom of too much money chasing too few goods and services = inflation. Early inflation cycles work out fine - Walmart hikes prices & hikes wages.....everybody wins.....the problem is that wages never keep up with monetary inflation.....inflation happens every day in tiny little ways across the economy, wages reset much less often ,yearly or if someone leaves a job for another (attrition levels of less than 15% even in shitty jobs is quite common).........so prices are rising at a higher interval rate & faster than wages can keep up with.......... therefore purchasing power is decreasing in the consumer across time in the low/middle income groups i.e. most Americans!...........corporates try to push price again to preserve THEIR margin but they cant (the consumer is weakening in the face of a loss of purchasing power).....etc etc
I think what Powell would say is that the number of job openings should be brought broadly in line with the number of people seeking employment such that we have stable prices across the economy.
If you think about what your advocating for as an alternative Greg....which is a bunch of low/middle income workers to get your industriousness and really get out there and hustle their employer for pay increases or hyperactively change jobs every 12 weeks for a higher salary the next shop over.....................your really advocating for a wage-price spiral in disguise.
The share of the economy that has gone to regular wage earners has been declining for years though.
It's entirely possible that if labour gets a bigger share someone else gets a smaller share (corporate profits and investors like us seems the most likely loser).
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15 hours ago, TwoCitiesCapital said:
With the new print, we're already at over 6+% using the above methodology and still have 3-months to be additive before we reset.
And here's the thing that's got me reconsidering my skepticism on inflation being sticky. This is the inflation we're experiencing with the USD being near 20+ year highs. What happens if it weakens from here?
Bank of Canada raised 100 basis points today and the Canadian dollar barely moved against the USD. I'm not sure what it'll take for the USD to meaningfully weaken. I would have thought the news about China/Australia doing an iron ore deal in Yuan might have hurt the USD.
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3 hours ago, LearningMachine said:
@bizaro86, I understand this won't apply to you, but hypothetically, between the following two options, my guess is you would pick (b), right?
- (a) 100% cashflow from owned treasuries, where treasury won't even try to track inflation and
- (b) 100% cash flow generated from sale of oil from owned long-term oil reserves, where OPEC will at least try to have oil price not lose out big time to inflation for its member-countries
Definitely (b). Because then the comparison is one investment to one investment, and (a) is guaranteed to lose value right now.
CNQ isn't a large position for me, but if I had to pick one firm in the sector to have as a permanent 100% position that's who I'd pick.
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35 minutes ago, LearningMachine said:
I think case could be made for investing in oil companies to manage your risks, depending on your situation at both extremes, and in between the two extremes:
#1. Folks with 0% of their savings in oil companies, and living on fixed income: One of their biggest worries might be whether they will be able to sustain their livelihood with inflation over a long time, especially if high inflation expectations were to get baked in society's psyche, or more money printing were to happen in the future as a result of calamities, e.g. wars, etc. It might make rational sense for them to consider hiring OPEC for free to manage that risk by keeping their cashflow somewhat in line with inflation because OPEC has to do that anyway for its member countries.
#2. Folks with 100% savings in oil companies: They would indeed want to worry about the risk of crude going below $50, and try to figure out ways to mitigate that. This is what OPEC is trying to do for OPEC countries with close to 100% of cashflow coming from oil for some countries. By investing in oil companies you get to hire OPEC for free with the understanding that OPEC might not be able to deliver at some moments, but that over long long times, OPEC has been getting better at delivering.
If you could pick only one extreme option out of the above two extremes, which extreme option would you pick?
If I had to pick between 0% energy and 100% energy I'd pick 0 for sure. That is a lot closer to my actual allocation than 100%, and its easier to be reasonably diversified dropping 1 sector than dropping all but 1.
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1 hour ago, Spekulatius said:
I did a similar bet in 2007 when peak oil was all the rage. I betted a case of Sonoma county wine that crude would go below $50/ brl within 10 years.
I never collected the bet though, moved out of area and I guess my counter-party forgot too. I betted simply based on my assumption that a lot of crazy things happen in commodity markets.
I actually would make that bet again that crude will be below $50 within the next 10 years (2032) at some point.
I wouldn't bet against oil dropping by 50% in a 10 year period, without looking I bet nearly every 10 year period has had a drawdown that size.
I wouldn't be willing to be against oil doubling to $200 at some point in the next 10 years either.
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13 hours ago, LearningMachine said:
This is what happens when we don’t think in terms of probability ranges and percentages
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How about the following so-called conclusions a century ago
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“If you wish to improve the environment, you need economic growth (Kuznets curve). For economic growth, you need energy. Today, that means whale oil. It's a bad thing to curtail that.”
“If you wish to improve the environment, you need economic growth (Kuznets curve). For economic growth, you need transportation. Today, that means horses and buggies. It's a bad thing to curtail that.”
I don't believe either whale oil or horses/buggies were curtailed by fiat though. They were replaced by more technologically advanced options when those options became economically viable.
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On 6/30/2022 at 7:47 AM, Peregrine said:
Well, the feds just pushed the annual rental increase to 2.5% and I suspect that there will be a lot of political pushback against that number given where inflation is.
Nope, no rent control in Alberta - it isn't Federal.
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Based on a cursory look this appears to be trading at a premium to NAV?
Do you know how they mark edgepoint, and are you happy with their mark or do you think its more valuable?
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4 hours ago, DooDiligence said:
Interesting. When does Berkshire start to diworsify?
or is it never allowed to happen?
Maybe it already has
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18 minutes ago, Viking said:
The rental market in Vancouver is absolutely bonkers right now: super tight supply and spiking rents (for new rentals). +$1,500 for one bed and +$3,000 for two bed - if you can find them (and then beat out other applicants to secure the place). Prepandemic it was not unusual for landlords to get +30 applicants when listing units onto the market… and i think we are probably back to those market conditions.
—————In my neighbourhood (i rent a house) my guess is rents have increased 20% in the past 18 months (18 months ago supply for rentals was highest in many many years due to covid). Crazy thing here in Vancouver is we have rent control. My landlord was ‘allowed’ to increase my rent 1.5%. Nuts.
I've had a number of people apply/move into units in Calgary that said they moved here because they could no longer afford rents in Vancouver.
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On 6/11/2022 at 7:43 AM, Spekulatius said:
You dont have to go to Japan- same is true in many rural areas in Europe. You can buy houses there dirt cheap.
The village I grew up with had population of 1200 when I was born and has below 900 now. The same thing happens in many places, countries in Europe and even in the US. This is due to compounding effect of demographics and people (like me) moving away.
I wonder if there will be a tipping point on stuff like that though? A row house in the biggest Canadian cities goes for $1MM, whereas in small towns a detached house is 1/10th of that.
Once everyone has Fibre internet it seems like the career advantage of the cities might be smaller, and some people might think saving 10x their salary on house prices is a good deal.
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5 hours ago, fareastwarriors said:
For some people, not paying attention might be optimal! At least they aren't going to lose it trying to be fancy and investing into things they don't know anything about!
I agree that for the vast majority of people making a minimal number of simple decisions is best. For a permanent hold for someone not paying attention I like SPY better than I bonds, although the I bonds are probably as good as you can do for a 'set and forget fixed income.
Energy Sector
in General Discussion
Posted
I can't believe I'm responding to this again, but there is no net new Russian supply. The gas they might someday sell to China they were previously selling to Europe. If that gas goes to Japan via China and the Qatari gas the Japanese were previously buying goes to Europe that doesn't add any new supply, it just makes the transportation less efficient. None of this makes it plausible that any LNG will go to the WCSB.