Energy Sector

[cubsfan]

^^. Eh, just remember - around here - a sense of humor is required. 

 

Things have vastly improved from a couple years ago.

Edited March 13, 2022 by cubsfan

[Sweet]

On 3/11/2022 at 9:48 PM, Gregmal said:

The gas car argument is massively overrated for EVs. Theres probably logical reason for alternative energy somewhere, but its mostly a mind game. As I mentioned earlier, Ive got a 550 gallon double tank for heating oil. Going from $2 to $5 a gallon moves the needle. But for a standard car, if you use 15 gallons a week(assume 20 mpg thats 300 miles a week which is high) the difference between $2 gas and $5 gas is $45 a week. $10 gas is $90 a week. Big whoop. 

I would tighten my belt for $90 a week.  I’m fortunate but I know others who don’t earn that much money, and would struggle with a $90 increase.  It will hit demand.
 

I am already cutting back with home heating oil burning sticks from around the house.  Kerosene prices have more than doubled in the last few weeks where I live.

Edited March 13, 2022 by Sweet

[Sweet]

10 minutes ago, cubsfan said:

^^. Eh, just remember - around here - a sense of humor is required. 

 

Things have vastly improved from a couple years ago.

For sure.  I held from joining back then because there was too much politics talk.  I’m glad there is a politics forum.

[Gregmal]

15 minutes ago, Sweet said:

I would tighten my belt for $90 a week.  I’m fortunate but I know others who don’t earn that much money, and would struggle with a $90 increase.  It will hit demand.
 

I already cutting back with home heating oil burning sticks from around the house.  Kerosene prices have more than doubled in the last few weeks where I live.

Yea but the $90 a week is predicated on $10 a gallon and assuming you drive 300 miles a week. But on the second part, definitely, if you heat your home with oil it’s a doozy.

[Ulti]

 

Some ideas about us energy policy

 

https://doomberg.substack.com/p/a-serious-proposal-on-us-energy?s=r

[Spekulatius]

On 3/8/2022 at 12:38 PM, Spekulatius said:

I still think the future markets got this wrong. Crude oil should not move because US does not buy Russian oil any more, but purchases the same amount of oil from some place else.  This is just a a ring around Rosie  and I think the price spike will likely reverse. Now if Europe would decide likewise and ban Russian oil (they likely won't) this would affect a few million barrel daily and cause a major imbalance and that would push prices higher.

If I had to make enz. guess, I think crude prices go back to where they were before the invasion, give or take a few $. This is probably around $80/ brl. The reason is simple - crude is fungible and someone can and will buy russian crude for a discount presumably, similar to what happened with Iranian oil. I don’t expect a crisis here. Russia can’t afford not to pump because they do need the money.

 

NG for Europe is trickier and harder to replace. The Europeans will have to replace the Russian gas with LNG amongst other things. Germany alone will build 2 de-liquefaction plants on their shores, but the stuff has to come from somewhere.

 

If Biden wants to help out Europeans, he should promote NG drilling, pipeline and LNG infrastructure build to allow for LNG exports. I think CVX and RDS have a huge integrated LNG business and might benefit. I should probably take a look at RDS as it has not done that well so far.

 

Forget about oil, I think NG is the more important strategically for energy independence in Europe and the US.

Edited March 15, 2022 by Spekulatius

[KJP]

2 hours ago, Spekulatius said:

If Biden wants to help out Europeans, he should promote NG drilling, pipeline and LNG infrastructure build to allow for LNG exports. I think CVX and RDS have a huge integrated LNG business and might benefit. I should probably take a look at RDS as it has not done that well so far.

 

Forget about oil, I think NG is the more important strategically for energy independence in Europe and the US.

 

If you believe additional LNG export capacity will be build on the US Gulf Coast and use gas from Haynesville, Williams and Black Stone Minerals may interest you.

[Gregmal]

2 hours ago, Spekulatius said:

If I had to make enz. guess, I think crude prices go back to where they were before the invasion, give or take a few $. This is probably around $80/ brl. The reason is simple - crude is fungible and someone can and will buy russian crude for a discount presumably, similar to what happened with Iranian oil. I don’t expect a crisis here. Russia can’t afford not to pump because they do need the money.

 

NG for Rurope is trickier and harder to replace. The Europeans will have to replace the Russian gas with LNG amongst other things. Germany alone with build 2 de-liquefaction plants on their shores, but the stuff has to come from somewhere.

 

If Biden wants to help out Europeans, he should promote NG drilling, pipeline and LNG infrastructure build to allow for LNG exports. I think CVX and RDS have a huge integrated LNG business and might benefit. I should probably take a look at RDS as it has not done that well so far.

 

Forget about oil, I think NG is the more important strategically for energy independence in Europe and the US.

+5. You nailed the “futures markets are wrong” read. Was in fact one of the several things that influenced me to chuck some of my options at pretty much the top. Still holding stuff for the bigger picture play, but short term things definitely got carried away. 

[Ulti]

http://econbrowser.com/archives/2022/03/oil-prices-and-inflation

[Ulti]

https://podcasts.apple.com/us/podcast/pierre-andurand-on-how-we-might-get-%24200-a-barrel-oil/id1056200096?i=1000554342070

[SharperDingaan]

It’s useful to look at the Sovcomflot fleet.

145 tankers averaging around an Aframax, or 800,000 bbls/load. Closed off from western off-loading facilities, these tankers are now idling, and are essentially floating storage.

https://en.wikipedia.org/wiki/Sovcomflot

https://www.bloomberg.com/news/articles/2022-03-11/russia-s-state-owned-fleet-of-oiltankers-is-starting-to-idle

 

Back-of-the-envelope calculation

Assume roughly ½ the fleet is currently stranded. 70 tankers @ 800,000 bbl, or 56 million bbl. Assume the oil is sold underground at a deep discount, we know from recent press that the discount for a direct sale from Russia to China is around US 28.50/bbl. Assume the underground discount is 20% above this, or US 34.20.

 

Total discount of roughly 1.9BM (56M bbl @ US 35) on ½ the fleet. Assume another 60% on the remaining 50% of oil going directly between states. Every time that 145 ship fleet fills up, the total sales discount is a conservative 3.00-3.25B. At maybe 6 refills/yr? this is costing Russia 20B+

 

All that Russia can do, is try to keep oil prices as high as possible, and they can’t hold the oil off the market because they need the money. Very similar dynamics in the diamond trade as well.

 

SD

Edited March 18, 2022 by SharperDingaan

[Spekulatius]

Looked briefly into Shell $SHEL as a potential long regarding LNG play and now I want the 30 min of my life back spent sifting through their annual report. Selling Permian oil fields to reduce carbon dioxide emissions  - really? They sold them to COP which will keep drilling and emit the carbon dioxide for them. It's so obvious of a Shell <pun> game that I wonder who takes this seriously.

Edited March 18, 2022 by Spekulatius

[Xerxes]

@Spekulatius& others

 

I think a good candidate is Statoil (which i recently discoverd it re-branded itself as "Equinor"). I knew of it by its old name, and accidently ran into again when browsing SempusAugustus newest letter. Equinor is a current Bloomstran holding, I have not been following this thread, so apologies if it has been mentioned before on earlier page.

 

Here is a great read on it fro Barron'. I personally have found Shell way too complicated. In this day and age, market likes straight forward businesses when it comes O&G industry.

 

Buy Equinor Stock. It’s the Stock to Play the Surge in European Natural-Gas Prices. | Barron's (barrons.com)

 

"No Western energy company has greater exposure to European gas, which may be the single best energy market in the world now. Formerly known as Statoil, Equinor provides about 20% of the Continent’s gas. Equinor may also be the greenest of the top global energy companies, with a carbon footprint per barrel of oil and gas produced that is less than half the industry average. It stacks up well against its peers in offshore wind power generation and carbon capture, with unmatched technological expertise."

 

"Equinor produces more than two million barrels a day of oil and its equivalent, split evenly between oil and gas. Two-thirds comes from the company’s prolific Norwegian offshore fields. European gas is about a third of its total output, and most of it is sold on the spot market and thus benefits from current high prices.

“This winter, the energy realities in Europe have demonstrated the importance of stable and reliable deliveries of gas from Norway,” said Anders Opedal, Equinor’s CEO, on the company’s earnings call in February. “Currently, we see low inventories, low spare capacity, and too-low energy investments over time.”

 

Of course we are heading into the summer month where demand wil wane ...

 

"The biggest risk with Equinor would be a collapse in European gas prices. Its stock, however, already discounts some potential decline, given a free-cash-flow yield of about 20%, assuming oil at $100 a barrel and gas at $20—half the current price. Assume gas at $10 per thousand cubic feet and the free-cash-flow yield is about 10%."

 

Edited March 18, 2022 by Xerxes

[SharperDingaan]

1 hour ago, Xerxes said:

@Spekulatius& others

 

I think a good candidate is Statoil (which i recently discoverd it re-branded itself as "Equinor"). I knew of it by its old name, and accidently ran into again when browsing SempusAugustus newest letter. Equinor is a current Bloomstran holding, I have not been following this thread, so apologies if it has been mentioned before on earlier page.

 

Here is a great read on it fro Barron'. I personally have found Shell way too complicated. In this day and age, market likes straight forward businesses when it comes O&G industry.

 

Buy Equinor Stock. It’s the Stock to Play the Surge in European Natural-Gas Prices. | Barron's (barrons.com)

 

"No Western energy company has greater exposure to European gas, which may be the single best energy market in the world now. Formerly known as Statoil, Equinor provides about 20% of the Continent’s gas. Equinor may also be the greenest of the top global energy companies, with a carbon footprint per barrel of oil and gas produced that is less than half the industry average. It stacks up well against its peers in offshore wind power generation and carbon capture, with unmatched technological expertise."

 

"Equinor produces more than two million barrels a day of oil and its equivalent, split evenly between oil and gas. Two-thirds comes from the company’s prolific Norwegian offshore fields. European gas is about a third of its total output, and most of it is sold on the spot market and thus benefits from current high prices.

“This winter, the energy realities in Europe have demonstrated the importance of stable and reliable deliveries of gas from Norway,” said Anders Opedal, Equinor’s CEO, on the company’s earnings call in February. “Currently, we see low inventories, low spare capacity, and too-low energy investments over time.”

 

Of course we are heading into the summer month where demand wil wane ...

 

"The biggest risk with Equinor would be a collapse in European gas prices. Its stock, however, already discounts some potential decline, given a free-cash-flow yield of about 20%, assuming oil at $100 a barrel and gas at $20—half the current price. Assume gas at $10 per thousand cubic feet and the free-cash-flow yield is about 10%."

 

 

Gas producers will be going flat out this summer, as Europe will be doing everything it can to build inventory as high as possible ahead of next winter. Gas for heating, will also be competing against gas for fertilizer, as the globe attempts to offset reduced Ukrainian food production. The more gas produced the more oil produced as well..

 

Russian o/g wells are stranded, but not shut in  While sanctions continue, flow will be cut back to minimum levels, and inventory allowed to build until all Russian controlled land and floating storage is maxed out. Thereafter, wells will begin to shut in, and for many - it will be permanent.

 

As/when sanctions lift, most would expect Russia to reclaim market share by flooding the market and driving down prices. If o/g companies used the good times to pay down their debt there will be no ill effect, and existing fields are simply allowed to deplete into the incremental demand resulting from lower oil prices.

 

If debt wasn't repaid, in favor of M&A field consolidation, all remains good. However, if the money was used to simply open new fields, those new fields are at risk of stranding. Obviously, not what US independents want to hear. 

 

Bigger players controlling entire fields, and managing the medium term transition from primarily oil to gas. ESG metrics as the scorecard driving the process. 'Old School' o/g men/women shown the door if they choose not to get on board. Market at work.

 

SD    

[Spekulatius]

2 hours ago, Xerxes said:

@Spekulatius& others

 

I think a good candidate is Statoil (which i recently discoverd it re-branded itself as "Equinor"). I knew of it by its old name, and accidently ran into again when browsing SempusAugustus newest letter. Equinor is a current Bloomstran holding, I have not been following this thread, so apologies if it has been mentioned before on earlier page.

 

Here is a great read on it fro Barron'. I personally have found Shell way too complicated. In this day and age, market likes straight forward businesses when it comes O&G industry.

 

Buy Equinor Stock. It’s the Stock to Play the Surge in European Natural-Gas Prices. | Barron's (barrons.com)

 

"No Western energy company has greater exposure to European gas, which may be the single best energy market in the world now. Formerly known as Statoil, Equinor provides about 20% of the Continent’s gas. Equinor may also be the greenest of the top global energy companies, with a carbon footprint per barrel of oil and gas produced that is less than half the industry average. It stacks up well against its peers in offshore wind power generation and carbon capture, with unmatched technological expertise."

 

"Equinor produces more than two million barrels a day of oil and its equivalent, split evenly between oil and gas. Two-thirds comes from the company’s prolific Norwegian offshore fields. European gas is about a third of its total output, and most of it is sold on the spot market and thus benefits from current high prices.

“This winter, the energy realities in Europe have demonstrated the importance of stable and reliable deliveries of gas from Norway,” said Anders Opedal, Equinor’s CEO, on the company’s earnings call in February. “Currently, we see low inventories, low spare capacity, and too-low energy investments over time.”

 

Of course we are heading into the summer month where demand wil wane ...

 

"The biggest risk with Equinor would be a collapse in European gas prices. Its stock, however, already discounts some potential decline, given a free-cash-flow yield of about 20%, assuming oil at $100 a barrel and gas at $20—half the current price. Assume gas at $10 per thousand cubic feet and the free-cash-flow yield is about 10%."

 

To me a 10% normalized FCF yield does not sound too enticing. A 20% FCF at current prices assumes that current prices persist for a while and that's not a bet I am willing to make.

 

If one is willing to dive in, you can find plenty of stocks with >10% FCF yield and much less commodity price exposure. The packaging sector alone has a handful of those, just to name on example.

Edited March 18, 2022 by Spekulatius

[Ulti]

43 minutes ago, SharperDingaan said:

Gas producers will be going flat out this summer, as Europe will be doing everything it can to build inventory as high as possible ahead of next winter.

https://www.woodmac.com/press-releases/europe-can-weather-halt-in-russian-gas-supplies/

[lnofeisone]

18 minutes ago, Ulti said:

https://www.woodmac.com/press-releases/europe-can-weather-halt-in-russian-gas-supplies/

Terrible headline. If Russia stops importing gas today, Europe can weather the winter that's already over (I guess in 2 days). The real issue is buried in the article - without Russian gas, Europe will have 10% of what they need for the winter. 

 

As far as FCF, and I'm talking my book here, VET is trading at 40% FCF with a lot of their gas hedged for the next 2 years. Their models and projections are built on prices well below where they are today. I'm expecting some fireworks come earnings time next Q.  

[Ulti]

1 minute ago, lnofeisone said:

without Russian gas, Europe will have 10% of what they need for the winter. 

totally agree...also after hearing Pierre Andurand's podcast this morning, I think its going to be an ugly '23 winter for Europe.

[SharperDingaan]

It really comes down to a planed depletion of ME storage and a ramp-up of Gulf state production. The facilities are already on-line, and the proceeds will fund upgrades that ultimately power Europe's coming EV demand. NA will supply as well, but it will primarily be the growing gas cut on ageing shale wells, and not from newly drilled gas wells.

 

US Shale is primarily from gas fields, producing oil/liquids as byproduct. We think of US Shale as oil fields; because at the well-head, on a new well, the oil production is worth materially more than the gas production. Whereas in reality, over the total producing life of the well, the accumulated value of the gas production will typically exceed that of the oil/liquids.

 

SD

[Ulti]

SD,

 

How realistic that Europe can store 90% of its lng needs every year ?  Opec +\middles east\ seems to be in the driver seat but they are not cranking it out. I read somewhere that lng shipping form the US is like 5 o'clock traffic with all the tankers going to Europe ( at the expense of asia ).

https://ec.europa.eu/commission/presscorner/detail/en/ip_22_1511

[Ulti]

Also seems like the activist never stop.

https://variety.com/2022/politics/news/mark-ruffalo-royal-bank-of-canada-coastal-gaslink-pipeline-1235206695/

[Spekulatius]

15 hours ago, Ulti said:

SD,

 

How realistic that Europe can store 90% of its lng needs every year ?  Opec +\middles east\ seems to be in the driver seat but they are not cranking it out. I read somewhere that lng shipping form the US is like 5 o'clock traffic with all the tankers going to Europe ( at the expense of asia ).

https://ec.europa.eu/commission/presscorner/detail/en/ip_22_1511

Who said they need to store the LNG? They need to replace 40% of their NG supply currently coming from Russia with LNG from other sources. It will take a while but should be doable.

Also coal plants will be running more / longer and perhaps Nuclear plants as well. Rest comes from renewables. The plan is to cut Russian gas by 2/3 in one year and the rest in 3 years. Ambitious but doable.

Edited March 19, 2022 by Spekulatius

[Ulti]

Quote from commision:

 

The Commission intends to present by April a legislative proposal requiring underground gas storage across the EU to be filled up to at least 90% of its capacity by 1 October each year.

[Ulti]

And I did misstate : I don't know if 90% storage =90% need.  I doubt it but it sounds like they are planning to store a shitload more than they usually do.

[Spekulatius]

90% of storage is relative to storage capacity, which seems roughly 3900 BCF, if this source is correct. Last winter they filled up less than 90% (maybe 75% based on eyeballing this by Oct ).

https://www.celsiusenergy.net/p/european-natural-gas-inventories.html#Current

 

This requirement I guess codifies the NG buffer and was actually put in place before the invasion. The 3900 BCF storage capacity is roughly enough for 3 month average usage.

Edited March 19, 2022 by Spekulatius