Energy Sector

[Minseok]

https://financialpost.com/commodities/energy/oil-gas/eric-nuttall-fear-is-gripping-energy-markets-but-the-facts-suggest-oil-fundamentals-are-still-strengthening

 

Canadian energy sector averaging 31% FCF yield and on track to be debt free by Q1 2023. The whole industry can privatize itself in 3.1 years!

 

This is on a backdrop of oil demand growth which dont turn negative even in hard times, just slower. Hypothetical inventory surplus of 1M BPD is only enough to replenish historical stock piles over a whole year. 
 

Canadian TSX capped energy index ETF seems like a good hold in these times.

[SharperDingaan]

Think of it as being in stages .... west first, then east, then north.

https://www.nrcan.gc.ca/energy/energy-sources-distribution/natural-gas/canadian-lng-projects/5683

 

Going west has the advantage of shorter distance to Alberta, nearer to Asia than the ME, some ways along already, much larger scale, and a tangible counter (gas vs oil terminal) to ESG concerns. Hard to find a better proposition.  

 

In the near/medium term eastern egress primarily depends upon Hibernia/White Rose adding to existing facilities, and the regasification plant in St John reversing flow. All already in Canada, all on the East Coast, local and politically much easier to do.

 

Northern access a political easier twinning of existing McKenzie Valley north-south pipe corridors. Mostly US gas to start, WCSB gas added later, and the western counter to climate change opening up the northern sea routes. LNG at the western end of the sea route strangling Russian exports to Asia; less distance to Asia, and avoidance of tankers in the sea route itself (ESG).

 

Asia buying more from Canada, less from the ME, and the displaced ME flow going to Europe. Russian supply going to Asia and India on long term contracts at deep discounts.

 

SD

Edited June 29, 2022 by SharperDingaan

[Ulti]

[Spekulatius]

1 hour ago, Ulti said:

There is plenty of Lithium in the earth crust - we just need to increase supplies with new mines, which I have no doubt is going to happen.

[Ulti]

https://www.oilandgas360.com/europes-plans-to-replace-russian-gas-are-deemed-wildly-optimistic-and-could-hammer-its-economy/

[meiroy]

15 hours ago, Minseok said:

https://financialpost.com/commodities/energy/oil-gas/eric-nuttall-fear-is-gripping-energy-markets-but-the-facts-suggest-oil-fundamentals-are-still-strengthening

 

Canadian energy sector averaging 31% FCF yield and on track to be debt free by Q1 2023. The whole industry can privatize itself in 3.1 years!

 

This is on a backdrop of oil demand growth which dont turn negative even in hard times, just slower. Hypothetical inventory surplus of 1M BPD is only enough to replenish historical stock piles over a whole year. 
 

Canadian TSX capped energy index ETF seems like a good hold in these times.

 

Yeah, Canadian oil has some stupid numbers.  I've been owning a lot since last year and they did great, but then recently it all went batshit crazy down. Numbers still good, though.

[Viking]

On 6/24/2022 at 11:41 AM, SharperDingaan said:

 

Depends on your time horizon, and your directional degree of certainty; Speculation (1 day-2 quarters) vs investment (1-6 years); the longer the hold, the greater the certainty. The short-term community is just trading headlines, and today the news feed is negative. Speculative manic depression at work.

 

Energy is not manufacturing, and vendors are not price makers; applying a multiple to historic earnings just doesn't work. Multiples are used, but it is on a FFO, FCF, etc - a forecast 12 months out. and NOT eps. Price moves up/down, primarily because future cashflow is expected to be higher/lower; the FFO/FCS multiples themselves move much more slowly. Investment speculation at work.

 

Know your swim lane, then stay in it.

 

SD

Energy right now is looking like steel and lumber did a year ago. The energy companies are making obscene amounts of money. But unlike steel and lumber it looks to be like the profits for energy companies will likely remain higher for longer. If we get a further sell off of energy stocks (on recession fears) it might be time to increase exposure again. Energy has been my best ‘buy the dip’ trade the past 3 months (paid out every time)…

 

My usual buy is Suncor. But i am starting to look at a few of the smaller producers. MEG is looking interesting but might not get much love until more debt is paid down. I like that they are unhedged. 
 

What smaller energy producers are board members big on right now?

Edited June 30, 2022 by Viking

[Ulti]

Vet

[Ulti]

https://www.eastbaytimes.com/2022/06/16/california-fuel-prices-set-to-soar-as-refiners-undergo-work/

[Ulti]

https://www.nytimes.com/2022/06/29/business/liquefied-natural-gas-europe.html

[Ulti]

https://podcasts.apple.com/us/podcast/jigar-shah-on-the-does-role-in-accelerating-the/id1056200096?i=1000568239668

[StevieV]

4 hours ago, Viking said:

Energy right now is looking like steel and lumber did a year ago. The energy companies are making obscene amounts of money. But unlike steel and lumber it looks to be like the profits for energy companies will likely remain higher for longer. If we get a further sell off of energy stocks (on recession fears) it might be time to increase exposure again. Energy has been my best ‘buy the dip’ trade the past 3 months (paid out every time)…

 

My usual buy is Suncor. But i am starting to look at a few of the smaller producers. MEG is looking interesting but might not get much love until more debt is paid down. I like that they are unhedged. 
 

What smaller energy producers are board members big on right now?

 

MEG had an operational update last night.  Some technical difficulties.  Not ideal, but short term. - https://finance.yahoo.com/news/meg-energy-announces-operational-continued-210000319.html  

 

I don't consider MEG as high debt any longer and they are paying it down quickly.

[Paarslaars]

21 hours ago, Spekulatius said:

There is plenty of Lithium in the earth crust - we just need to increase supplies with new mines, which I have no doubt is going to happen.

Yeah I work in the industry, the biggest concern is nickel for the high nickel NMC versions (NMC622, NMC811,...)

[SharperDingaan]

Hard to do better than WCP as a swing trade, and collect a fat dividend while you wait.

They are also paying cash for their recent acquisition.

 

SD 

[Ulti]

https://oilprice.com/Energy/Energy-General/The-Winners-And-Losers-Of-The-New-Energy-World-Order.html

[SharperDingaan]

Keeps coming back to the elephant in the room ....

Blow the pipelines, and cut the gas flow - period. Can't sell what you can't deliver, and the wells rapidly either shut in or have to flare associated gas. Charge carbon tax on the burn, and deduct from Russian funds held under sanction

 

We have long had a deep and liquid futures market for dealing with price spikes - use it. Realized gains offsetting losses on price caps, carbon tax and long term debt/inflation funding the rest.

 

SD

 

Edited June 30, 2022 by SharperDingaan

[Spekulatius]

2 hours ago, Ulti said:

https://oilprice.com/Energy/Energy-General/The-Winners-And-Losers-Of-The-New-Energy-World-Order.html

Pretty good piece, imo. If Biden is smart he pivots to pushing NG as a clean transitional source for the next 30 years. Develop infrastructure to phase out oil heating in the US  and help out European allies. It's positive from a carbon balance (replacing heating oil with NG) and helps Europe to wean of from Russian gas and it helps the US NG producers with stable end markets and more stable prices. Laying all those pipes to supply gas to home would be nice infrastructure program that would pay for itself, and wouldn't cost taxpayers much (perhaps some incentives for home owners in some cases).

[Ulti]

6 hours ago, Ulti said:

https://podcasts.apple.com/us/podcast/jigar-shah-on-the-does-role-in-accelerating-the/id1056200096?i=1000568239668

Totally agree with you Spek…. Listening to this guy.. very smart but the Biden admin doesn’t see it our way.. only in the last 2 minutes does he acknowledge that energy infrastructure bailout is needed because renewable bldout is slow 

[KJP]

3 hours ago, Paarslaars said:

Yeah I work in the industry, the biggest concern is nickel for the high nickel NMC versions (NMC622, NMC811,...)

 

Are there potentially viable alternative chemistries that use substantially less nickel?  Or do nearly all reasonable scenarios require substantially more nickel (and I assume cobalt) production?

[Spekulatius]

1 hour ago, KJP said:

 

Are there potentially viable alternative chemistries that use substantially less nickel?  Or do nearly all reasonable scenarios require substantially more nickel (and I assume cobalt) production?

There are batteries that don't use nickel (or very little of it). I think one of the types uses iron phosphate chemistry and they are used in some lower end batteries.

 

The problem with these chemistry is lower energy density, so it reduces the EV's range, which is still a big issue. I suspect they also may be less durable (less charge cycles), but I can't state this for certain.

Edited June 30, 2022 by Spekulatius

[gfp]

Lithium Iron Phosphate (like what BYD manufactures) use no nickel and no cobalt.  They are not limited to low end, but do have lower energy densities so are either bigger and/or heavier than their competitors.  They will be used extensively in vehicles and stationary storage.  They are also the top choice currently for server-rack type home backup batteries.  They are safer - less likely to catch fire.  They are also very durable with little loss over many charge cycles - several thousand charge cycles to 80% capacity.  There is a market for used cells that have already degraded to ~80% and those cells still find a use at their discounted cost.

 

Even Tesla is buying some Lithium Iron Phosphate batteries for the standard range cars.  Rumors are that they will soon be buying from BYD as well.

 

I use Lithium Iron Phosphate for power back-up at home for storms (not whole house power, I use natural gas for that)

[Paarslaars]

5 hours ago, KJP said:

 

Are there potentially viable alternative chemistries that use substantially less nickel?  Or do nearly all reasonable scenarios require substantially more nickel (and I assume cobalt) production?

Yes you have LFP as mentioned but also what is know as high lithium manganese products. The latter are expected to come into the market and compete with LFP in 5 years. They still contain some nickel, just a lot less. They will still be more expensive than LFP but have substantially higher capacity (yet not as much as high nickel).

 

All future products work on reducing or eliminating cobalt, due to price and toxicity.

Edited June 30, 2022 by Paarslaars

[Sweet]

Performance of energy stocks this last month have been woeful.

 

A little more than three weeks ago the broad sector was up nearly 70% for the year.  It was an unsustainable move that was sure to correct.

Today it is up 25% having given up most of its gain these past three weeks.

 

[Viking]

5 hours ago, Sweet said:

Performance of energy stocks this last month have been woeful.

 

A little more than three weeks ago the broad sector was up nearly 70% for the year.  It was an unsustainable move that was sure to correct.

Today it is up 25% having given up most of its gain these past three weeks.

 

We are exactly 6 months into 2022. Oil was my top pick to make money in 2022.

And oil has performed spectacularly well (especially when compared to the overall stock market which is down 20 to 30%). Russia’s invasion of Ukraine was gas on the fire. However, oil was a trade for me: i actually started exiting my very oversized position in late January and was largely out of oil in Feb/March. Since then i have bought oil a number of times on big sell offs and sold a short time later for a nice quick gain.

 

Over the past week i have been doing a fair bit of reading on oil and gas. And today a light bulb went off for me: i think oil is poised to do well for YEARS. i am starting to drink the secular bull market Kool-Aid. So I was buying oil again today and now oil is 4% of my portfolio. And if oil continues to sell off i will likely buy more.

 

Why do i like oil as a secular investment:

1.) global demand will continue to grow each year by about 1 million barrels per day for the next decade. Demand is doing what it has done for all eternity: grow. People want to live a better life. The best way to do that TODAY (and the next 5 years at least) is hydrocarbons.

2.) supply, already in a deficit, WILL NOT be able to increase production by anything close to 1 million barrels per day for the foreseeable future. The supply function has permanently changed in Western countries. Thank you ESG (oil is a hated and villified industry… who in their right mind wants to work for an oil company today. Good luck attracting young talent).
 

Investors do not appreciate what this now means for oil prices. PERMANENTLY HIGHER PRICES. Yes i know… that is a crazy thing to say… but i think it might be true (at least for the next few years). This means oil companies are going to keep earning outsized profits.
 

Right now profits are going mostly to pay down debt (that ESG thing… banks can’t lend to dirty oil)). Once the debt is paid down shareholders will get paid. By the middle of 2023 the payouts to shareholders could be absolutely NUTS (10-15% dividends based on todays stock prices). 

Here is an update from Amrita Sen… very smart lady:

 

 

Edited July 1, 2022 by Viking

[Dinar]

1 hour ago, Viking said:

We are exactly 6 months into 2022. Oil was my top pick to make money in 2022.

And oil has performed spectacularly well (especially when compared to the overall stock market which is down 20 to 30%). Russia’s invasion of Ukraine was gas on the fire. However, oil was a trade for me: i actually started exiting my very oversized position in late January and was largely out of oil in Feb/March. Since then i have bought oil a number of times on big sell offs and sold a short time later for a nice quick gain.

 

Over the past week i have been doing a fair bit of reading on oil and gas. And today a light bulb went off for me: i think oil is poised to do well for YEARS. i am starting to drink the secular bull market Kool-Aid. So I was buying oil again today and now oil is 4% of my portfolio. And if oil continues to sell off i will likely buy more.

 

Why do i like oil as a secular investment:

1.) global demand will continue to grow each year by about 1 million barrels per day for the next decade. Demand is doing what it has done for all eternity: grow. People want to live a better life. The best way to do that TODAY (and the next 5 years at least) is hydrocarbons.

2.) supply, already in a deficit, WILL NOT be able to increase production by anything close to 1 million barrels per day for the foreseeable future. The supply function has permanently changed in Western countries. Thank you ESG (oil is a hated and villified industry… who in their right mind wants to work for an oil company today. Good luck attracting young talent).
 

Investors do not appreciate what this now means for oil prices. PERMANENTLY HIGHER PRICES. Yes i know… that is a crazy thing to say… but i think it might be true (at least for the next few years). This means oil companies are going to keep earning outsized profits.
 

Right now profits are going mostly to pay down debt (that ESG thing… banks can’t lend to dirty oil)). Once the debt is paid down shareholders will get paid. By the middle of 2023 the payouts to shareholders could be absolutely NUTS (10-15% dividends based on todays stock prices). 

Here is an update from Amrita Sen… very smart lady:

 

 

I agree with everything that you are saying, I would add a couple of points: a) Demand is still down a couple of million barrels a day from 2019 probably caused in part by Chinese lockdowns; b) Iran and Venezuela have potential to increase production materially, may be as much as 1.8MM barrels per day from Iran, and a million or two from Venezuela (unless I screwed up my math.)