Energy Sector

[Xerxes]

I would word it rather this way. Oil became a global market with introduction of supertankers that connected various markets in the 1960s. For natural gas, the global market is still in the making with proliferation of LNG tankers and accelerated by the war that distrupted status-quo.

 

As late as a 10 years ago, the natural gas contract prices to Europe were still based on crude prices and wholly independent of prices in Japan or the U.S. And rightly so, since the product was and still constraint by the geographical reach of the NG pipeline network.

 

[petec]

On 9/5/2022 at 6:00 PM, SharperDingaan said:

but the price of west coast WCSB gas is going to be limited to whatever the China/Russia landed price is.  

 

Not if the price of gas is higher in enough markets to absorb all possible Russian exports through China - which it is. In that case, Russian gas will never get to Alaska and won't have any impact on the price. Qatar is about the only place less likely to import Russian gas.

[Dalal.Holdings]

https://www.wsj.com/amp/articles/federal-oil-leases-slow-to-a-trickle-under-biden-11662230816
 

“President Biden’s Interior Department leased 126,228 acres for drilling through Aug. 20, his first 19 months in office, the analysis found. No other president since Richard Nixon in 1969-70 leased out fewer than 4.4 million acres at this stage in his first term.”

 

This administration is creating a setup for reduced U.S. supply in the coming years. I believe most federal lands are conventional wells and supply still up on existing leased land, but there’s been a big shift by this administration.

[nafregnum]

On 9/3/2022 at 3:27 PM, Pelagic said:

Let's say the battery fails out of warranty, can the car still operate on the ICE only if you choose to not have it replaced? Have to figure for a lot of drivers the ICE is going to have relatively few miles on it (I guess hours would be a better metric here) if they're mainly using the battery to commute to and from work and the ICE for the occasional longer trip.

 

I had to check Google to see, and found this link that says if the big battery really fails then the whole car is dead in the water:

 

https://carbrain.com/blog/what-can-i-do-if-my-hybrid-battery-dies

[SharperDingaan]

2 hours ago, petec said:

 

Not if the price of gas is higher in enough markets to absorb all possible Russian exports through China - which it is. In that case, Russian gas will never get to Alaska and won't have any impact on the price. Qatar is about the only place less likely to import Russian gas.

 

Quite agree, and isn't that the point ?? ....

If NO Russian gas is to reach the Canadian West Coast, there has to be either 1) not much supply available , or 2) everybody closer to the source has absorbed it - and all from new and encumbered demand. Don't dare question any of this!!

 

We just recognize that when you already have take-or-pay contracts covering a material portion of your demand, buying cheap gas simply displaces what you have already taken, the total supply on offer remains the same. It only makes sense to buy additional gas as/when you need it: which is a much smaller and variable demand. If this net new Russian supply turns out to be material, it's a problem for the West Coast. 

 

All else equal, the US has incentive to capture the price difference: import from China (at a discount) via the West Coast, and re-export (at a premium) the same quantity to Europe via the East Coast. Reduce gas production in the West, and increase gas production in the East, to avoid transportation costs across NA. The problem of course, is that NA is not set up for this.

 

So should this swan show up  ....  it's going to really ruin your day.

 

SD

Edited September 7, 2022 by SharperDingaan

[bizaro86]

8 hours ago, SharperDingaan said:

 

If this net new Russian supply turns out to be material, it's a problem for the West Coast. 

 

 

 

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.

[Spekulatius]

10 hours ago, bizaro86 said:

 

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.

Russia selling LNG to Canada is like selling ice to eskimos. It makes absolutely no sense whatsoever.

[mcliu]

Fyi, since most ppl aren't aware of this, in Canada we don't use the term eskimo, since it's kinda racist.

https://globalnews.ca/news/2366689/expert-says-meat-eater-name-eskimo-an-offensive-term-placed-on-inuit/

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

 

Eskimo (/ˈɛskɪmoʊ/) is an exonym used to refer to two closely related Indigenous peoples: the Inuit (including the Native Alaskan Iñupiat, the Greenlandic Inuit, and the Canadian Inuit) and the Yupik (or Yuit) of eastern Siberia and Alaska. 

 

Many Inuit, Yupik, Aleut and other individuals consider the term Eskimo to be unacceptable and even pejorative.

 

The governments in Canada^[4][5][6] and the United States^[7][8] have made moves to cease using the term Eskimo in official documents, but it has not been eliminated, as the word is in some places written into tribal, and therefore national, legal terminology.^[9] Canada officially uses the term Inuit to describe the indigenous Canadian people who are living in the country's northern sectors and are not First Nations or Métis.^{[4][5][10][11]} The United States government legally uses Alaska Native^[8] for Native Alaskans including the Yupik, Inuit, and Aleut, but also for non-Eskimo Native Alaskans including the Tlingit, the Haida, the Eyak, and the Tsimshian, in addition to at least nine separate northern Athabaskan/Denepeoples.

[Spekulatius]

@mcliu thanks for pointing it out. Didn't know that "Eskimo" has become a loaded term.

[Dalal.Holdings]

1 minute ago, Dalal.Holdings said:

https://www.ft.com/content/2f9f544b-4c77-4735-b7c6-7eadf51d9c17

 

EIA forecasts are generally useless, but I do think growing LNG draw on U.S. gas will be supportive for U.S. nat gas prices. The gap between Europe & U.S. prices incentivizes shipping the stuff. And...

 

 

At the end of the day, Biden admin may whine about this, but their position on Ukraine and their lack of incentivizing domestic Oil & Gas production will likely lead to rising gas (heating, power) costs for Americans this winter and perhaps beyond...Governors in New England are now whining for their own LNG imports...the Game Theory in action...these are states that have long blocked Nat Gas pipelines to their states which makes it even more amusing.

 

 

Amusingly, the Sierra Club wants to stop LNG exports...I guess they are okay with Europeans freezing in winter? Or maybe they want to appease Putin ? Doubt the latter because I'm sure most have pro-Ukraine flags on their social media profiles.

 

This is all in many ways an environment created by this administration and inept EU leaders who didn't secure their energy supplies. And I'm not sure it gets resolved anytime soon...

 

 

 

 

[scorpioncapital]

8 hours ago, Spekulatius said:

@mcliu thanks for pointing it out. Didn't know that "Eskimo" has become a loaded term.

 

It's like Gypsy in Europe...

[Dalal.Holdings]

On 9/7/2022 at 9:33 AM, Spekulatius said:

LNG is up everywhere, because European buyers are crowding out others by bidden more. LNG is a worldwide market, just like oil  (with more infrastructure constraints). it's going to be tight for years and probably a better area to invest in than oil. Shell is the biggest integrated player on a world wide scale.

I wonder how this will work in New England which imports LNG because they've resisted pipeline development.

 

I mean once LNG is loaded on a ship, where would you want to sell it? Obviously to the highest bidder (in this case Europe). Does this mean that New England will have to pay something in the vicinity of Europeans to get nat gas?

 

That would be a massive premium to henry hub...

 

https://www.eia.gov/naturalgas/weekly/archivenew_ngwu/2022/01_20/

 

https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/natural-gas/072222-new-england-winter-natural-gas-prices-top-40-as-global-lng-market-tightens

 

Edited September 8, 2022 by Dalal.Holdings

[Dinar]

Don't forget how idiots in NY State (Democrats) would not allow transmission line of hydro generated electricity from Canada and as mentioned before no natural gas pipelines either.

[james22]

I am telling you people that the situation in #Europe is much worse than many understand. We are essentially on the brink of another banking crisis, a collapse of our industrial base and households, and thus on the brink of the collapse of our economies. Short thread.

 

We are also totally at the mercy of the authorities, and we have very little knowledge what they have planned. Will they be able to stop the onset of the banking crisis, yet again? I don’t know, but I am doubtful.

 

In any case the speed of deterioration is massive now, and it's only a matter of time, when markets catch up. I am betting that we still have few weeks (months at max.) before "mayhem" truly begins. Take precautionary measures.

 

Stock: 1. Cash. 2. Food. 3. Water. 4. Wood (if you have a stove). 5. Other necessities.

 

No harm will come from preparation, if somehow miraculously we can avoid the onset of an outright economic collapse. You just have more cash (no meaningful interest in banks), food, water and wood.

 

 

[Spekulatius]

And yet, Germany's gas storage is 87% full, ahead of schedule. Track the data, not the stories.

[mjm]

7 minutes ago, Spekulatius said:

And yet, Germany's gas storage is 87% full, ahead of schedule. Track the data, not the stories.

where do you track your data?

[Spekulatius]

Just now, mjm said:

where do you track your data?

https://www.bundesnetzagentur.de/EN/Areas/Energy/Companies/SecurityOfSupply/GasSupply/start.html#:~:text=Gas continues to be injected,remain at very high levels.

[Spekulatius]

Just now, Spekulatius said:

https://www.bundesnetzagentur.de/EN/Areas/Energy/Companies/SecurityOfSupply/GasSupply/start.html#:~:text=Gas continues to be injected,remain at very high levels.

 

Not sure it matters, but I came back from a visit in Europe (relatives and city travel). People are concerned, but not panicked. My brother things Germany can get one of the two LNG stations in Bremerhaven or Brunsbuettel going this winter, ahead of schedule. 

https://www.uniper.energy/news/construction-of-wilhelmshaven-lng-terminal-can-start-quickly

 

As for economic collapse, most industrial companies are in the process or have already switched fuel from NG to diesel for the time being. Biggest issue is with the chemical industry. BASF stated that they can keep going to about 50% reduction  in NG usage- beyond that they will have to curtail production as switching to crude is not possible if NG is used as an input for chemical processes for example.

 

If you put this together, the situation isn't pretty, but an economic collapse is very unlikely. 

[lnofeisone]

1 hour ago, Spekulatius said:

If you put this together, the situation isn't pretty, but an economic collapse is very unlikely. 

I currently share this opinion as well. I think Europe is ready for an average winter. I don't think they'll get to 100% of their storage capacity but it will be offset by decline in use by the industrial base. The part that will be most painful is going to the price shocks but far from economic collapse.

[nafregnum]

Economist's podcast -- Money Talks: Running on empty

https://overcast.fm/+JXrTojdeI

 

High electricity bills (4x, 5x or more!) can only get people to cut back usage so far, so the opinion expressed in the episode is that government intervention of some kind will be necessary to deal with this.  

 

Scottish Power president: "A price freeze and a price intervention is not an end solution.  The purpose of it is to help people directly, absolutely, but what you need to do is have a whole other series of measures for the medium to long term that resolve the issue...  Disaggregating the cost of gas and electricity, so that you get cheap renewable power through.  Price intervention is not an end solution, it's a short term mechanism to buy you time to fix the problem."

 

One conclusion quote from somebody: "The combination of having retail prices reflect the scarcity, and being very generous, particularly at the bottom of the income distribution with a cash handout, I think is the best solution."  

 

It does seem like the entirety of electricity generation should not be priced according to the highest marginal producer.  If 80% of Scottish electricity comes from renewables + nuclear, then there ought to be a way to reflect that in consumer bills, like charging the first 600 kWh used at the previous power rates.  4x or 5x higher energy bills might be a problem big enough that they'll need to think differently to solve this, because it seems like Putin is exploiting a built-in weakness in the way the electricity market is currently configured.

[nafregnum]

Title: "EU seeks windfall tax for electricity groups well below market rate"

 

https://www.ft.com/content/ab469e2d-8e87-44ee-855b-f46b5b2dd17e

 

"Wholesale electricity prices have rocketed because they are pegged to the price of gas, whether or not the power is produced from gas or other sources. Gas prices are roughly 10 times higher than they have been compared with averages over the past decade as a result of Russia’s supply cuts in response to western support for Ukraine."

 

What I found interesting is this:

 

They're talking about charging windfall tax on power sources like wind and solar since their "input costs" have not gone up like gas, yet it is being priced as if gas was one of their inputs.  When you consider that there were likely big government handouts to get those renewables projects up and running, I personally think this seems like a reasonable temporary tax on the electricity being generated by the non-gas non-coal power sources. 

 

Previously, I worried a windfall tax in the EU would punish my investments like Vermillion (VET) but the current discussion seems to be different over there than when "windfall tax" was thrown about in the US and Canada recently.  

[Dalal.Holdings]

19 hours ago, Spekulatius said:

And yet, Germany's gas storage is 87% full, ahead of schedule. Track the data, not the stories.

 

Even with full storage, Nordstream 1 being completely turned off will lead to depletion of Nat Gas and continued high pricing throughout the winter at least. And LNG will raise the premium they have to pay. 

 

https://www.reuters.com/business/energy/full-gas-storage-no-fix-europes-winter-energy-crunch-2022-08-31/

 

Right now, Germany and European industry is being asked to cut consumption as are households (which meanwhile are facing enormous energy costs). We all know what that portends for the economy. Fertilizer production is another major red flag, particularly in light of Ukraine-Russia war hampering grain exports from those countries.

 

I'm not sure about economic collapse/depression, but Europe does not look enticing to me. At all. Europeans have a long history of shrugging in the face of impending doom, so I'm not sure I'd put too much weight on current sentiment.

 

And EU leadership? I wouldn't put any weight on that at all.

 

 

[Spekulatius]

NG is priced around 200 Euro/ MWH. Euro and USD are basically on par, so forget about this. So to convert this in mcf is about 200/3.4~$59/ mcf. That’s almost 8x the price in the US (~$8).

 

I take a lot of this is priced in and will revert. The question is when. Russian gas is 43% of the total that needs to be replaced. Roughly 20% can come from savings and conversion to diesel fairly easily. The industry is in the process of doing this. Beyond that, it’s gets more difficult, especially heating for households. There is no quick fix there, the thermostats are going to get dialed down this month.

 

If one of the LNG stations are coming online in Germany, that’s another 7.5% of the total. I think one can come only possibly as early than December , so that would really help, the next one is early next year. A total of 5 are being build and would be enough to replace the Russian gas.

 

Now there are the issues of securing supplies etc, but there is a path to get there, Winter will be tough but after that, I think the NG prices in Europe will closer hug the worldwide NGL spot prices and that’s way less than the 200 Euro that it’s going for right now.

 

I make a prediction now that European spot prices for NG are going to collapse most likely during winter 2022 and possibly as early than December 2022. Wildcard is the winter weather.

 

Remember the idiots who were calling for $300 crude/brl?  It’s now at $85, same  than right before the invasion.

Edited September 18, 2022 by Spekulatius

[Dalal.Holdings]

I agree that European prices are too high to be sustained in the long term; however I also think <$4 per mcf henry hub price of the last decade was way too low, so I'm betting more on U.S. nat gas producers than anything ($AR, for instance).

 

The issue is that pipeline gas (Nord Stream) will always be cheaper than LNG which requires extremely expensive infrastructure and processes (cooling something to negative 160 celsius and storing it there and transporting it across the world will never be cheap like a pipeline). Not to mention if LNG supply is low relative to demand (due to lack of adequate LNG export terminals around the world), it will further increase the price.

 

The other issue is that nat gas is no longer mainly used for heating, but also widely used for power generation year round thanks to the conversion of coal plants. So I think the long term picture for nat gas is highly supportive and it is unlikely we see the U.S. nat gas prices of the last decade (barring deep recession/depression).

[SharperDingaan]

There is a lot of merit to simply parking money in USD treasuries, then using it to buy something in Europe during the depths of winter. Pounds and Euros are progressively devaluing against the ongoing US interest rate hikes, and waiting gives the various European energy issues time to blow up. If you can get 5% more for your USD, and can buy at 15% less - that's quite a bit of additional margin of safety. And all for free 

 

SD