Energy Sector

[Spekulatius]

This sounds good. If indeed LNG starts to flow from the floating terminals in a few weeks from now, then I think it will go a long way to alleviate issues in winter:

 

Edited October 21, 2022 by Spekulatius

[Dalal.Holdings]

18 hours ago, Spekulatius said:

This sounds good. If indeed LNG starts to flow from the floating terminals in a few weeks from now, then I think it will go a long way to alleviate issues in winter:

 

 

Amazing how all Europe needs is a crisis that directly impacts its core (France & Germany) to suddenly cut through layers of bureaucracy and regulation.

[Spekulatius]

6 hours ago, Dalal.Holdings said:

 

Amazing how all Europe needs is a crisis that directly impacts its core (France & Germany) to suddenly cut through layers of bureaucracy and regulation.

Yes, indeed. I am happy to see this as well.

People say I lot about the stupidity of the Europeans here, but the same negligence is going on here in NE with respect to obstructing NG pipeline builds. It is literally possible that NG need to be rationed here in a really cold winter and with a bit bad luck while having basically the Saudi Arabia of NG right around the corner just 200 miles from here (Marcellus field).

 

I guess nobody believes it until it actually happens.

[Kupotea]

Just doing some back of the envelope math it looks like US oil+distillate+gasoline have been drawing by about 5 million barrels a week on average in 2022. You have maybe 200 million barrels of oil readily available between commercial reserves and the SPR before you run into issues and need congress to tap the remaining SPR. So that's about 10 months to get supply more in line with demand.

 

Global spare capacity is essentially tapped out as OPEC hit its ceiling back in July despite falling well short of their quota. It's also not just a question of capex with the oil producers as there literally aren't enough working oil rigs and fracs to meaningfully grow production if you wanted to. You need at least a 6 month lag to go out and build more fracs, etc. but with a recession looming over everyone's heads and ESG concerns will that actually happen?

 

I think the market is seriously underestimating these issues. Either the global economy gets whacked sometime soon and demand falls enough to meet supply or, if all these fears are overblown you just walk right into an energy crisis by next summer.

Edited October 25, 2022 by Kupotea

[Sweet]

Kup, I’m not sure I agree that the oil market is in as deep trouble as feared.  
 

I agree there probably is a deficit globally, but US demand is not mirrored everywhere, and in fact its strength is offset by reduced demand elsewhere.  Even in the US demand looks weak, though almost certainly not as weak as the EIA numbers imply (which have just been wrong recently).

Woodmackenzie are predicting that demand will have dropped by over a million barrels a day yoy in the coming quarter, largely as a result of China.  I’m not saying they are right, I just don’t know.

 

OPEC do in fact have sustainable spare capacity, it’s not much, but it exists.  It’s probably lower than they claim, but I’d say it’s at least 1 million barrels a day of sustainable capacity.

 

The biggest problem in the market is a lack of US refinery capacity.  Crack spreads for diesel are nearing $60, not sure where they are for other products.  That’s keeping lid on crude prices because it’s hurting demand.

 

On China, I have a feeling that there may be something bad lurking there economically, and the covid policy is not sole cause of the poor demand figures.  Wouldn’t surprise me if headline ‘zero covid’ policy is being used by the CCP as cover for really bad economic data.

 

 

 

Edited October 26, 2022 by Sweet

[UK]

https://www.wsj.com/articles/bullish-energy-stocks-esg-strive-asset-inflation-oil-gas-drilling-opec-technology-interest-rates-risk-underinvestment-warren-buffett-11666611839?mod=hp_opin_pos_6

 

 

[Sweet]

^ Paywalled for me (yes I’m cheap)

[james22]

Here’s a stat for you, as of January of this year.

 

At the end of last year, overall, fossil fuels represented 81 percent of overall energy consumption. Ten years ago, they were at 82.

 

So though, all of that investment in renewables, you’re talking about 3.8 trillion, let me repeat that $3.8 trillion of investment in renewables moved fossil fuel consumption from 82 to 81 percent, of the overall energy consumption.

 

But you know, given the recent events and what’s happened with the loss of gas and replacing it with coal, that number is likely above 82.

 

The net of it is clearly we haven’t made any progress.

 

https://wattsupwiththat.com/2022/10/25/goldman-sachs-jeff-currie-3-8-trillion-of-investment-in-renewables-moved-fossil-fuels-from-82-to-81-of-overall-energy-consumption-in-10-years/

[KPO]

10 hours ago, UK said:

https://www.wsj.com/articles/bullish-energy-stocks-esg-strive-asset-inflation-oil-gas-drilling-opec-technology-interest-rates-risk-underinvestment-warren-buffett-11666611839?mod=hp_opin_pos_6

 

 

Great article that pretty succinctly captures my view of ESG’s impact on the energy sector. Thanks for posting.  Btw, did you notice that David Sokol was a co-author? 

[gfp]

I didn't realize David Sokol had recently co-authored a book as well - here's the link (I haven't read it yet obviously)

https://www.amazon.com/America-Perspective-Defending-American-Generation/dp/1637588135#customerReviews

[SharperDingaan]

You might want to lower your expectations around Winter 2023 crude oil and gas prices.

The BoC raised interest rates by only 50bp this morning, versus the widely expected 75bp. The clear inference is that Canadian cumulative demand is dropping off, which also means less demand for crude and gas. At roughly 10% of cumulative US activity, most would expect something similar in the US.

 

Texas NG prices are close to zero/negative in some places (Wawa) as there just isn't the egress capacity; can't sell if you can't get your product to market. US Diesel is also in short supply, and going into emergency protocol in some places, with the SPR down to 25 days of supply. Lot of local price 'drama', but the real solution to both these examples is lower demand.

https://oilprice.com/Latest-Energy-News/World-News/Texas-Natural-Gas-Prices-Sink-Close-To-Zero.html

https://oilprice.com/Latest-Energy-News/World-News/A-Diesel-Shortage-Is-Spreading-Across-The-US.html

 

Oil markets are adjusting to the upcoming Dec sanctions. Russia/Iran has bought its own tanker fleet, and now delivers directly to China/India; with the US/Europe buying much of the refined distillate. A improvement in Chinese demand primarily benefits the black market, not the unsanctioned market.

https://oilprice.com/Latest-Energy-News/World-News/Saudi-Aramco-Oil-Markets-Are-Adjusting-To-Sanctions-On-Russia.html

 

Point? There is still lots of volatility, and the potential for abrupt price changes, but the extremes are becoming increasingly less likely to occur. Not a bad thing.  

 

SD

Edited October 26, 2022 by SharperDingaan

[UK]

1 hour ago, KPO said:

Great article that pretty succinctly captures my view of ESG’s impact on the energy sector. Thanks for posting.  Btw, did you notice that David Sokol was a co-author? 

 

Yes, although I did not realized that until it was a reference to Berkshire:) 

[Kupotea]

22 hours ago, Sweet said:

Kup, I’m not sure I agree that the oil market is in as deep trouble as feared.  
 

I agree there probably is a deficit globally, but US demand is not mirrored everywhere, and in fact its strength is offset by reduced demand elsewhere.  Even in the US demand looks weak, though almost certainly not as weak as the EIA numbers imply (which have just been wrong recently).

Woodmackenzie are predicting that demand will have dropped by over a million barrels a day yoy in the coming quarter, largely as a result of China.  I’m not saying they are right, I just don’t know.

 

OPEC do in fact have sustainable spare capacity, it’s not much, but it exists.  It’s probably lower than they claim, but I’d say it’s at least 1 million barrels a day of sustainable capacity.

 

The biggest problem in the market is a lack of US refinery capacity.  Crack spreads for diesel are nearing $60, not sure where they are for other products.  That’s keeping lid on crude prices because it’s hurting demand.

 

On China, I have a feeling that there may be something bad lurking there economically, and the covid policy is not sole cause of the poor demand figures.  Wouldn’t surprise me if headline ‘zero covid’ policy is being used by the CCP as cover for really bad economic data.

 

 

 

I agree with you that demand is likely to fall into the new year. My point was more that the broader stock market can’t have it both ways. Either we get a recession bad enough to squash demand or if the FED pivots and we skate by then an energy crisis is waiting on the other side. Based on my own positioning i’m hoping we do get a dip in energy prices so I can load up before the inevitable reflation.

[Sweet]

44 minutes ago, Kupotea said:

I agree with you that demand is likely to fall into the new year. My point was more that the broader stock market can’t have it both ways. Either we get a recession bad enough to squash demand or if the FED pivots and we skate by then an energy crisis is waiting on the other side. Based on my own positioning i’m hoping we do get a dip in energy prices so I can load up before the inevitable reflation.

Yes, that makes sense.  I think we could see a squeeze on demand too.  

[UK]

Here we go again: https://www.wsj.com/articles/peak-fossil-fuel-demand-is-possible-in-a-few-years-iea-says-11666843203?mod=hp_lead_pos6

[dealraker]

Old dealraker here says simply that until too much capital is chasing energy the trend though non-linear is up for the stocks.  Got a long way to go.  Until the last few days the only investments I've made in 3 years has been energy (based simply on market cap to total market cap).  Now before you think I'm hailiing "I'm a genius!" I'll simply state that I have a whopping 5% of my net worth in energy.   Pathetic sort of.

 

But still...

 

I participated on a couple of Berkshire Hathaway board forums since the mid 1990's and I literally got kicked off the last one for simply stating that I thought Buffett was making the right move buying energy.  The board was controlled by those who were mandating Buffett buy Google and Meta.

 

Posts were removed, email regarding off-topic posts sent, and so forth.   Yep my topic of energy, a huge part of Berkshire, was off topic while Google and Meta were not.  Not out of the ordinary, but may seem out-there behavior with time.  

[UK]

22 hours ago, dealraker said:

Old dealraker here says simply that until too much capital is chasing energy the trend though non-linear is up for the stocks.  Got a long way to go.  Until the last few days the only investments I've made in 3 years has been energy (based simply on market cap to total market cap).  Now before you think I'm hailiing "I'm a genius!" I'll simply state that I have a whopping 5% of my net worth in energy.   Pathetic sort of.

 

But still...

 

I participated on a couple of Berkshire Hathaway board forums since the mid 1990's and I literally got kicked off the last one for simply stating that I thought Buffett was making the right move buying energy.  The board was controlled by those who were mandating Buffett buy Google and Meta.

 

Posts were removed, email regarding off-topic posts sent, and so forth.   Yep my topic of energy, a huge part of Berkshire, was off topic while Google and Meta were not.  Not out of the ordinary, but may seem out-there behavior with time.  

 

What is going on with this ESG crusade is extraordinary. From governments and banks to schools (I am almost afraid to say what I think to my child on related topics in order to stay politicaly correct:)) and investment forums. There are not enought good kindergardens in our coutry, yet we subsidise EVs from foreign manufacturers, which only rich can aford anyway:)

[UK]

https://www.investing.com/news/stock-market-news/exxon-tops-tech-giants-as-biggest-cash-producer-in-sp-500-2925629

[james22]

On 10/27/2022 at 8:08 AM, dealraker said:

I'll simply state that I have a whopping 5% of my net worth in energy.

 

Yeah, wish I'd have had a little more courage in my conviction.

[lnofeisone]

1 hour ago, james22 said:

 

Yeah, wish I'd have had a little more courage in my conviction.

Market climbs the wall of worry :). If it helps, I'm 25% of portfolio in energy which nets out to about 15% net worth.

[SharperDingaan]

For now, the majors are thumbing their noses at the US; earnings and cashflows are artificially high, because of both the war in the Ukraine, and the ongoing asset strip ahead of the movement into the EV world. Feels good, but very stupid, and very dangerous.

 

National oil supplies have a well trod history of nationalization; the most recent example being Germany's September 2022 expropriation of the Rosneft refineries. It would be very easy for the US to temporarily ban energy exports to Europe (where storage is already full), and 'force' all FCF > $X into new US/NA energy facilities (upgraded electrical grid, new refineries, local energy generation, etc.). Forced purchase of bonds in the new entities funding the build out, versus special dividends or buybacks of company shares.

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

https://www.euronews.com/my-europe/2022/09/16/germany-takes-control-of-3-russian-owned-oil-refineries

 

What do you think happens should the 'bastion of capitalism' do any one thing along these lines? Tankers are already lining up all along Europe's western coast, unable to offload 'cause of lack of on-shore storage. The share price drops like a brick, and the world finally sees the major energy companies participating in the ongoing widespread inflationary 'hurt'.

 

Yet, there is insistence on repeatedly twisting the lions tail .....................

It doesn't end well.

 

SD

 

 

 

Edited October 30, 2022 by SharperDingaan

[james22]

Top Dems Urge Biden To Nationalize Oil & Gas Industry

 

At a Houston conference last week, Jason Bordoff, Dean of Columbia University’s Climate School, called for the “nationalization” of oil and gas companies. “Government must take an active role in owning assets that will become stranded,” he said, “and plan to strand those assets.” By “strand” Bordoff meant “make financially worthless.”

 

Bordoff made the point at least twice during the confrerence. Bordoff’s call shocked many in the audience. “Jason is smart, well-informed, and well-connected to the Biden Administration,” said someone who was at the conference, “so these comments are scary.”

 

https://www.zerohedge.com/political/top-dems-urge-biden-nationalize-oil-gas-industry

Edited October 28, 2022 by james22

[lnofeisone]

I agree with you SD and think energy sector should play more of a ball however they are facing hostile and in many cases uneducated counterparts (I just can't get excited about Granholm and anything she says about energy).

 

I wouldn't consider nationalization of Rosneft refineries by Germany a trend. They are in trusteeship of Bundesnetsagentur. There is a reason why these refineries haven't been sold to Polish concerns (have to give it to Poland trying to move in and take a hyper-profitable asset on the cheap). Similarly, Shell said that they are experiencing no hardships associated with the take over.

 

Ireland came out and said that nationalizing O&G is a bad idea. I think WFT are a fair game. Overall my bet is we will trend the same way late 70s/80s occurred more than the path of nationalization that you would expect out of banana republics (e.g., Venezuela). 

 

[nafregnum]

54 minutes ago, james22 said:

Top Dems Urge Biden To Nationalize Oil & Gas Industry

 

At a Houston conference last week, Jason Bordoff, Dean of Columbia University’s Climate School, called for the “nationalization” of oil and gas companies. “Government must take an active role in owning assets that will become stranded,” he said, “and plan to strand those assets.” By “strand” Bordoff meant “make financially worthless.”

 

Bordoff made the point at least twice during the confrerence. Bordoff’s call shocked many in the audience. “Jason is smart, well-informed, and well-connected to the Biden Administration,” said someone who was at the conference, “so these comments are scary.”

 

https://www.zerohedge.com/political/top-dems-urge-biden-nationalize-oil-gas-industry

 

This scared the pants off me, so I went to twitter to see if anyone else said/heard this.  Bordoff offers clarification here, saying he's never called for nationalization of the companies.  I'm off to read the Economist article he refers to ...

 

 

[SharperDingaan]

In 1980, Trudeau (Pere), introduced the National Energy Policy (NEP) to Canada. Perhaps the most hated piece of energy legislation ever produced in Canada - largely because the oil majors of the time never believed that it could happen to them. It produced 'PetroCanada', headquartered at 'Red Square' in downtown Calgary, and ostracism of the 'comrades' who occupied it. It was put up or shut up, the fields were in Canada, and if you didn't like it - you were free to sell up and leave! https://en.wikipedia.org/wiki/National_Energy_Program

 

The NEP's goals were "security of supply and ultimate independence from the world oil market; opportunity for all Canadians to participate in the energy industry; particularly oil and gas, and to share in the benefits of its expansion; and fairness, with a pricing and revenue-sharing regime which recognizes the needs and rights of all Canadians." It's not much of a step to modify the precedent to meet todays requirements.

 

The federal politicians of the time were master bastards, and exceptionally good at what they did, as was the provincial premier; and the fights were legend. But ultimately the energy level just couldn't be sustained, and all sides eventually learned to live with it - even those with bad grace. 

 

Times change.

 

SD