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james22

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31 minutes ago, Ulti said:

Actually focusing on carbon reduction rather than a scorched earth esg policy is what we need… this applies to all parties 

https://finance.yahoo.com/m/b88a56de-adbc-3703-b65d-8744c29f5460/southwestern-energy-signs-key.html

it’s good for bus…. And companies seem to get it

The focus should be on making alternative energy more competitive/cheaper rather than making hydrocarbon based energy more expensive.

 

As for Germany, getting natural gas from the US rather than Russia seems to be a no-brainer move right now, but won't come cheap (LNG is more expensive than pipeline delivery). I think for both parties, LT contracts with fixed pricing or at least pricing brackets makes sense.

Germany is now restarting the coal wheezers for electricity generation and people are told that thermostats are going to be regulated down (in multifamily housing, heating is often included in rents) next winter. That's what failed energy policy looks like.

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1 hour ago, Spekulatius said:

The focus should be on making alternative energy more competitive/cheaper rather than making hydrocarbon based energy more expensive.

 

As for Germany, getting natural gas from the US rather than Russia seems to be a no-brainer move right now, but won't come cheap (LNG is more expensive than pipeline delivery). I think for both parties, LT contracts with fixed pricing or at least pricing brackets makes sense.

Germany is now restarting the coal wheezers for electricity generation and people are told that thermostats are going to be regulated down (in multifamily housing, heating is often included in rents) next winter. That's what failed energy policy looks like.

 

Regulated thermostat control would just incentivize things like space heaters, no? There's certainly an added risk (fire/CO) to alternative heating/cooling systems but they're also a lot less efficient than larger centralized units. Seems like a plan fraught with negative unintended consequences for very little real benefit. Comfort during temperature extremes isn't something people are willing to compromise on.

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Why doesn't anybody talk about re-processing spent nuclear fuel rods in the United States.  There is an enormous source of energy filling up spent fuel pools across the US that consume energy to keep them cool.  The excuse, I'm told, is around security concerns for the re-processing facilities.  Seems like a bad reason to me.

 

There seem to be a lot of people who are pro-nuclear now just because they're long uranium.  Lots of tourists who don't know anything about nuclear energy.  The Sprott uranium trust is a good example of mis-allocation of capital.  Paying money to store uranium with an unclear ability to sell it someday.

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21 hours ago, Spekulatius said:

Tobacco is much better business than oil because Capex is minimal and there is no risk that prices are going to fall by 50%. I understand that most people here are bullish on energy prices, but 50% + price drops for the commodity are well within the realm of possible.

 

I say this much - if prices fall to $90/ brl, there will be 25%+ losses in energy stocks in short order from current levels and higher with small cap/ micro cap.

Spek, I agree, but many large cap oil & gas stocks are already down 20-30% (BP, Shell, Oxy, CHK, GPOR) and many small caps are down 30%+.  EPSN - down 25%, gear energy - 33%, obsidian down 30%.

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1 hour ago, JRM said:

Why doesn't anybody talk about re-processing spent nuclear fuel rods in the United States.  There is an enormous source of energy filling up spent fuel pools across the US that consume energy to keep them cool.  The excuse, I'm told, is around security concerns for the re-processing facilities.  Seems like a bad reason to me.

 

There seem to be a lot of people who are pro-nuclear now just because they're long uranium.  Lots of tourists who don't know anything about nuclear energy.  The Sprott uranium trust is a good example of mis-allocation of capital.  Paying money to store uranium with an unclear ability to sell it someday.

Germany has these facilities too, but they probably have been idled too a long time ago. There is a lot of things that can be done, if we get serious about this. Germany should consider themselves  in an war with energy being the fulcrum commodity and act accordingly. It's going to happen but it takes time. The new leadership (Scholz) is already an incremental improvement over the past one (Merkel), even though he is member of the socialist party (SPD) versus the conservatives (CDU, Merkel).

I take a "socialist" with common sense over a "conservative" without any day. Maybe we are seeing the same thing in Brazil - Lula was governing quite well in his day compared to Bolsonaro, I think, despite the fact that he was booked for bribery later.

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Clearly fundamentals are still good with tight supply and demand destruction fears are probably overblown as there is a big appetite for travel and demand is to a large extent inelastic. And even at $100 oil energy companies mint money and trade at very low multiples.

 

Difficulties I am having is:

 

a) It is still a speculative market and energy is the most popular long trade at the moment so a lot of the demand is speculative and therefore the oil price may have got ahead of itself. and recession fears and any sign the Ukraine war is close to ending could bring prices down even more than we've seen to date

 

b) To some extent low multiples are justified because there is a lot of uncertainty about the future of the industry and with little new investment a lot of energy companies are basically in run off so even with generous dividends and so on a lot of it might just a be a return of capital 

 

Any thoughts on this?

 

 

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O/G industry will remain low multiples because it’s seen as dying industry.  Doesn’t matter if that’s not true, it’s just what the most people think and price reflects that.  It won’t have FANG multiples.

 

Predicting oil prices is difficult and it can swing a lot on no or little news.  I think higher for longer is the mantra for now and it will anchor around $100 with dips below and potentially large spikes higher at certain times.  I don’t see any sustained period of low oil prices like we had from 2014 anytime soon.

 

People think the oil era will end with extremely low oil prices.  I have the opposite view now, if everyone thinks the oil era is over, why invest to bring more oil to the market?

Edited by Sweet
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On 6/23/2022 at 9:40 AM, Ulti said:

https://podcasts.apple.com/us/podcast/a-concrete-plan-to-bring-the-price-of-oil-down-right-now/id1056200096?i=1000567389279

 

an excellent podcast on some short term solutions that the current admin can do

Yes, I second this. odd lots is a great podcast looking into macro issues.

One thing I want to point out is that some snarky responses to Biden's letter are not a smart move. Biden for example could easily slap an export ban on refinery products and reduce the current extraordinary refining  margins and lower prices at the pump. This was done before by prior administrations and these things often get resurrected. The US is still net exporter of refined products right now.

 

I am sort of surprised this has not been floated around, since it is a short term fix, albeit with pot. long term negative consequences, but in a time when you want to quickly show results who cares?

https://www.energyintel.com/00000180-1f98-d412-a3b2-9ffd68090000#:~:text=Exports of US refined petroleum,in the week ended Apr.

Edited by Spekulatius
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On 6/23/2022 at 7:19 AM, mattee2264 said:

Clearly fundamentals are still good with tight supply and demand destruction fears are probably overblown as there is a big appetite for travel and demand is to a large extent inelastic. And even at $100 oil energy companies mint money and trade at very low multiples.

 

Difficulties I am having is:

 

a) It is still a speculative market and energy is the most popular long trade at the moment so a lot of the demand is speculative and therefore the oil price may have got ahead of itself. and recession fears and any sign the Ukraine war is close to ending could bring prices down even more than we've seen to date

 

b) To some extent low multiples are justified because there is a lot of uncertainty about the future of the industry and with little new investment a lot of energy companies are basically in run off so even with generous dividends and so on a lot of it might just a be a return of capital 

 

Any thoughts on this?

 

 

 

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

 

 

Edited by SharperDingaan
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https://www.wsj.com/articles/the-rich-worlds-climate-hypocrisy-energy-fossil-fuel-wind-solar-panel-india-poverty-power-battery-storage-11655654331?mod=mhp

 

The developed world became wealthy through the pervasive use of fossil fuels, which still overwhelmingly power most of its economies. Solar and wind power aren’t reliable, simply because there are nights, clouds and still days. Improving battery storage won’t help much: There are enough batteries in the world today only to power global average electricity consumption for 75 seconds. Even though the supply is being scaled up rapidly, by 2030 the world’s batteries would still cover less than 11 minutes. Every German winter, when solar output is at its minimum, there is near-zero wind energy available for at least five days—or more than 7,000 minutes.

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A few things regarding Europe. The current German government claimed that extending the life of the current nuclear power plants is very difficult , but the TÜV (which is the technical audit institution in Germany) came out with a report saying otherwise. At least some of the Nuclear power plants could easily continue to operate. This report puts a whole lot more pressure on the current government to agree to an extension Imo, especially now with Russia throttling NG supplies already.

https://www.spiegel.de/wirtschaft/atomenergie-weiterbetrieb-von-isar-2-laut-tuev-gutachten-moeglich-a-6b41169f-557d-4adc-a2e6-07df79a71a9c

 

More LT and this isn’t  widely known, but Germany has likely lots of shale gas. The geology with lots of coal seams suggests so. Now fracking is banned in Germany but who knows. If things get really dire, I think some preexisting notions will change.

Wer see this already with the green Habeck agreeing to continue operate the coal plants. I think the chances that the nuclear plants in Germany will get an extension and probably others will get fired up again has tremendously increased.

Edited by Spekulatius
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Most of Germany's nuclear plants are GE BWR's, if I remember correctly.  Various vintages, but many share the same design as the reactors in Fukushima.  They are expensive to operate, and extremely expensive to de-commission since the plant secondary is exposed to radiation.  If they didn't already shut down it would make sense to keep them operating.  Not sure at this point.  Not as cut and dry as most people think.  

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2 hours ago, JRM said:

Most of Germany's nuclear plants are GE BWR's, if I remember correctly.  Various vintages, but many share the same design as the reactors in Fukushima.  They are expensive to operate, and extremely expensive to de-commission since the plant secondary is exposed to radiation.  If they didn't already shut down it would make sense to keep them operating.  Not sure at this point.  Not as cut and dry as most people think.  

This particular plant (ISAR 2) is still running, so no issue with secondary radiation. I trust a technical report from the TÜV more then hearsay of a politician.

 

I think a lot of preconceived notions in Europe are taking a bath when winter coming. 

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Keystone (Canada-US pipeline) is stranded largely because a re-approval would require massive damages payouts, which is not politically practical. The best alternative is a 'national interest' re-approval and completion of the pipeline on the government dime, and a sale/leaseback of the government interest to industry. Still very difficult.

 

The pipeline carries very high political risk, that risk will continue well after it is completed, and there is very real possibility that it will economically strand before it reaches end of life. Can't make the business case, and existing write-downs cannot be reversed until Keystone is actually completed and product has begun flowing (years away).

 

The more practical alternative is a build out of west-north-east gas pipelines that are entirely in Canada. Product/transportation/related employment a better fit for the times, globally strategic, more politically viable, and delivery from sea to sea to sea. US pipelines connecting to the trunk, where it makes sense. 

 

The Canadian energy future is bright for decades to come, but it gets there by stepping back from reliance on the US. The US has a great many disruptive issues to resolve (failed Jan 06 Coup d'état, Roe vs Wade reversal, etc.), that will take years to work through. In the meantime it is just pragmatic to avoid getting stepped on, by giving the elephant some distance.

 

SD   

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I like Bass but have never really been too impressed with his investment skills. He is definitely a unique mind. He’ll see the black swans that other people can’t. But he also sees too many of them that don’t exist and his investment strategy always seems to be inspired too much on those swans.
 

His critique on energy was spot on. The administration that a lot of people voted for is begging and doing favors for terrorists in exchange for oil but then screwing Americans and Canada with stuff like the Keystone nonsense.

 

I wasn’t paying attention the whole talk but he mentioned mild to moderate recession, but also 30-40% lower stock prices by Elections. Did I miss his reason why? Rate hikes we already know about balance sheet run off don’t equate to substantial and widespread profit declines that would warrant a revised market price. Or should the SPY simply trade at like a single digit multiple just cuz? If liquidity was the only thing that mattered to multiples we wouldn’t have private equity, angel investors, heck houses aren’t really that liquid either…so I guess I missed how he went from A to D there.

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To put that in perspective, the IWM would need to be around 105-120, from current 175 and a 52 week high of 244. Wouldn’t having something like this occur, require a wee bit more than 3-5% rates and a mild recession LOL?

 

I do currently have a couple remaining hedges on, which include September, October and November IWM puts around the 180-200 strikes, but IDK. Dude is either looking for attention or seeing something he ain’t talking about. 

Edited by Gregmal
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I do think a ban on refinery fuel exports would make a difference, if the government looks for a quick fix for the high prices at the gas pump, albeit it with long term consequences. The US is net exporter of refinery products even right now, with refinery capacity being tight. It has been this way since 2010. Looks like we are exporting ~2M brl net with about 18M brl/day in total capacitycapacity, so it’s substantial. I think it would have a substantial impact on the prices at the pump and quite a negative impact for refinery margins, which are sky high right now. I am surprised this has not been floated around, especially with the snarky responses from the industry to Bidens letter. More effective than the gas tax holiday for sure.

https://www.reuters.com/business/energy/us-refiners-urge-white-house-not-ban-fuel-exports-sources-2022-06-22/

 

6782C02A-A839-4BEC-BD30-7F8617ADBAF3.jpeg

Edited by Spekulatius
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