Energy Sector

[Spekulatius]

12 minutes ago, SharperDingaan said:

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

It’s not for “free” if you end up missing the opportunity. The winter may already be there, as far as market sentiment is concerned although I think things in real estate take longer to play out. If I were interested, I would certainly start looking. Buy something  that uses diesel/Heizöl or something that can be converted at least. Put a solar roof on this thing and you are protected from rising power prices somewhat.

[Dalal.Holdings]

I'm not sure if I see a blowup or just endless Euro printing to "cap" energy prices.

 

Meanwhile they'll find ways to tax "windfalls" of energy companies. Europe is a bad place for business owners (most especially energy sector) in many ways.

 

None of these moves really matter if you invest in U.S. energy as Europeans will have to pay up (in U.S. Dollars) to import their energy--they'll be forced to do it--even with devalued Euros and Pounds.

 

Europeans have underinvested in their energy and defense for a long time (outsourcing former to Russia and latter to USA) and unfortunately will bear some consequences now. I think this is one area where Trump gets credit.

[SharperDingaan]

35 minutes ago, Spekulatius said:

It’s not for “free” if you end up missing the opportunity. The winter may already be there, as far as market sentiment is concerned although I think things in real estate take longer to play out. If I were interested, I would certainly start looking. Buy something  that uses diesel/Heizöl or something that can be converted at least. Put a solar roof on this thing and you are protected from rising power prices somewhat.

 

It comes down to whether you think you make more being long Euro XYZ Energy Company for 4 months, or by being short on it (delaying your purchase) and getting paid to wait. On the short side, all that is really required is something in Euro land blowing up, that makes press headlines. Even the best jugglers can only keep so many balls in the air, and the more jugglers there are (every country in Europe), the greater the probability that at least one of them makes a mistake.

 

On the long side you have to guess right, get the timing right, always have the liquidity to rapidly exit, AND have management not screw it up. All within a business environment that is very volatile. 

 

Which one of these two approaches has both the lowest risk, AND the highest return/unit risk?

Depends upon the eye of the beholder.

 

SD

[james22]

Thomas Friedman!

 

The most important factor for quickly expanding our exploitation of oil, gas, solar, wind, geothermal, hydro or nuclear energy is giving the companies that pursue them (and the banks that fund them) the regulatory certainty that if they invest billions, the government will help them to quickly build the transmission lines and pipelines to get their energy to market.

 

Greens love solar panels but hate transmission lines. Good luck saving the planet with that approach.

 

https://www.nytimes.com/2022/09/13/opinion/putin-ukraine-winter.html

[Spekulatius]

6 minutes ago, james22 said:

Thomas Friedman!

 

The most important factor for quickly expanding our exploitation of oil, gas, solar, wind, geothermal, hydro or nuclear energy is giving the companies that pursue them (and the banks that fund them) the regulatory certainty that if they invest billions, the government will help them to quickly build the transmission lines and pipelines to get their energy to market.

 

Greens love solar panels but hate transmission lines. Good luck saving the planet with that approach.

 

https://www.nytimes.com/2022/09/13/opinion/putin-ukraine-winter.html

Sources? I have not seen all that much hate against transmission lines, except the regular NIMBY syndrome.

[james22]

It's also the case that acting to extract now (while still valuable) would demonstrate a belief that the future lies in alternative energy.

 

[Dinar]

2 hours ago, Spekulatius said:

Sources? I have not seen all that much hate against transmission lines, except the regular NIMBY syndrome.

Spek, I remember that for at least a decade or two there were attempts to bring hydroelectric energy from Canada to NY and the attempts were stopped by politicians or activist groups.

[james22]

“We haven’t built a major transmission line in this country in many years,” Robb told CNBC. “And it’s not because there aren’t good projects identified. It’s not because there aren’t investors ready to fund it, it is really because local siting boards don’t, and people don’t want them running through their backyard.”

 

https://www.cnbc.com/2022/06/26/why-the-us-has-a-massive-power-line-problem.html

[Spekulatius]

31 minutes ago, Dinar said:

Spek, I remember that for at least a decade or two there were attempts to bring hydroelectric energy from Canada to NY and the attempts were stopped by politicians or activist groups.

I suspect it’s that one:

https://www.thecity.nyc/2022/4/14/23026076/state-approves-electricity-transmission-lines-power-climate-goals
 

This one seems to be backed by politicians but I think the issue remains that local groups because of simple NIMBY can slow down or kill projects like this. That’s less of an ideological issue rather than the simple fact that most people don’t like these huge lines nearby.

 

Not that it makes much difference. 

[Dalal.Holdings]

https://www.bloomberg.com/news/articles/2022-09-17/russia-s-rosneft-calls-seizure-of-its-german-unit-illegal?srnd=premium

 

Quote

Russian oil major Rosneft PJSC said this week’s seizure of its German unit was illegal and that it will consider all measures to protect ownership of the assets.

Germany’s government took control of Rosneft’s assets, including three oil refineries, as Berlin moved to take sweeping control of its energy industry to secure supplies and sever decades of deep dependence on Moscow. 

 

An obvious escalation in this energy conflict between EU and Russia. Who knows where it ends.

 

If there is any geopolitical lesson of the past few decades, it's that economic sanctions & wars are fat tailed and tend to go on a lot longer than most folks expect...

[Spekulatius]

23 hours ago, Dalal.Holdings said:

https://www.bloomberg.com/news/articles/2022-09-17/russia-s-rosneft-calls-seizure-of-its-german-unit-illegal?srnd=premium

 

 

An obvious escalation in this energy conflict between EU and Russia. Who knows where it ends.

 

If there is any geopolitical lesson of the past few decades, it's that economic sanctions & wars are fat tailed and tend to go on a lot longer than most folks expect...

Some of the  economic sanctions will remain in place for decades. As for the Rosneft seizure the assets are technically moved to a trust fund. The matter of seizure was considered a matter of National and energy security for Germany as those refineries had trouble to stay in business for a bunch of reasons with the Rosneft ownership.

 

I think the main lesson here instant investing across political fault lines is extremely risky and that applies directly to investing in China.

[Dalal.Holdings]

$BABA is a lesson in that which many folks continue to refuse to learn...

 

We are moving into a new geopolitical regime vastly different than that of the past few decades (post Soviet dissolution). I think a lot of folks will be surprised by how much of an impact it has on their investments.

[SharperDingaan]

Germany expropriated and nationalized the Rosneft assets.

 

So ... when one of the biggest economies in Europe feels that it has to do this; one has to expect that the other European economies are about to do something similar. If I own a key euro energy asset that isn't closely aligned with the state - I now have the very real  possibility of sudden 'temporary' partners; in anything energy shipping, energy loading/offloading facilities, pipelines, utilities, or consumer gas/electric distribution. I am not going to be making any money this winter from Europe's errors, if I am invested in European energy assets .....

 

SD

[lnofeisone]

I'm still trying to digest this move by Germany. For example, Schewdt is directly connected to Russian "Friendship" pipeline and configured for that oil. How is Germany expecting to operate these assets and get oil from Russia?

 

Separately, I think, European energy companies are now put on notice. Pull back in production and risk being nationalized. I think most will comply and produce at least what they are producing now and pay the solidarity tax.  

[Spekulatius]

4 hours ago, lnofeisone said:

I'm still trying to digest this move by Germany. For example, Schewdt is directly connected to Russian "Friendship" pipeline and configured for that oil. How is Germany expecting to operate these assets and get oil from Russia?

 

Separately, I think, European energy companies are now put on notice. Pull back in production and risk being nationalized. I think most will comply and produce at least what they are producing now and pay the solidarity tax.  

The refinery won’t get oil from Russia- it’s going to be reconfigured to use other oil and new infrastructure is going to build (pipelines ) to do so.

 

This is really not that difficult and I stated this a few times before - we and Europe are at war with Russia. We just haven’t declared war yet, but economically it is already a war. If you want know how this end, just look at how German assets did in the WW1 - All these companies with German sounding names like Bayer US, Schering etc ended up being US companies.

[lnofeisone]

16 minutes ago, Spekulatius said:

The refinery won’t get oil from Russia- it’s going to be reconfigured to use other oil and new infrastructure is going to build (pipelines ) to do so.

So this is what I'm really trying to understand. Will Germany and any other non-eastern European country allow for new infrastructure to be built to support this? Seems like the only new infra that's being built is the LNG terminals. They will also be taking down 12% of total capacity down for 6 months or so.

[Spekulatius]

21 minutes ago, lnofeisone said:

So this is what I'm really trying to understand. Will Germany and any other non-eastern European country allow for new infrastructure to be built to support this? Seems like the only new infra that's being built is the LNG terminals. They will also be taking down 12% of total capacity down for 6 months or so.

Yes, the refineries will be reconfigured. That also means building new pipelines. I don’t know the plans because I only read some bits in German news sources so far.

[lnofeisone]

2 hours ago, Spekulatius said:

Yes, the refineries will be reconfigured. That also means building new pipelines. I don’t know the plans because I only read some bits in German news sources so far.

If you do see anything, please post. Thanks in advance.

[UK]

https://www.bloomberg.com/news/articles/2022-09-16/germany-s-rosneft-seizure-kicks-off-test-of-oil-infrastructure

[Spekulatius]

It‘s interesting to note that NG prices in Europe have collapsed since they spiked due to Putin shutting down NG supplies at the end of August. They are still extremely high though. German NG Storage is now 89% full, following the plan, despite the pipeline closure.

 

Putin played his best card and it looks now that it was a huge mistake. The fear is often worse than the actual result.

[SharperDingaan]

Existing gas pipelines will be tied into the new LNG degasification terminals; with new valves installed in the pipe to prevent the gas going to Russia. Going forward it becomes an egress problem for Russian gas, but otherwise no other changes. The Russian gas now has to compete for euro egress at the tie-in points - if it is more expensive than the Qatari gas, it shuts in. Elegant.

 

As gas is a lot more 'forgiving', switching sources is much less of an issue. Different for oil refining, but at some point it will follow the same path as gas, and refiners will configure for both crude sources. 

 

Russia is stuck with just its LNG export terminals until there is new pipe to China. Given that under the current sanctions Russia can't finance its portion of the new pipe build without Chinese help, China controls the timing. Comes December 05, after ports close to Russian sea-borne access, were there to be an accident at those LNG terminals ...... 

 

All those non Chinese buyers of cheap Russian gas become very vulnerable. If the LNG carrier can't load, they have to go to the spot market; and if there ain't no gas .... welcome to higher prices. Traders market.

 

SD 

 

 

[Ulti]

[Gregmal]

NG was a big deal but what about wheat? Wasn't the entirety of the supply supposedly in Ukraine and Russia and a crisis on our hands as far as food went? There are definitely complexities specific to each of these things, but generally, stuff thats never really been all that hard to produce isnt going to all of a sudden become so by orders of magnitude, and then just stay there. You need a long term imbalance coming from something sustainable. 

[Sweet]

Wheat is really only a big problem for some Middle East and African countries which very often don’t have the land necessary to grow the stuff.  Not an issue for most of Europe and North America.  Surprising them that many of those countries aren’t more opposed to the invasion.

[Dalal.Holdings]

Add U.S. Rail Strikes as another potential positive for Nat Gas...

 

https://www.reuters.com/markets/us/us-natgas-jumps-4-rising-demand-renewed-rail-strike-worries-2022-09-21/

 

U.S. Storage levels are ~10% below 5 yr avg. While EU storage is slightly above their avg, not having gas flowing from Russian pipes this winter will lead to decline in storage and possible shortage.

 

Russia also escalating on Ukraine conflict today.

 

Nat gas is only not hard to produce in the USA. Seems like it's not so easy to produce in Europe and Asia (outside Russia) and yet Europe/Asia relies on it pretty significantly.

 

Fat tails all around.

Edited September 22, 2022 by Dalal.Holdings