Energy Sector

[Ulti]

https://www.cnbc.com/2023/04/13/bundesbanks-nagel-energy-crisis-is-solved-german-economy-is-safe.html
 

fameous last words?

[Sweet]

I think Europeans are probably ok on natty gas front.  They are going into another winter with very high storage, so probably OK until next year.  By then they may have additional storage built, LNG terminals etc.

[Spekulatius]

4 minutes ago, Sweet said:

I think Europeans are probably ok on natty gas front.  They are going into another winter with very high storage, so probably OK until next year.  By then they may have additional storage built, LNG terminals etc.

The acute phase of the energy crisis is over, but there still is a chronic phase.

The biggest issue I am seeing is with the French nuclear generation fleet - it has been operating at only 50% of capacity at time, straining the European power grid. The French nuclear generation fleet is aging and needs lots of preventive maintenance in the short term and replacement investment in the long term to keep it going. France also underinvested in wind energy, they could do more on that end.

[james22]

2 hours ago, Spekulatius said:

underinvested in wind energy

 

Unpossible.

[Blake Hampton]

@Spekulatius Would love to hear your thoughts regarding natural gas

[TwoCitiesCapital]

23 hours ago, Saluki said:

Just zooming out and thinking about energy from a econ and game theory perspective: 

 

SUPPLY

SPR is depleted and must be refilled.

OPEC announces production cut

Russia supply impaired b/c of sanctions.

Oil companies don't seem eager to ramp up supply, preferring to pay down debt and increase buybacks and dividends.

New production takes years to bring online

Windfall taxes discourage reinvestment in new production

 

DEMAND

Despite the push for clean energy, every airplane, ship and almost every car on the road use fossil fuel.  So most demand is inelastic. 

Marginal consumer of inelastic demand determines the marginal (market clearing) price. 

 

PRICE SIGNALS

• Oil Prices climbing and the market clearing price will always be where supply and demand intersect. 
• In order for the price to come down, there will have to be more supply, but see above.
• The other way oil prices come down is if demand comes down.  The green alternatives won't impact that in the short term, so the way oil prices come down is by less demand due to some dramatic increase in fuel efficiency or demand destruction due to a recession.
• the government is unlikely to willingly cause a recession when there is an election next year, so they will likely loosen up monetary policy if high energy prices increase the odds of a recession.
  • money printing causes inflation which causes commodity prices, including oil, to rise.
  • assets purchased by borrowings and investments  in yesterday's dollars are being sold in higher (nominal) dollars which gives you a big boost in ROIC until you must replace depleted assets with new reserves. 

I'm no mathemagician, but if I had to bet on higher oil prices a year from now or lower oil prices a year from now, I would take the former. 

 

Just to consider some risks: 

 

1) the US may NOT refill the SPR. Plenty of analysts think that with our newfound domestic production that it doesn't need to be anywhere near the size that it was. Also, the Biden administration has seemingly hesitated on refilling it despite the positive arbitrage opportunity that existed that would've netted tax payers a gain

 

2) I don't follow Russian supply super closely, but my guess is that most of that curtailment is over and that the oil has found new supply chains to flow to India and China. So no real net reduction in supply at this time, though that was the initial impact. 

 

3) the global economy is slowing and many signs suggest a recession which may curtail demand in the short term

 

I'm bullish on oil intermediate and long term, but I do think there is the possibility for near term disappointment if some of the above plays out. Will add to my exposure if that's the case as this is the most obvious trade to me over the next 5-years. 

Edited April 13, 2023 by TwoCitiesCapital

[Ulti]

Interesting view from G-7 on Natty Gas ( from Javier Blas… Bloomberg)

[TwoCitiesCapital]

On 4/13/2023 at 1:28 PM, TwoCitiesCapital said:

 

Just to consider some risks: 

 

 

 

2) I don't follow Russian supply super closely, but my guess is that most of that curtailment is over and that the oil has found new supply chains to flow to India and China. So no real net reduction in supply at this time, though that was the initial impact. 

 

 

There was an interesting piece in the WSJ discussing how Arab nations like UAE and Saudi Arabia have been buying quite a bit of Russian oil to refine it themselves and capture the spread from the required discount from sanctions. 

 

An interesting outcome and just another avenue that keeps Russian supply available in the market. 

 

Still believe we ultimately have a shortage, but probably not from Russia coming off market 

[fareastwarriors]

Rising costs and competition threaten US boom in LNG projects

 

Multibillion-dollar natural gas projects on the Gulf Coast face delays as Ukraine war raises demand for fuel exports

[RadMan24]

7 hours ago, fareastwarriors said:

Rising costs and competition threaten US boom in LNG projects

 

Multibillion-dollar natural gas projects on the Gulf Coast face delays as Ukraine war raises demand for fuel exports

Shouldn't be a huge surprise - these things are massive and almost always delayed. Even the Gorgon LNG project was massively overbudget but is finally paying off big time. Enterprise and NVGS are expanding on their ethylene plant; LPG is also critical but that infrastructure is already in place. 

[Ulti]

5 hours ago, RadMan24 said:

13 hours ago, fareastwarriors said:

 

Shouldn't be a huge surprise - these things are massive and almost always delayed. Even the Gorgon LNG project was massively overbudget

Sounds similar to Plant Vogtle in Georgia that just opened.  

[RadMan24]

10 hours ago, Ulti said:

Sounds similar to Plant Vogtle in Georgia that just opened.  

Well, former engineering and construction company CB&I (of which is still around under McDermott which went bankrupt after buying CB&I) did work on LNG and Nuclear Plants during its hey-day. The Nuclear Plants of course went into overdrive on delays and costs. The bigger the LNG plants, or less experienced the E&C firm is, I'd be careful on expectations. LNG and ethylene terminals just don't seem to have as much delays or expensive overruns, partly because of size, as each of their own unique complexities and hazmat requirements. 

[Viking]

Interesting tug of war going on in oil markets. Fundamentals (supply and demand) vs financial markets (futures activity - net speculative demand is down substantially and short interest is up substantially). The winner? By July/Aug we should know. I am betting the fundamental side wins out… yesterday i was happy to add to SU the last 2 days close to C$40.

- “hated bull market” - music to my ears.

- Josh thinks we might see an economic slow down in 2H and much higher oil prices. 

 

 

 

Edited April 27, 2023 by Viking

[Spekulatius]

Corporate America in one single picture….

https://finance.yahoo.com/news/exxon-delivers-record-first-quarter-103247314.html

Edited April 28, 2023 by Spekulatius

[fareastwarriors]

17 hours ago, Spekulatius said:

Corporate America in one single picture….

https://finance.yahoo.com/news/exxon-delivers-record-first-quarter-103247314.html

 

Looks like some deferred maintenance.

 

[50centdollars]

Oops

 

https://climate.nasa.gov/news/728/texas-wind-farm-affects-land-temperature/

[sholland]

I don’t live in Canada, but my understanding is that tax pools are transferable in a takeover/buyout.  My understanding must be wrong because Prairie Provident an enterprise value of ~$140M and $861M of tax pools ($560M of which are immediately deductible).  Why isn’t PPR being bought out?

[bizaro86]

16 hours ago, sholland said:

I don’t live in Canada, but my understanding is that tax pools are transferable in a takeover/buyout.  My understanding must be wrong because Prairie Provident an enterprise value of ~$140M and $861M of tax pools ($560M of which are immediately deductible).  Why isn’t PPR being bought out?

 

I'm an engineer not an accountant, but I have done O&G acquisitions as part of a team at a taxable producer. My understanding is that after an acquisition the tax pools can only be applied to the assets that the company got as part of the acquisition. So if someone like Suncor or Imperial bought PPR they could only use those tax pools on PPR's assets. But definitely not an accountant...

Edited May 4, 2023 by bizaro86

[Castanza]

Gear Energy talked about tax pools in their recent monthly report. 
 

https://gearenergy.com/updates/

[Stuart D]

Anyone looking at the Beetaloo basin in the Northern Territory, Australia? Just approved for fracking and the gas reserve estimates are very, very large.

 

I’m reading 500T cubic feet vs the Permian’s 300T. Seems too big to be true.

[SharperDingaan]

On 5/3/2023 at 6:19 PM, sholland said:

I don’t live in Canada, but my understanding is that tax pools are transferable in a takeover/buyout.  My understanding must be wrong because Prairie Provident an enterprise value of ~$140M and $861M of tax pools ($560M of which are immediately deductible).  Why isn’t PPR being bought out?

 

PPR is failing, has uneconomic production spread all over, and is trying to do 20%+ dilution at 9 cents - when the shares routinely trade for less than this. As/when PPR sells chunks of their production; the related tax pools will go with the asset sale,  and the desired production will very likely be available for a lot less per flowing bbl. 

 

SD

Edited May 5, 2023 by SharperDingaan

[Pelagic]

This is a fun read. I got a bit of Theranos vibes from it since it seems like at no point did anyone stop and actually do the math on how much energy the square footage of solar panels on each trailer could actually generate. To say nothing of all the production and financial shenanigans.

 

https://www.theatlantic.com/magazine/archive/2023/06/dc-solar-power-ponzi-scheme-scandal/673782/?utm_source=twitter&utm_medium=social&utm_campaign=share 

[james22]

Is nuclear fusion going to arrive way sooner than expected?

Microsoft thinks it might be a 2020s thing.

 

https://fasterplease.substack.com/p/is-nuclear-fusion-going-to-arrive?utm_source=post-email-title&publication_id=232077&post_id=120547483&isFreemail=false&utm_medium=email

[rkbabang]

11 minutes ago, james22 said:

Is nuclear fusion going to arrive way sooner than expected?

Microsoft thinks it might be a 2020s thing.

 

https://fasterplease.substack.com/p/is-nuclear-fusion-going-to-arrive?utm_source=post-email-title&publication_id=232077&post_id=120547483&isFreemail=false&utm_medium=email

 

 

I saw this on twitter yesterday.  I'm skeptical.  The way I look at it is that microsoft loses nothing by saying if you generate electricity with your fusion plant we will buy it.

 

https://twitter.com/Helion_Energy/status/1656283665398403072?s=20

[Spekulatius]

50 minutes ago, rkbabang said:

 

 

I saw this on twitter yesterday.  I'm skeptical.  The way I look at it is that microsoft loses nothing by saying if you generate electricity with your fusion plant we will buy it.

 

https://twitter.com/Helion_Energy/status/1656283665398403072?s=20

Maybe 20 years from now. I think the technical hurdles to commercialization are formidable. Just the fact that it’s possible does not mean it will get done.
Also, keep in mind that nuclear fusion is also going to cause a lot of radiation and some radioactivity which will probably lead to environmentalist having concerns.