Energy Sector

[SharperDingaan]

US shale production is a function of price, current break-even is around USD 65/bbl. While most would expect Trump to allow fracking, cut regulation/royalty costs on new drilling, and that new drilling to be primarily 'manufacturing' by the majors; it's mostly a wash net of ongoing depletion. All else equal, similar ongoing production, but at a steadily lowering break-even. Not bad.

 

Near/medium term growth largely depends on a new and reliable supply of heavy oil for blending, and Trump allowing the industry to 'flare' surplus gas without penalty. The obvious solutions are 1) Trump reopening the CAD/US Keystone pipeline project, building the remaining relatively short connection piece, and importing tariff free CDN heavy 2) importing tariff free Mexican heavy, and 3) importing sanctioned heavy. Expect a lot of 'real politic'.

 

The 1st mystery is tariffs; if they apply to oil imports, oil for domestic consumption will sell for more, raising domestic production. The 2nd mystery is Russia; Russia/Ukraine war ends, sanctions removed and importation of heavy Russian crude begun, new drilling with western technology permitted. Sanctions on Iranian exports tightened, Iranian production/facilities sabotaged, everyone else takes up their lost production. Price averages out at about the same, even if Iran attacks the facilities of others.

 

Lot of favours need to be repaid; but over the near term, US shale isn't likely to change much.

 

SD

            

 

 

Edited Monday at 05:44 PM by SharperDingaan