The FT’s Ed Crooks reported this week that fears over the long-term health of America’s shale industry could be put to rest thanks to news that independent oil and gas companies have now substantially improved their financial positions.
From the story:
Cash earned from operations by 25 leading North American exploration and production companies is expected in aggregate to exceed their capital spending next year for the first time since 2008, according to an analysis by Factset for the Financial Times.
As Crooks recounts, the longstanding fear was that the industry was shaping up to be a Ponzi scheme, relying on nothing more than excitement over shale to continuously attract new investment, with every likelihood that things would cave in on themselves once the financing for more drilling ran out.
Thanks to a shift to more profitable oil extraction over less profitable gas, however, it now looks like shale companies’ finances have improved enough to make the business sustainable. Read more
The $44bn self-acquisition of Kinder Morgan has been heralded by some as a great deal for shareholders.
But is it? Is it really? At least for the ordinary investors?
We’ve already wondered about the motivation for the deal.
Among our initial thoughts: Kinder Morgan MLP units trading under the KMP ticker had got expensive due to the heavy promotion of MLP structures as a safe-ish and yieldy investment at a time of low interest rates.
But we now think there may be more to it than that. Read more
Want to know why Modi is so focused on energy reform?
From Goldman’s Tushar Poddar and team: Read more
The extreme cold weather in the US is taking its toll on a whole host of energy products.
Most affected so far has been propane, which it turns out was understocked going into the season already:
As JBC Energy noted on Wednesday:
Moving to the light end of the barrel, US energy markets have experienced some unusual developments in recent weeks with severely cold weather leading to massive price fluctuations in propane, natural gas and ethane prices. Since the start of the cold weather in late December, overall propane stocks have declined by 10.6 million barrels to their lowest since June 2011, with a significant portion of these draws coming from the Midwest and as the Gulf Coast redirected flows northwards to supply weather affected areas.
Okay, a bunch of anecdotal data points and stories bundled together doesn’t necessarily make a trend, but…. lacking the power of Lisa Pollack-level data-analytics, that’s not going to stop us from trying to suggest as much now.
So, having already noted BP’s observation that energy is decoupling from economic growth, we present some more datapoints to build the case that something relatively remarkable is beginning to happen to energy consumption. Read more
According to BP’s Energy Outlook, which was released this week, global energy demand will continue to grow until 2013, but that growth is set to slow, driven by emerging economies — mainly China and India.
To wit, the following chart from the presentation booklet:
Home of oil sands, maple syrup, ice hockey, singing astronauts, William Shatner, the Bank of England’s governor-to-be and (rather poignantly) a lot of bears… Read more
If you submit to theoretical physicist Geoffrey West’s urban development theories, then you’ve probably aware of the idea that humanity is set to face a critical crunch point soon enough (if not already). And by crunch point, we mean — either humanity throws everything it’s got at speeding up technology to ensure its resource consumption-to-population footprint becomes manageable, or we wither away.
(The Roman Empire, by the way, is perhaps the best example of a civilisation which failed to make the next great technologically leap to the carbon age and did actually wither.) Read more
An interesting chart from the American Enterprise Institute showing to what degree oil shipments by rail have risen in the last two years:
China’s energy consumption is legendary (okay, its everything consumption is legendary). More coal, oil, hydro, solar, and wind power than… than just about anyone. The coal numbers in particular are mind-boggling. By 2011 China was consuming almost as much coal (3.8bn tonnes) as the rest of the world combined (4.3bn tonnes).
The figures on oil consumption are almost as striking. They consume about 10m barrels a day; more than 10 per cent of world production. Read more
Awkward. One of the newish regulatory probes afflicting Barclays has brought us another batch of inter-trader communications they clearly never thought would see the light of day.
This particular investigation, which could see Barc landed with a record $470m fine over alleged US energy market manipulation, circles around four traders on the bank’s West Coast power desk who allegedly thought it wise to exchange messages explaining how they would “crap on” certain prices in one market to profit in another. Read more
Another way of looking at the myth of China’s inevitable growth…
[...]Warren Buffett’s net worth over the last couple of years has fallen… from $47 billion to $44 billion. That decrease stands in stark contrast to the performance over the same period of my dog. Quantifying the increase in Patches’ net worth over the last two years is difficult, but the sniff test suggests the improvement in his circumstances exceeds Warren’s by a wide margin (Exhibit 1). Read more
The US overtook China to regain top position as the world’s leading investor in “clean” energy last year, according to Bloomberg New Energy Finance, the FT reports. It was the first year since 2008 that the US has been ahead of China as the world’s largest market for investment in renewable energy, biofuels and energy efficiency. However, it may drop back again this year after the end of two key subsidy programmes introduced as part of the 2009 economic stimulus package: grants for renewable energy projects and government loan guarantees to encourage private sector investment.
Banks are being discouraged from big project-finance deals by new global capital rules and the eurozone crisis, the FT says, citing market participants who say infrastructure schemes will increasingly be funded by investors. Standards ordered by the Basel committee of international regulators will make large long-term loans harder to hold on banks’ balance sheets, according to several senior bank executives in the US and Europe. Project finance loans to build power stations, wind turbines and bridges are particularly unattractive because of their size, tenor and illiquidity, the executives said. At the same time, troubled European banks, which have dominated the market, are pulling back – shrinking their balance sheets and shying away from new dollar-denominated loans.
Oil and gas supplies will struggle to keep up with world demand growth, making energy prices more expensive and more volatile in the long term, the head of Europe’s largest oil company told the FT. Peter Voser, the chief executive of Royal Dutch Shell, told the Financial Times: “We will have a lot of volatility ahead of us that we cannot avoid … for energy prices in general.” He added: “We most probably will see a tightening of the supply-demand balance and hence rising energy prices for the long term. I think we should just get used to that.”
Mergers and acquisitions by US energy utilities rose to their highest level for four years in the first half of this year, the FT says, emphasising how consolidation is being driven by low prices for natural gas, demand for heavy investment and more willingness by regulators to accept deals. PricewaterhouseCoopers, the professional services firm, says $52bn of deals for electricity and gas companies were announced in the first six months of this year – the strongest such period for M&A since 2007. The largest deals announced to date this year have been Duke Energy’s $26bn acquisition of Progress Energy, Exelon’s $11.5bn deal for Constellation Energy, and AES’s $4.7bn takeover of DPL. All the valuations include debt.
BHP Billiton has made another big bet on energy in the US with its agreement to buy Petrohawk, an independent oil and gas company, for $12.1bn in cash, the FT reports. The Anglo-Australian mining group said on Thursday it had agreed to pay $38.75 a share for Petrohawk, which operates in three leading areas of shale gas and oil production in the US. The deal values Petrohawk at $15.1bn including net debt. The offer represents a 65 per cent premium to Houston-based Petrohawk’s shares at the close on Thursday. It will be financed from BHP’s cash balances and a new credit facility. Should BHP succeed in the acquisition, it will have more than tripled its resource base to 11bn barrels of oil equivalent within a year.
The US ethanol industry will seek a subsidy safety net linked to oil prices after the Senate voted heavily to scrap two of the principal supports for the corn-based biofuel, suggesting the subsidies will finish by the end of the year, the FT says. The Senate voted to repeal the 45 cent per gallon tax credit for blending corn ethanol with conventional fuel and the 54 cent per gallon tariff on imports. Bloomberg reports that the recent vote signals an ill-wind for other energy subsidies, such as wind, solar, biomass and biodiesel. Commodities markets reacted to the news with corn futures for December delivery slid 2 per cent to $6.53 a bushel in Chicago, after touching $6.50, the lowest for the most-active contract since March 17.
General Electric is making “a big bet on gas” in an attempt to benefit from the increased use of the fuel for power generation, in part as a back-up to variable renewable energies such as wind and solar power, the FT reports. John Krenicki, the vice-chairman of GE in charge of its energy business, said the group was “looking at a 25-year, very bullish market” for gas, and making acquisitions and investing in new products to profit from it. The rise of gas for power generation is being driven by cheap supplies becoming available in the US, and perhaps eventually elsewhere, as well as by its lower carbon dioxide emissions when burnt than coal and its good fit with renewable energy. Mr Krenicki said: “We are betting on gas in a big way, investing ahead of the curve.
It would be easy to brush off President Obama’s “Blueprint for a Secure Energy Future” initiative and associated speech yesterday as the obligatory promise to lower dependence on oil in response to the latest surge in gasoline prices.
That’s the start of a brief note from BarCap. And yes, the speech was easy to brush off, sounding to our cynical ears like the kind of speech presidents have been giving since well before this correspondent entered the world. Read more
Beijing announced on Wednesday that it had suspended approval for nuclear power plants across the country, putting the brakes on a development programme that accounts for almost 40 per cent of the world’s planned reactors, says the FT. The decision, both unexpected and uncharacteristic of a government that usually races ahead with ambitious infrastructure projects, was taken in response to the Japanese nuclear crisis triggered by last week’s devastating earthquake and tsunami. BNET noted earlier that more than 25 reactors are already under construction in China.
With Japan’s nuclear crisis still uncertain, analysts on Monday began to tentatively assess the potential read across to sectors, companies and funds in the US.
Research reports from Citi and Credit Suisse both look at risks to the nuclear sector from fears of a seismic disaster in the US and from increased regulatory and/or public scrutiny. Read more
If energy markets were ever confused, it’s now.
On the one hand the Japanese earthquake immediately implies bearishness for crude oil on account of lower demand. On the other hand it implies a hike in demand for refined products. Read more
Citi analysts raised their Brent oil estimate to $105 and $100 for 2011 and 2012 respectively, from $90/barrel, on Monday.
That’s as Brent crude sits tight around the $115 per barrel mark, with WTI not far behind at $105 per barrel. Read more
The Opec oil cartel is quietly increasing its production as oil prices flirt with $100 a barrel, the western countries’ oil watchdog said on Tuesday, according to the FT. The revelation by the International Energy Agency comes in spite of a string of public comments from Opec countries such as Iran and the United Arab Emirates suggesting that there was no need for more oil and playing down the impact of high oil prices. The cartel left its official production levels unchanged at a meeting last month in Quito, Ecuador. But the IEA said on Tuesday that Saudi Arabia and other Opec countries were quietly lifting their output in response to higher prices.
In case you missed it, there was a pretty major event that transpired over the long weekend in the UK.
While many were stuck on the M40 motorway, attempting to get out of London for the Bank Holiday, it seems the Telegraph’s Ambrose Evans-Pritchard may have solved the world’s energy problems — possibly whilst cooking sausages over a coal-fired barbecue (although about that we can only speculate). Read more
Are commodities on the verge of a deflationary price collapse?
Walter J. Zimmerman, the chief technical analyst at United-ICAP, provided an interesting perspective on the matter to Bloomberg on Tuesday: Read more
The boards of International Power and GDF-Suez gave the green light to a merger on Monday, paving the way for the creation of one of the world’s biggest independent power generators with estimated sales of €13.5bn ($17.9bn), the FT reports. GDF will pay a cash dividend of about 90p a share to International Power shareholders as part of the so-called reverse takeover. The companies have identified cost savings and synergies in the order of £150m a year.