Energy Week

Pipeline problems:
https://www.bloomberg.com/news/articles/2019-03-03/energy-transfer-natural-gas-pipeline-ruptures-in-missouri
No one seriously injured but still, its a problem for the pipeline industry
Could pipeline companies in pipeline dense areas possibly poor resources to pay for better pipeline surveillance measures.

https://edmontonjournal.com/business/energy/enbridge-pipeline-delayed-one-year-big-hit-to-alberta-oil-industry
Canada can’t catch a break but the delays are due to Minnesota.

Is nuclear the answer?
https://www.eia.gov/todayinenergy/detail.php?id=38533
Japan cut its nuclear power footprint after the Fukushima disaster and is only now ramping it back up. Plans to increase nuclear power to 20-22% of its total electricity generation.

https://quillette.com/2019/02/27/why-renewables-cant-save-the-planet/
Renewables can’t save the planet, but is nuclear REALLY the answer? Nuclear is a great base load option but its not right for everything. For small villages, renewables would be the answer. But for huge populations, need nuclear base load provider, but also need natural gas to be able to ramp up production at times of very high usage.

Aramco wants to become a top 3 oil trader
https://www.forbes.com/sites/ellenrwald/2019/02/28/opec-must-reassure-markets-as-aramco-moves-to-become-a-top-oil-trader/#1b1e0cc3b250
Implication for the market could be immense, just because Aramco controls so much production

WSJ’s latest on fracking
https://www.wsj.com/articles/shale-companies-adding-ever-more-wells-threaten-future-of-u-s-oil-boom-11551655588
Parent-child issue: child well messes up parents well and messes with the projections from the parent well. Perhaps the WSJ picked the worse companies for the data. It’s unclear whether any of the data is accurate here.
IEA Energy Breakdowns Page
https://www.iea.org/countries/

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Trump AND Rubio tweet:
Rubio calls for international community to seize assets of PdVSA - what does this even mean?
Trump tweets for lower oil prices:
https://www.forbes.com/sites/ellenrwald/2019/02/25/trump-tweets-and-oil-drops-is-that-really-good-for-the-economy/#6865bc131f21
Manufacturing? Keep gasoline prices down? Plus for infrastructure projects?
Could impact Iran waivers

Is Wall Street finally losing interest in fracking?
https://www.wsj.com/articles/frackers-face-harsh-reality-as-wall-street-backs-away-11551009601?
Companies that can do all three phases of the game will move in to Permian.
If oil hits high $60 range will Wall Street really walk away?
Headlines generated on quarterly returns that may not really show what they say they are showing.

Halliburton breaks ground on oilfield chemical plant in Saudi Arabia
https://www.chron.com/business/energy/article/Halliburton-breaks-ground-on-oilfield-chemical-13630486.php
Plant to produce chemicals that will be used in oil fields and also in pipelines. First plant of this type to be built in Saudi Arabia.

Vitol Sees Oil Prices Rising (actually a Bloomberg article)
https://finance.yahoo.com/news/vitol-expects-oil-rally-opec-040001656.html
How much does the shortage of heavy crude really matter? Divide between those who think it doesn’t matter and those who think it does.

Oil rose 3% last week - Why?
https://www.cnbc.com/2019/02/22/oil-markets-us-crude-output-opec-led-supply-cuts-in-focus.html
Market reacts to Saudi Arabia cutting production for technical repairs

Abu Dhabi signs billion dollar deal with KKR and Blackrock for Pipelines
https://www.wsj.com/articles/abu-dhabi-state-owned-oil-company-signs-4-billion-deal-with-kkr-blackrock-11551027115
Money to be made in pipeline business in Abu Dhabi with KKR and Blackrock investing in new pipeline subsidiary company.

National Energy Board recommends approval of Trans Mountain pipeline
https://business.financialpost.com/commodities/energy/national-energy-board-recommends-approval-of-trans-mountain-pipeline-subject-to-16-new-conditions

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More Keystone XL delays
https://www.cnbc.com/2019/02/16/keystone-xl-suffers-another-setback-judge-blocks-work-on-pipeline.html
Are these delays normal? Do judges normally micromanage these kinds of projects?
Now KeystoneXL construction probably won’t get started until 2020

India tries to keep buying Venezuelan oil
https://www.reuters.com/article/us-india-venezuela-oil-exclusive/exclusive-india-advises-refiner-to-avoid-u-s-system-for-venezuela-oil-buying-source-idUSKCN1Q41ZQ
India under pressure not to buy Venezuelan oil or to use the US banking system to buy it because the US will take the money and put it into an escrow account for Guaido. India still recognizes the Maduro government.

BP’s energy outlook
https://www.wsj.com/articles/bp-renewables-and-natural-gas-to-dominate-energy-growth-by-2040-11550154643

https://www.plasticstoday.com/sustainability/bp-single-use-plastic-ban-will-lead-higher-carbon-emissions-increased-food-waste/184027489960271
Will banning single use plastic REALLY lead to a decline a petrochemical growth?
Oil still a big component
Don’t discount nuclear as important base-load provider of energy

Tom Kloza predicts...
https://www.cnbc.com/2019/02/15/oils-best-start-ever-is-pushing-expert-tom-kloza-into-the-bull-camp-for-now-.html
Says oil prices will go higher in H2
Will volatility decrease?

Canadian crude just can’t catch a break
https://business.financialpost.com/commodities/energy/canadian-crude-price-plummets-after-partial-shutdown-of-two-critical-pipelines

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Ryan and Ellen discuss all things southern hemisphere, plus electric vehicles, and speak with Dr. Dean Foreman, of the American Petroleum Institute. Show notes and articles below.

Tesla cuts price on Model 3
https://www.forbes.com/sites/ellenrwald/2019/02/06/will-teslas-latest-price-cut-on-the-model-3-entice-buyers/#77f9e58f47bf
Price cut in direct response to ending the federal tax credit, shows that the tax credit was really designed to help the company and not the consumer.

Venezuela update
https://www.reuters.com/article/us-venezuela-politics-global-oil/latin-american-oil-prices-flows-to-u-s-jump-amid-pdvsa-restrictions-idUSKCN1PX27X
Columbia seems to be benefitting from the oil sanctions on Venezuela and is selling more of its Castilla Blend to U.S. refineries like Citgo and Valero.

Total discovers oil off of South Africa and plans for more!
https://finance.yahoo.com/news/total-makes-big-offshore-oil-182223663.html

https://www.reuters.com/article/us-total-exploration/oil-major-total-plans-biggest-exploration-drive-in-years-idUSKCN1PN0QZ

Will be interesting to see how South Africa develops its oil reserves. Will they rely on other oil companies or will it develop its own national oil company?

API Monthly Statistical Report
Strongest gasoline demand in January since January 1945 - Why?
Last year we had pretty strong demand across the board. This increase is seasonal. Diesel fuel/distillate is actually down 3%. No evidence that partial government shutdown had any impact on gasoline demand beyond the DC area.

Petroleum exports decreased - sign of slowing demand, but could it actually be due to Mexico’s import stoppage? How long will we be feeling the impact of Mexico’s decision to halt gasoline imports and likewise, how to see the halt on all exports to Venezuela continuing to impact U.S. refining and petrochemicals?
Pervasive issue - both crude and products. More on refined products side. Corroborating factor is global shipping index (Baltic Index). Price of shipping dropped by 50% in one month. Something last seen during financial crisis. Even if US demand is looking solid, global demand is down.

When are we going to see this ripple through US data? US inventories are actually 5% higher than 5 year average. But refinery throughputs are still at record levels. If demand in exports start to weaken we will see impacts in US storage.
Indicators saying industrial production in the US is going to slow.

Rig counts: As we move through this year how do we judge rig count and production?
Need to look at production per rig. 8,600 DUCs as of the end of 2018 - Even if we get a pullback in production, backlog of DUCs will keep production high. This is why despite flatlining drilling, production is still high. Productivity has been great but this will stop improving at such high rates at some point.

Natural Gas: from a pricing standpoint is it at a heavy spot? Challenge is that as production increases, costs will increase because natural gas resources will be less accessible. Minor warm spell brought prices down significantly at Henry Hub. Sign that productivity is still there and deliverability is so easy - Marcellus share can have wells from beginning to gas flowing to consumers in weeks (not months).

Impact of tariffs on natural gas costs: does impact pipeline costs but larger impact on LNG projects.

Gasoline prices down but crude oil is up - is this a holdover from the drop in oil prices we saw in December? Other explanation? Timing difference between when crude purchased and when goes into the refinery. High correlation between gasoline and crude oil prices but its not exactly correlated. Record drops in oil prices in December and have now rebounded but are still considered low. Less expensive oil going into refineries, refineries running flat out to produce product.

EIA says we are on a path to become a net exporter but that’s not a this-year thing.

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We got a chance to talk to Dr. Robert Murphy of the Institute for Energy Research today. Find more of Dr. Murphy's work here:

Bob Murphy Show - https://www.bobmurphyshow.com/

Contra Krugman - https://contrakrugman.com/

Dr. Murphy on Crude Oil Price Controls - http://journal.apee.org/index.php?title=ARTICLES_2018_Journal_of_Private_Enterprise_Vol_33_No_1_Spring_parte5

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https://www.bloomberg.com/news/articles/2019-01-22/saudi-arabian-energy-minister-al-falih-set-to-cancel-davos-trip
Is Davos Dead?
Saudis and Russians won’t be able to sit down and have a formal face to face meeting. Should we read trouble into the Russia-Saudi relationship or is this a reflection of the US-UK-France pull outs from the conference.

https://www.reuters.com/article/us-iran-oil-japan/japanese-refiners-load-first-iran-oil-cargo-since-us-sanctions-idUSKCN1PF0EH

https://www.reuters.com/article/iran-oil-sales/update-1-iran-fails-to-find-any-buyers-for-crude-offered-on-exchange-idUSL8N1ZL50F

Japan may not import anymore oil from Iran because the Japanese government backed tanker insurance expires in March.

https://www.cnbc.com/2019/01/18/elon-musk-tesla-email-to-employees-about-job-cuts.html
Honest Elon - 4% profit in Q3 2018, first meaningful profit in 15 years. But going to cut 7% people and only retain most critical temps and contractors.

Podcast on IMO 2020
https://itunes.apple.com/us/podcast/opis-crash-course/id1385636661?mt=2&i=1000425087909

API December Monthly Statistical Report - Interview with API Chief Economic Dr. Dean Foreman
https://www.api.org/products-and-services/statistics/apis-economic-industry-outlook
- 6 records set in December! But some questions - price changes and economic issues are coming through.
- How do we reconcile serious highs and serious lows in different aspects of the energy market? Heating fuel and foil oil are highly seasonal. Gasoline, jet fuel, diesel is a pulse of how confident people are to travel, spend. Also tells us about the global economy.
- Still a strong story for energy and for the US to grow its economy in some areas.
- Refinery capacity utilization at 95% in December - is this just a reflection of crude oil availability and gasoline demand or has America's refining situation improved since 2015? Or are refineries running themselves to the brink? Should we prepare for a significant maintenance season that could impact crude oil draws and stocks?
- Companies have been investing in refineries. They are responding to demand for product and investments have enabled production at record levels.
- Distillate Economic and Financial Indicator (DEFI) - New feature in 2019. How can our listeners use this data? Highly predictive of industrial output. This should outperform other indicators of where industrial output should go. It’s not predictive of oil prices.
- Mexico - What effect is their fuel crisis having on our gasoline numbers for December, and how do you see this changing in January? Short term impact from Mexico. Desire on behalf of Mexico to build refineries will take billions and billions of dollars and time to execute.
- Everyone's talking about an economic slowdown in China, yet some oil executives are saying that they don't foresee this impacting oil demand. What does this possible industrial slowdown in China mean for U.S. oil exports and oil prices? China is the indicator for all of emerging Asia. But remember that China doesn’t use the same measurements at the rest of the developed world. They look at an industrial production base methodology. Basically excessive smoothly. Highs aren’t as high, lows aren’t low. Demand grows as half the rate of the global economy. So this isn’t a tectonic change but small changes in demand have a big effect.
- No detailed trade data from after October right now because of the government shut down. China is getting the crude oil it needs by going to Iran and others. Could effect the natural gas or LNG.
- Inventories are near the top of the 5 year average - this is exactly the metric OPEC has been targeting. OPEC wants to see global inventories below the 5 year average, but meanwhile US inventories are back up there. Is OPEC a failure and this whole oil production cut a failed experiment. - This deal is the pivotal thing, especially with Russian participation, which hasn’t really been evident yet in the data. U.S. rigs declined but DUCs are even higher. US can still bring a lot of supply this year.
- Has FED’s commentary and interest rates impact oil markets?
- Optimism on trade deal plus FED’s softening on raising interest rates means people are optimistic but what really matters is if it follows through, especially when it comes to corporate profit.

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Latest on Iran Sanctions
https://www.spglobal.com/platts/en/market-insights/latest-news/oil/011419-interview-no-reason-iran-sanctions-will-lead-to-higher-oil-prices-us-hook
Will there still be a surplus oil on the market come April when the SREs are to be reexamined? Brian Hook thinks so, but we're not so sure this will be the case come April.

OPEC PR campaign
https://www.wsj.com/articles/opec-weighs-a-first-ever-influence-campaign-in-the-u-s-11547236986
How will OPEC salvage an image that is so bad already with only $500,000? Yes, OPEC has at time had positive impacts on the US economy and oil production, but no politician will ever put themselves on the side of a cartel.

President Trump tweets on gasoline prices and deregulated energy
https://twitter.com/realdonaldtrump/status/1084785809000185862?s=21
The U.S. is producing more energy than before and Trump has deregulated energy production, but what really helped bring energy production up is foreign "regulation" in terms of sanctions towards Iran.

Al Falih talks about US shale, the market, OPEC, etc.
https://www.spglobal.com/platts/en/market-insights/latest-news/oil/011319-us-shale-oil-producers-ride-opec-coattails-but-saudi-arabia-doesnt-mind-falih-says
We all KNEW Saudi Arabia has been talking to U.S. oil producers all along. The meetings they have in Houston are just a public show. Shale producers want OPEC and Saudi Arabia to do all the work and reap all the benefit.

Saudi oil reserves and Aramco IPO
https://www.cnbc.com/2019/01/10/saudi-arabia-plots-new-path-to-long-delayed-aramco-ipo.html
Reserve audits show Saudi Arabia has more oil than the Saudis have self-reported, essentially confirms what Saudis have long said.

How much oil does Saudi Arabia have?
https://www.forbes.com/sites/ellenrwald/2019/01/09/why-it-matters-how-much-oil-saudi-arabia-has/

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Libya is feeling VERY optimistic about its future oil production:
https://english.alarabiya.net/en/business/2019/01/07/Libya-plans-to-more-than-double-oil-output-to-2-1-million-bpd.html

Libya wants to expand its oil production beyond its pre-civil war levels

China cuts refinery quotas in 2019
https://www.reuters.com/article/us-china-oil/china-cuts-refiners-oil-import-quotas-with-first-2019-allowances-idUSKCN1OW0NN

What's going on with China's demand? First half of 2019 demand is defiantly going to be down in the first half of 2019, but new petrochemical facilities and larger quotas could mean that oil demand from China might show a huge jump in the second half of 2019.

Shale oil wells aren’t producing as much as forecast
https://www.wsj.com/articles/frackings-secret-problemoil-wells-arent-producing-as-much-as-forecast-11546450162

Everyone missed the mark on forecasts. Is this a great problem for some companies more than others? The system is primed for these kind of inaccuracies. Should these companies make projections? ExxonMobil doesn't make projections, maybe none of these companies should make them.

Iran Sanctions and Bank of Kunlun in China
https://www.bourseandbazaar.com/articles/2019/1/2/policy-change-at-chinas-bank-of-kunlun-cuts-sanctions-lifeline-for-iranian-industry

Bank of Kunlun was very important in subverting sanctions the last time around but now will not subvert U.S. sanctions. This is significant because it does seem that the U.S. sanctions are being adhered to. Preliminary export numbers from TankerTrankers.com also show this.

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Qatar petroleum invests
https://www.reuters.com/article/us-qatar-gas-qp/qatar-petroleum-to-invest-20-billion-in-us-in-major-expansion-idUSKBN1OF07X
QP is already a majority owner of Golden Pass LNG facility and planning to invest $20 billion more in US oil and gas
Also announced investment with ENI in Mexican oil fields which they plan to bring online in 2019, with max 90,000 bpd production in 2021.

Oil up but not so fast
https://www.reuters.com/article/us-global-oil/oil-rallies-but-oversupply-economic-growth-weigh-idUSKBN1OG01L
Oil is down and oversupply is a concern. $90 oil isn’t happening, oil unlikely to move much between now and the end of the year (barring a major incident)
Will we see more of a shift towards larger companies in the Permian? Role of interest rates?

Pdvsa out Aramco in
https://www.reuters.com/article/us-refinery-curacao-motiva/motiva-preliminarily-picked-to-run-curacao-refinery-report-idUSKBN1OE0OY
Saudi Aramco owns Motiva and has been looking to expand its operations but did not want to expand in Port Arthur, an area prone to hurricanes.

Dean Foreman, API Chief Economist
Monthly Statistical Report
U.S. solidified position as world’s largest oil producer and 4th largest producer of natural gas - how did we get to this point?
- rest of the world picked up the slack when China stopped buying US oil exports.
- NGLs are a huge contributor to this
- Refiners domestically using as much oil as they can. Record in November. On top of that, US is exporting record amounts.
- On top of all that, we are seeing a huge inventory boom

Oil price environment:
- Up until Thanksgiving concerns were supply based (re: Iran Sanctions and Saudi supply)
- oil demand grows as about half the rate of global economic growth
- US production growth is coming regardless of what demand is
- uncertainties around large chunks of supply aren’t moving the market. Futures are now in Contango (prices expected to be higher in the future).

Global Demand
- a lot of uncertainty in these forecasts
- Jet fuel demand as an indicator: it has been very, very strong recently but air travel may slow in coming months.
- US economic indicators are still solid, despite stock market roller coaster. Confidence in borrowing up. US relatively insulated from global and emerging market concerns.
- Majority of growth tends to be in emerging markets and will still likely see slowing of growth there.
- 6th largest monthly decline in oil prices since 1990 this past month.
- Chinese independent refineries: as they’ve stopped buying light oil from the U.S. they are substituting Saudi and IRanian light crudes. Will they still be competitive? US refinery capacity is continuing to expand and becoming competitive globally as well.

EIA forecasts
- See prices dipping until second half of the year when market starts to rationalize it.
- DUCs are pent up source of demand growth
- During the $60-$80 period many locked in hedging
- DUCs mythological creature out there - check out APIs January Well Completion Report
- 6 months of wells that could be brought to market but don’t know whether they will or when they will be brought to market.
- essentially record levels of production sitting there ready to come online.

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Perry Visits Saudi
https://www.spglobal.com/platts/en/market-insights/latest-news/oil/121018-us-perry-pushes-for-stable-oil-supply-in-talks-with-saudi-minister-aramco-ceo

Clearly discussing more than just energy investment opportunities, probably dealing with Iran sanctions issues as well.
Perry met with Qatari oil minister, discussing increasing Qatar Petroleum's investments in US LNG.
Qatar is invested in US LNG export facility already.

NOPEC legislation coming?
https://www.spglobal.com/platts/en/market-insights/latest-news/oil/120718-congress-moving-toward-passage-of-anti-opec-bill-sources
Political tool for politicians
Not likely to see it before next Congress

Forecast for oil
https://www.cnbc.com/2018/12/10/citi-forecasts-60-brent-crude-in-2019-as-opec-policy-spurs-us-output.html
Citi says production cuts from the so-called OPEC+ alliance has only delayed the inevitable
Trump, Putin & MbS are the policy drivers behind prices and yet they can't impact prices?
According to Citi, OPEC and OPEC+ will remain a major driver for oil prices. If the production cut deal falls apart, prices could drop into the $40s but if they increase it, they could rise to $70 or $80.

https://finance.yahoo.com/news/morgan-stanley-slashes-oil-price-180000868.html
Morgan Stanley forecasts average oil price for 2019 at $68.78 compared to Citi which is now saying $60 per barrel for Brent.

Shale break even prices
https://www.wsj.com/articles/big-fracking-profits-at-50-a-barrel-dont-bet-on-it-1543919401
breakeven price is a term that doesn't really mean anything. theoretical price at which some producers might make money and others won't
Nice to see WSJ breaking down the issues but are still guesstimating on what they are or what they even mean.
Reality is that we don't know what the break even is, plus WSJ is only accounting for publicly traded companies. No data on privately held companies.

France 24 The Debate
https://www.france24.com/en/20181206-debate-pressure-mbs-washington-pushes-saudi-arabia-over-yemen

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