David Fuller and Eoin Treacy's Comment of the Day
Category - Energy

    Ruble Falls Most Since Crimea on Sanctions as Russia Stocks Drop

    This article by Halia Pavliva, Vladimir Kuznetsov and Ksenia Galouchko for Bloomberg may be of interest to subscribers. Here is a section: 

    Russian companies face $3.93 billion of dollar-bond maturities by year-end, data compiled by Bloomberg show. The central bank said it has enough instruments to support individual financial institutions as well as broader financial stability, according to an e-mailed statement. The main consequences related to refinancing are for long-term loans and will have largely a delayed effect, it said.

    Shares of Rosneft lost 4.6 percent and Novatek slid 5.2 percent. Government debt risk rose to the highest since May.

    Credit-default swaps insuring against losses on Russia’s sovereign debt jumped 27 basis points to 210 basis points, according to data compiled by Bloomberg. A total of 9,726 contracts covering a record $9.8 billion were outstanding as of July 11, according to the Depository Trust & Clearing Corp.

    That’s up from about $5.5 billion at the start of 2014 and the sixth most among 1,000 companies and countries tracked by DTCC.

     

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    Even in Canada, booming U.S. petroleum elbowing out Alberta producers

    Thanks to a subscriber for this article by Jeff Lewis for Financial Post which may be of interest. Here is a section: 

    Even in Canada, booming U.S. petroleum elbowing out Alberta producers – Thanks to a subscriber for this article by Jeff Lewis for Financial Post which may be of interest. Here is a section: 

    So much low-cost gas is expected to flow from the Marcellus in the northeast part of the U.S. , for example, that Nova is in “serious” talks to develop a second pipeline into the region, Mr. Thomson said. Access to U.S. feedstock is “going to be key” in deciding whether to build a second production unit for making high-end polyethylene products at its Sarnia plant, he said.

    In the Quebec town of Bécancour, IFFCO Canada Enterprise Ltd. aims to start construction on a $1.6-billion fertilizer plant by spring next year. But the company, majority owned by a unit of India’s largest fertilizer manufacturer and distributor, has warned the project’s future hinges on timely access to low-cost gas, including through the Dawn trading hub in southwestern Ontario, one of the entry points for U.S. gas into Canada.

    “At the moment Dawn is the cheaper alternative than Western Canada. I don’t think this is a surprise,” said Simon Pillarella, vice-president, corporate affairs with IFFCO Canada.

    “It’s not only us who’s looking for this sort of option,” he added. “Most clients in Eastern Canada are looking for the cheapest way to supply their gas.”

     

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    Drilling deeper into trouble

    Thanks to a subscriber for this report from FondsFinans focusing on the North Sea drilling sector which may be of interest. Here is a section: 

    Sector completely out of favor due to increasing oversupply - Solid rebound lately to yield stocks with near term cash flow visibility (SDRL, AWDR)

    Seadrill’s rebound explained by several positive company specific events (Rosneft deal, Pemex deal, Jupiter contract etc.)

    Underperformance in general driven by sentiment, while also company specific events explain Songa’s (balance risk), FOE’s (SPS cost overruns) and Sevan Drilling’s (rig #4) underperformance

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    OPEC Sees Lowest Demand for Its Crude Since 2009 Amid U.S. Boom

    This article by Grant Smith for Bloomberg may be of interest to subscribers. Here is a section: 

    OPEC predicted that demand for its crude will decline in 2015 to the lowest in six years as supplies from other producers, led by the U.S., are more than enough to cover the increase in global consumption.

    The need for crude from the Organization of Petroleum Exporting Countries will slide to 29.4 million barrels a day next year even as growth in world oil consumption accelerates, the group said in its first assessment of 2015. That’s 300,000 a day less than OPEC’s 12 members pumped in June. It would be the third consecutive annual drop in demand for OPEC crude and the lowest since 2009. The U.S. will provide about two-thirds of next year’s supply growth, OPEC said, amid a shale-oil surge that has made the U.S. the world’s biggest producer.

    “Even if next year’s world economic growth turns out to be better than expected and crude oil demand outperforms expectations, OPEC will have sufficient supply to provide to the market,” the group’s Vienna-based secretariat said in the report.

    The U.S. has overtaken Saudi Arabia and Russia as the world’s biggest oil producer as it taps shale formations in Texas and North Dakota by splitting apart rocks with high- pressure liquid, a process known as known as hydraulic fracturing, or fracking. Oil prices have remained supported by threats to supplies in OPEC members such as Iraq and Libya, with the Brent benchmark’s loss this year limited to 2.3 percent.

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    China Coal to Olefins Industry

    Thanks to a subscriber for this fascinating heavyweight report from Deutsche Bank. Here is a section: 

    In its most recent 5-Year Plan (2011-15), the Chinese government laid out an aggressive time table for development of its coal-to-olefins (CTO), coal-to syngas (CTG) and methanol-to-olefins (MTO) industries (Appendix 1-3). 

    The economics of China coal-to-olefins (ethylene / propylene) is competitive relative to the world’s naphtha-to-olefins industry (Figure 2, Figure 20 & Figure 92-93). The world’s naphtha-to-olefins industry is Asia-based. Ninety percent (90%) of Asia’s olefin (ethylene) capacity uses naphtha as a feedstock (Appendix 6-10). Asia produces 34% of global ethylene. A fast-growing China CTO industry would displace its own naphtha to olefins industry (24% of global ethylene capacity). Somehow, this strategy does not make much sense; although it would produce short-term China GDP growth. 

    The economics of China coal-to-olefins however is not competitive relative to a growing North American and Middle Eastern natural gas-to-olefins industry (Figure 2, Figure 20, and Figure 94). From a cost perspective, a fast-growing China CTO industry would displace its own naphtha to olefins industry but then be displaced itself by a lower-cost North American and Middle Eastern natural gas-to-olefins industry. Somehow, this strategy makes even less sense; except for the fact that it creates plenty of China GDP by both building and then dismantling multiple China industry chains. 

    China’s coal-to-olefins and / or coal-to-urea do not make economic sense in a world awash in low-cost natural gas. Notwithstanding, China continues to grow its coal-to industries; maybe on the prospect that the world’s growing supplies of cheap natural gas could be short-lived.

    The production of olefins from coal requires an abundance of water (Figure 98) and produces an abundance of CO2 emissions (Figure 102). The addition of one 600k tpa CTO facility in Beijing would increase provincial CO2 emissions by 14%. China’s abundant water resource (Figure 95) is located in the South and South West part of the country; its coal resources are located in the North and North West part of the country (Figure 11-12) – bad luck.  

     

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    China to accelerate nuclear power development

    Thanks to a subscriber for this article from Xinhua which may be of interest to subscribers. Here is a section:

    By the end of last year, 17 nuclear plants were in operation, with a total capacity of nearly 15,000 megawatts of electricity.

    At a meeting of the National Energy Commission on April 18, Premier Li Keqiang announced the introduction of new nuclear power plants along the east coast "at a proper time".

    Earlier this month, the Ministry of Environmental Protection released the environmental impact statements for two new nuclear power plants, one in Guangdong Province and another in Shandong, but this is still not enough in the longer term.

    "China's nuclear power sector still has a long way to go before reaching the global average," said Ye Qizhen of the Chinese Academy of Engineering.

    A proportion of 10 percent of nuclear power is an ideal number for China, Ye said.

     

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    Exxon, BP Evacuate Oil Workers From Iraq as Violence Escalates

    This article by Nayla Razzouk, Bradley Olson and Kadhim Ajrash for Bloomberg may be of interest to subscribers. Here is a section: 

    Exxon evacuated some workers from the West Qurna oil field, according to a person familiar with the company’s Iraq operations. BP Plc removed non-essential workers, Chief Executive Officer Bob Dudley said June 17. Malaysia’s Petroliam Nasional Bhd. moved 28 of its 166 Iraq employees to Dubai, the company said by e-mail yesterday. Royal Dutch Shell Plc isn’t evacuating staff yet and is ready to do so, Andy Brown, head of Shell Upstream International, said in an interview in Moscow.

    The companies all said they’re continuing to pump oil and there are few signs Iraq’s production has been curbed after Islamic State in Iraq and the Levant fighters took northern cities including Mosul. Police near the Baiji refinery, the nation’s largest, said government forces are now in control after a battle with ISIL. Crude shipments from the south, where most production is located, may accelerate next month and Kurds are defending the Kirkuk oilfield in the north.

    “The only infrastructure that is currently producing and supplying international markets is in the south and will remain untouched,” said Kyle Stelma, managing director of Dubai-based Dunia Frontier Consultants, which researches Iraq for clients.

     

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    Amid turmoil, Iraq Kurdish region is laying foundation for independent state

    This article by Ben Van Heuvelen for the Washington Post may be of interest to subscribers. Here is a section: 

    With relations badly strained, there is little appetite in the Kurdish capital of Irbil to provide any military support to Maliki.

    “The Iraqi government has been holding the Kurds hostage, and it’s not reasonable for them to expect the Kurds to give them any help in this situation without compromising to Kurdish demands,” said an adviser to the Kurdish government, speaking on the condition of anonymity to be candid.

    The pesh merga say they have not tried to displace ISIS from territory it now controls.

    “In most places, we aren’t bothering them [ISIS], and they aren’t bothering us — or the civilians,” said Lt. Gen. Shaukur Zibari, a pesh merga commander.

    In his statement, Yawar said, “There is no need for Peshmerga forces to move into these areas.”

     

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    Email of the day on European solar ETFs

    Hello, I was wondering if you could analyse the solar power sector, in Europe there are no funds or ETFs to invest in this sector. In the US I found the Guggenheim Solar ETF. I notice that this ETF is very correlated with the heaviest weighted stock, First solar, so I will probably buy this as being in Europe we are fiscally punished if we buy us ETFs which are not compliant with UCITS regulations. Anyway First Solar seems to have a very interesting chart could you please comment thanks

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    Musings from the Oil Patch June 10th 2014

    Thanks to a subscriber for this edition of Allen Brooks ever interesting report for PPHB which may be of interest to subscribers. Here is a section: 

    The translated Nikkei article described the transmutation experiment in the following manner: “The researchers put the source material that they want to convert on top of the multi-layer film, which consists of alternately laminated thin films of calcium oxide and palladium. The thin metal layers have a thickness of several tens of nanometers. Elements are changed in atomic number in increments of 2, 4 and 6 over a hundred hours while deuterium gas is allowed to pass through the film.

    “The transmutations of cesium into praseodymium, strontium into molybdenum, calcium into titanium, tungsten into platinum have been confirmed.”

    Mitsubishi’s patent was originally issued in Japan but it was extended in 2013 into a European patent, and protects the company’s proprietary thin-film transmutation technology. The Japanese newspaper also reported that a research and development company of the Toyota Group (TM-NYSE), Toyota Central Research and Development Labs, has also replicated the elemental conversion research with results similar to Mitsubishi’s experiment.

    While the Mitsubishi and Toyota research efforts have focused on material transformation rather than the generation of energy, the process is similar. High profile work on LENR as an energy source has been conducted by Andrea Rossi, an Italian engineer, inventor and entrepreneur. He has invented the Energy Catalyzer (E-Cat) and completed two tests, one of which produced 900o C (1,650o F) of heat that could be used to generate steam to power a generator to produce electricity. In early 2013, a group of independent scientists ran tests on two versions of the “Hot Cat,” a one megawatt LENR unit. Their coefficient of performance (COP) was measured, determining the ratio of energy out versus energy in. The COPs in the two tests were 5.6 and 2.2, respectively. Another group that is not affiliated with nor has it worked with Mr. Rossi, has been using an E-Cat and conducting longer term tests, the results of which may be released soon. This could be a monumental development, although it will not end skepticism of the technology.

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