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

    Fracking Boom Pushes U.S. Oil Output to 25-Year High

    Here is the opening of this informative article from Bloomberg:

    U.S. crude production rose to the highest level in a quarter-century as a shale drilling boom in states such as Texas and North Dakota cut the need for foreign oil and pushed the country closer to energy independence.

    The U.S. pumped 8.075 million barrels a day in the week ended Dec. 6, a gain of 0.8 percent, or 64,000 barrels a day, the Energy Information Administration said today. It’s the most since October 1988.

    “You can’t swing a cat without hitting a barrel of oil in North America,” saidStephen Schork, president of the Schork Group Inc., an energy consulting firm in Villanova, Pennsylvania. “It’s amazing how quickly things can change.”

    U.S. oil output grew 18 percent in the past 12 months, the fastest pace on record, boosting fuel exports and reducing reliance on imports, according to the EIA. The boom will make the country the world’s largest producer by 2015, five years sooner than last year’s forecast, the International Energy Agency in Paris said last month.

     

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    Putin Frees Russian Gas Chilled Amid Permafrost

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

    Global LNG capacity will reach 468 million tons in 2018, from 295 million this year, according to Energy Aspects. That includes the expansion of output from Russia and excludes projects in East Africa and Cyprus that will probably be delayed into the next decade, said Trevor Sikorski, the consultant’s head of natural gas, coal and carbon.

    There will be “enough room for everyone” in the LNG market and those with more competitive costs will benefit, Denis Solovev, a Novatek spokesman based in Moscow, said today by e-mail, citing earlier remarks by Mikhelson.

    Putin pushed for the gas export law to increase the clout of Russia in global LNG markets. The nation is the world’s biggest gas exporter. It accounts for about 5 percent of LNG supply and 30 percent of pipeline deliveries, according to data
    from BP Plc.

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    Shell to GE Lured by Gas-Fueled Ships on Record Supply

    Here is the opening and a latter section of this informative article from Bloomberg:

    Royal Dutch Shell Plc (RDSA), General Electric Co. (GE) and a company co-founded by T. Boone Pickens are planning investments in natural-gas-powered shipping as record U.S. output spurs the merchant fleet to use a new fuel. 

    Clean Energy Fuels Corp., which Pickens helped start, will begin construction next year on the country¡¯s first fuel station for cargo ships running on liquefied natural gas in Jacksonville, Florida. Shell said in March it¡¯s planning LNG plants for the Great Lakes and Gulf Coast. GE, evaluating five locations, says the U.S. will need 50 to 100 small-scale plants for ships, trains, mining and trucks by 2025, each costing $50 million to $150 million.

    And:

    Ship owners started switching to lower-sulfur diesel from bunker in northwest Europe and North America because of national and international anti-pollution rules phased in since 2005. LNG cuts sulfur emissions by 90 percent to 95 percent and also releases less carbon dioxide and nitrogen oxide, according to DNV GL. Alternatives include burning low-sulfur diesel or installing equipment called scrubbers that clean exhaust.

    Rising demand could drive fuel costs higher. While U.S. natural gas futures plunged 74 percent to $3.960 per million British thermal units from the record reached in 2005, prices will average $4 in 2015 and $4.25 in the longer term, Morgan Stanley estimates.

    LNG ship fuel would cost about $800 a ton in the U.S., $1,000 a ton in Europe and $1,200 in Asia, according to estimates by New York-based shipbroker Poten & Partners Inc. That compares with global prices of $1,300 for an equivalent amount of diesel and $950 for fuel oil with scrubbers.

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    Asia Oil & Gas Positioning for 2014

    Thanks to a subscriber for this interesting report from Deutsche Bank which may be of interest to subscribers. Here is a section:

    DB Analyst John Hirjee sees no reason for change as his top pick for 2014 Oil Search was our best performer in 2013. John expects significant production and EPS growth (2014-15) due to the commissioning (2H14e) of the PNG-LNG project. DB Analyst Harshad Katkar similarly sees no reason to change as his top pick for 2014 Reliance Industries was also his top pick in 2013. Harshad is looking for an improving upstream gas business on KGD6 and chemical capacity expansions (FY14-16e) to drive ~15% EPS growth over the coming few years. DB Analyst Shawn Park has our call on Asia Chemicals and recently (01 Nov) upgraded the sector to overweight on the back of flat to down naphtha prices, tighter product supplies and higher spreads. Shawn¡¯s top pick for 2014 is LG Chemicals given its material exposure to ABS (25% revenues) and an improving EV battery business. DB Analyst, David Hurd continues to like Sinopec (SNP) as a top pick for 2014. David notes that soft to down oil prices support SNP¡¯s refining business and that there is material operating leverage in the company¡¯s chemical business.

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    Musings from the Oil Patch - an educative report

    Thanks to a subscriber for this always educative report by Allen Brooks for PPHB dated November 26th. Here is a section: 

    Wall Street is changing what it wants from producers active in the shale revolution. Until commodity prices, especially natural gas, move higher, the profitability of developing shale resources will be challenged. For some producers, depending upon the quality of their shale assets and the cost of their operations, there is still likely financial pain ahead. Service companies are struggling to ascertain the level of activity for the industry over the next few years and the types of equipment and services that will be in demand. This will help them decide where to invest. Service companies are also considering where to place their capital bets - North American shale plays, offshore or select international land and shale plays. Additionally, the service companies need to better understand which of their product and service business lines will be of long-term value and which ones they should dispose of. These considerations suggest the service industry is on the cusp of a restructuring. The recent announcement by Weatherford International (WFT-NYSE) that it plans to shed four business lines is a manifestation of that trend. We have also had National Oilwell Varco (NOV-NYSE) decide to split off its oilfield distribution business into a new company. Other corporate moves have involved offshore drilling companies announcing plans to establish MLPs and/or separate companies to hold segments of their current rig fleets. Some of these restructuring moves are designed to help boost capital returns to investors, especially those seeking yield. On the other hand, restructuring of the industry may be due to too many companies chasing the same business and the fact that many of these companies are owned by private equity firms needing to cash in on their investments.

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    Euro-Area Inflation Holds at Less Than Half ECB Ceiling

    Here is the opening of this informative article from Bloomberg:

    Euro-area inflation stayed below 1 percent for a second month, less than half the European Central Bank's ceiling, underscoring the weakness in parts of the euro region's economy.

    The annual rate rose to 0.9 percent from 0.7 percent in October, the European Union's statistics office in Luxembourg said in a preliminary estimate today. The median forecast in a Bloomberg News survey of 44 economists was for 0.8 percent. Separately, unemployment unexpectedly dropped to 12.1 percent.

    The increasing inflation rate "is largely coming through because of base effects in energy," said Guillaume Menuet, an economist at Citigroup Inc. in London. "Once these start to fall out of the calculation, it's quite likely by the spring of next year we'll have again more evidence of weakening price pressures."

    Today's data mark the 10th straight month that the rate has been less than the ECB's 2 percent goal. The central bank unexpectedly cut its key refinancing rate by a quarter point to 0.25 percent on Nov. 7 to prevent slowing inflation from taking hold in a still-fragile euro-area economy. ECB President Mario Draghi said at the time that the region needs record-low borrowing costs to combat a "prolonged" period of weak consumer-price growth and "very high" unemployment.

    Euro-area unemployment unexpectedly fell to 12.1 percent in October from 12.2 percent a month earlier. Economists had predicted the rate would stay unchanged, according to the median of 34 estimates.

    After this month's surprise rate cut, ECB officials have said they still have options for easing monetary policy. Bloomberg News reported last week that policy makers are considering a smaller-than-normal cut in the deposit rate, currently at zero, to minus 0.1 percent, if stimulus is required.

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    Monthly Oil - Short Term Bearish

    Thanks to a subscriber for this informative chartbook by Torbjorn Kjus for DNB which may be of interest to subscribers. The full 192-page report is posted in the Subscriber's Area but here is section:

    So far in 2013 we have issued 8 short term oil market reports. 5 of them have been bearish and 3 have been bullish. Directionally we have been correct in 5 out of the 8 reports. This is about spot on our long-term average performance which is 35 correct out of 55 published reports (64% correct). Our target is to have a hit ratio above 51% on the direction because the oil market is a flip of the coin market and the average participant should hence be at 50%. We conclude bearish in this 9th short term report of 2013. It is a little bit too early for the new year rally in oil prices that we have often seen and we see a fairly high risk in the short term for players taking profit on the currently very high Brent-WTI spread which is this time mainly caused by an unsustainably large Brent-LLS spread instead of mainly consisting of a large LLS-WTI spread.

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    Email of the day (1)

    on "cheap" energy:

    "There was a good article on Fracking in the Economist Magazine (still the best business magazine with no close second choices).  It was the 16-22 November issue. Sorry life has been to busy to bring this to your notice earlier.

    "I am not taking sides in the argument of social versus business arguments for fracking. I personally not convinced Fracking is a cheap source of oil although in the short term it is providing the US with cheap gas.

    "What I observe is fracking has created a collar in the oil market. If oil prices drop the frackers respond quickly and fracking stops. If oil prices rise frackers drill a lot more to meet the demand. T Boon Pickens commented recently that fracking is not in his experience cheap oil. I think we agree Mr Pickens knows the oil business in particular the economics of fracking.

    "As the Economists Magazine article points out the economics of fracking is a combination of gas prices, other liquids and oil prices. I will not go into the boring arguments of the relative merits of different sources of gas. Australia has lots of gas. We always knew about coal seam gas (CSG) however the petroleum engineers used to tell us CSG was very poor quality gas with low heat qualities and of no commercial significance. Not a argument you hear today. 

    "I guess the economics of fracking will improve. BHP are hoping they do. But unless they do improve even the dumb money (i.e. BHP) will get the hint and stop funding what has been so far a stupid idea.

    "Hopefully see you in February at the Chart seminar."

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    Email of the day (2)

    More on what causes the big cycles, plus Crowd Money:

    "Re the email posted on Wednesday in section Email of the day - On what causes the big cycles:

    "As always David you have summarised a comprehensive reply which in a matter of a few paragraphs simplifies what is most certainly a huge question.

    "I am currently enjoying a winter break in the Caribbean and have just finished reading Eoin's latest book 'Crowd Money - A Practical Guide to Macro Behavioural Technical Analysis'. I have to say that Eoin has covered this and so many other issues as well as offering easy to understand observations and answers in terms of the overall topic.

    "I have previously enjoyed the 2 day Chart Seminar but Eoin's book is an invaluable reference for all of us who have come to rely on David and Eoin to guide us through the ever changing world of financial markets.

    "After completing my reading and applying many of the techniques to a range of charts in The Chart Library, I now feel far more confident to read the charts and to draw meaningful conclusions.

    "I heartily recommend that subscribers make a small but invaluable investment in purchasing a copy!"

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