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>>> What Berkshire Hathaway’s Big Gas Pipeline Buy Tells You
Forbes
by Erik Sherman
July
https://www.forbes.com/sites/eriksherman/2020/07/06/berkshire-hathaway-dominion-energy-natural-gas-pipeline/#329345d7481c
Some big news on the investing front, as the New York Times’ Dealbook newsletter put it: “Warren Buffett Is Back in the Game”. After sitting back, Buffett and his partner at Berkshire Hathaway, Charlie Munger, did their first big deal in a while.
Berkshire Hathaway purchased a gas pipeline network from Dominion Energy for $9.7 billion. The amount might at first seem crazy given current news, but it’s a strategically smart move for the future.
Dominion and Duke Energy announced that they would cancel the Atlantic Coast Pipeline. The construction was supposed to expand a pipeline network hundreds of feet under the Appalachian Trail. Environmental opponents, who point to the regular occurrence of pipeline accidents and their consequences, according to federal government data, tried to block the project in court.
Dominion and Duke managed to move decisively past one legal challenge that went to the Supreme Court, but then faced “new and serious challenges” to a necessary permit. With costs having swelled from the original $4.5 billion to $5 billion estimate, reaching $8 billion, the two companies gave up.
Although the companies specifically referred to a decision out of the United States District Court for the District of Montana and a chilled reception from the Court of Appeals for the Ninth Circuit, they could also been thinking of the shutdown of the Dakota Access Oil Pipeline. Native American tribes reportedly prevailed in court when the pipeline was ordered to shut down by August 5 for a new environmental review that will likely take more than a year.
The more projects get drawn out, the more expensive they become and the less of a chance they can return sufficient profits fast enough to satisfy investors.
Between spiraling costs and an apparent growing skepticism on the part of courts, it would seem clear why Dominion might want to exit this part of the business. But why would Buffett and Munger decide to get involved?
First stop is to check Dominion Energy’s most recent annual report. A combination of “about 10,400 miles of natural gas transmission, gathering, and storage pipelines; and a liquefied natural gas terminal” led to about 24% contribution to the company’s 2019 operating earnings of $3.4 billion, or $800 million.
The $9.7 billion deal includes an assumption of $5.7 billion in existing debt, so the value of the actual pipeline network is about $4 billion. Even at nearly $10 billion, it puts only a small dent into the $137 billion in cash that Berkshire Hathaway had, according to data and analysis from Morningstar. That firm projects about $1 billion in ongoing annual net income.
Then there is also expansion of Berkshire Hathaway’s hold on the transmission of natural gas. The acquisition should increase the portion of national capacity to 18%, according to Dealbook.
The emphasis on transit and not extraction or sale is critical. Markets have seen wildly swinging prices of energy products. Gas never followed oil into negative territory, but last month saw at least a ten-year low.
That’s bad for producers, good for buyers, and fairly immaterial for those that operate distribution. Gas will continue to run electrical generation and both heating and cooling systems. A post-pandemic economic recovery will only increase demand and prices.
Today’s market has weighed in on who seems to have gotten the best of the deal. As of about 3:30 p.m. eastern, Dominion shares are down about 10.5% while Berkshire was up 2.6%.
As true for Buffett and Munger strategies, the full value will become apparent in the long run. In this case, it’s a reminder for investors to consider which companies in a market are absolutely necessary while remaining disconnected from the whims of commodity pricing. A pipeline business is like an electrical grid, gaining its own profits for a service that can’t easily be circumvented.
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>>> Exxon’s getting booted from the Dow Jones Industrial Average may be a blessing in disguise for its investors
MarketWatch
Aug. 30, 2020
By Mark Hulbert
https://www.marketwatch.com/story/exxon-getting-booted-from-the-dow-jones-industrial-average-may-be-a-blessing-in-disguise-for-its-investors-2020-08-25?siteid=yhoof2&yptr=yahoo
Stocks deleted from an index often proceed to beat the additions
CHAPEL HILL, N.C. — Exxon Mobil’s fall from grace has been stunning.
But maybe, just maybe, being kicked out of the Dow Jones Industrial Average DJIA, -0.56% will prove to be a blessing in disguise.
The company XOM, -0.07% has been part of this bluest of blue-chip averages for 92 years. It joined in October 1928, when it was called Standard Oil of New Jersey. For decades the company was one of the 10 most valuable publicly traded companies, and for six straight years — from 2006 through 2011 — it was at the top of the market-cap rankings.
The primary reason S&P Dow Jones Indices gave for removing Exxon Mobil is that the index’s sector weightings were slated to otherwise become particularly skewed when Apple’s shares split four-for-one at the end of August. Since the DJIA is a price-weighted index, this would have reduced Apple’s weight in the index by 75%. To at least partially restore the information-technology sector’s weight, Exxon Mobil was replaced by Salesforce.com CRM, -3.89%, a company that develops enterprise cloud-computing solutions with a focus on customer relationship management.
S&P Dow Jones Indices also is replacing Pfizer PFE, -0.11% with Amgen AMGN, +0.19% and Raytheon Technologies RTX, +0.50% with Honeywell International HON, +0.23%.
It nevertheless can’t have escaped S&P Dow Jones Indices’ notice that Exxon Mobil’s stock has been suffering for the better part of a decade. Its shares traded for more than $104 in June 2014, versus $42 today. Even taking dividends into account, it has lagged the Dow by an annualized margin of plus 11% to minus 10.3%, according to FactSet — a spread of 21.3 annualized percentage points.
To appreciate why being booted out of the Dow might just turn out to be a blessing, consider what happened to IBM IBM, -1.72% in 1939. That was when it was removed from the DJIA, and it didn’t make it back in until 1979.
Over those 40 years it outperformed the market by a large margin.
It outperformed by so much, in fact, that Norman Fosback, the former head of the Institute for Econometric Research, calculated that the DJIA would today be more than twice as high had IBM not been kept out of the Dow for those four decades. To put that another way: But for IBM’s being out of the Dow for those 40 years, the Dow today would be approaching 60,000.
This is just one example, of course, but more systematic studies of index deletions have also found that stocks deleted from an index tend to do more than just hold their own. One such study conducted by Wharton University finance professor Jeremy Siegel measured the impact of all additions and deletions to the S&P 500 since its creation in the 1950s. He found that the deletions, on average, outperformed the additions.
Another study, by Jie Cai of Drexel University and Todd Houge of the University of Iowa, focused on the Russell 2000 RUT, -0.60% between 1979 and 2004. The pair found that a portfolio of stocks deleted from the index outperformed a second portfolio of the added stocks — and not by just a little bit, either, but by nine annualized percentage points.
To be sure, getting kicked out of a major market benchmark isn’t a guarantee that a stock will outperform the market. General Electric GE, +1.58%, for example, has produced an annualized loss of 21.4% since it was removed from the Dow in June 2018, in contrast to a 9.1% annualized gain for the Dow itself.
But the overall pattern is clear.
Why being part of the DJIA might not be all that it’s cracked up to be
An academic study from earlier this summer provides several clues as to why being part of a major market average doesn’t give companies much more than bragging rights. The study, by Rene Stulz of Ohio State, Benjamin Bennett of Tulane and Zexi Wang of Lancaster University, found that companies typically change their behavior after becoming part of the S&P 500 SPX, -0.81% — the blue-chip benchmark favored by money managers — for reasons having nothing to do with economic fundamentals. On average in recent years, in fact, companies added to the index experienced a decline in return on assets.
It should also be pointed out that an index of just 30 stocks is hardly representative of the overall market. With such a small number, the decision makers at S&P Dow Jones Indices are given excessive power to define the market. Why, for example, did they choose Salesforce instead of Facebook FB, -2.88%, as Barron’s columnist Andrew Bary is already asking? They no doubt had good reasons, but — as IBM’s example between 1939 and 1979 reminds us — this one decision could very well have a huge long-term impact.
If investors focused instead on the combined market capitalizations of all publicly traded stocks — which, by definition, is the entire stock market — then we wouldn’t find ourselves in a situation in which a simple stock split can have such momentous consequences.
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>>> Natural Gas Is the Past. Natural Gas Is Also the Future.
Pipelines and storage have become unpredictable, but fuel delivery still provides a clear path to returns.
Bloomberg
By Nathaniel Bullard
July 9, 2020
https://www.bloomberg.com/news/articles/2020-07-09/natural-gas-is-the-past-natural-gas-is-also-the-future
On Sunday, Virginia-based utility Dominion Energy Inc announced plans to sell almost all of its natural gas pipeline and storage assets to Warren Buffett’s Berkshire Hathaway Inc for $4 billion. At the same time, the Virginia-based utility said that it’s killing the Atlantic Coast gas pipeline despite a Supreme Court ruling that would grant it passage underneath the Appalachian Trail.
There’s a lot going on here, and not just for the second-biggest U.S. power company by market value and the Oracle of Omaha. Natural gas, the “bridge fuel” to decarbonize the U.S. electricity system, is under pressure. But it’s not yet a bridge to nowhere.
There are a number of factors motivating Dominion’s strategy. The first is that permitting for gas infrastructure is “increasingly litigious, uncertain, and costly,” Chief Executive Officer Thomas Farrell said during a call with analysts to discuss its plans. The second factor is that the economics of operating a midstream pipeline—even one that has had no trouble attracting customers—aren’t great, Farrell admitted.
That doesn’t mean the company is getting out of gas entirely. It still burns gas in power plants and will for some time. It also still owns distribution networks, which deliver gas to customers. That’s the infrastructure Dominion sees carrying it into the future.
The whole thing is part of a strategy to generate more of its earnings from assets with a return on equity that’s determined by state regulators. That may sound unexciting, but that’s part of the point. It’s predictable, and it gives Dominion a clear story to tell capital markets: for every dollar we invest in regulated assets, we’ll receive X amount back, guaranteed.
There’s a slide in Dominion’s analyst presentation that illustrates this idea. It shows the company’s past acquisitions of mostly-regulated companies such as gas distributor Questar and electric and gas utility Scana leading directly to Dominion’s decision to sell its midstream gas interests and other assets. The result, it hopes, is that 90% of its operating earnings will come from state-regulated operations.
Dominion presentation
There’s a financial strategy at work here too, one that I’ve written about before. It has three parts, the first of which is that returns on equity—both what utilities ask regulators for and what they’re awarded—have been falling for decades. Not only that, the spread between asked and awarded is also fairly tight, and definitely tighter than it was in the mid-2000s and in the mid-1990s. That’s good for messaging: it means you can say that what you want is pretty close to what regulators think you deserve.
Don't Mind This Gap
U.S. electric utility requested and awarded return on equity, four-quarter trailing average
The second part of this strategy comes from the long-term decline in the risk-free rate of return on investments, as represented by the U.S. 10-year Treasury yield. We can think of 10-year Treasuries as a utility’s opportunity cost for not investing in regulated businesses; the spread between a utility’s awarded ROE and the 10-year note is effectively the risk-adjusted return on equity for regulated utilities. That spread is at a near-record high, north of 800 basis points, and it’s more than double the risk-adjusted return of 25 years ago.
This Trend Is a Power Utility's Friend
Spread between U.S. electric utility awarded return on equity and 10-year Treasury yield
The third part of this strategy is that Dominion can match a clear growth path to this return on equity. Virginia’s power sector aims to be 100% clean energy by 2045, which requires building at least 16 gigawatts of wind and solar generation assets. Dominion is allowed, by Virginia law, to own up to 65% of those assets. Those it owns will become part of the utility rate base, the assets on which it earns its ROE. It’s not quite risk-free, but it’s not far off.
The same is happening all over the country, meaning that gas networks on the other coast face pressure, too. In California a number of municipalities have mandated all-electric new construction—that is, gas won’t be connected even for cooking purposes.
In the past three weeks, two of the state’s big utilities, Pacific Gas & Electric and Southern California Edison, have written to the California Energy Commission in support of a statewide all-electric buildings mandate. SCE’s letter says it wants the Commission to move “as quickly as possible” so that utilities might “avoid costly spending on natural gas infrastructure that may become stranded before 2045.” Implicit in that statement: not every gas infrastructure operator can count on Warren Buffett or his successors to buy their assets when the time comes.
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>>>The Problematic Future of Gas Pipelines
Bloomberg
By Emily Chasan
July 8, 2020
https://www.bloomberg.com/news/articles/2020-07-08/a-problematic-future-lies-ahead-for-gas-pipelines-green-insight
It was a tough week for the North American fossil fuel industry. Over just a few days, the Atlantic Coast natural gas pipeline was canceled by developers, the Dakota Access oil pipeline was shut down by a federal judge and the Trump administration lost its Supreme Court bid to resuscitate the Keystone XL oil pipeline (though the justices did make it easier to build other pipelines).
These three strikes, though potentially reversible, nevertheless illustrate another reason why pipelines are pretty risky investments right now—especially those that carry natural gas. Already, the pandemic-induced drop in demand, its dangerous role in global warming and questions about whether it truly is a competitive transitional fuel have many wondering whether gas is headed the way of coal.
Less Gas
“The alarming rate at which pipelines are leaking planet-warming methane is already catching the eye of regulators,” said John Hoeppner, head of U.S. stewardship and sustainable investments at Legal & General Investment Management America. As the energy transition to renewables accelerates, these issues could continue to raise costs for gas pipeline operators, especially if the industry can’t control emissions, he said.
Still, this is far from the end of natural gas. After all, Warren Buffett is betting on the industry with his $9.7 billion deal for the assets of one pipeline. The fuel remains crucial to the prospect of developing cleaner energy from hydrogen, and is an easy way to quickly replace coal. The dirtiest of fossil fuels, incidentally, faces even tougher viability questions, with about 73% of coal plants predicted to be uncompetitive with renewables by as soon as 2025, according to Carbon Tracker.
pipeline pipe gas oil
Even if one, some or all of this week’s pipeline defeats are temporary, the losses (and the rising local and environmental opposition behind them) may scare off investors. Building expensive natural gas infrastructure may not make sense when there’s a reasonable chance pipeline operators will face significant public pushback. And making matters worse, the taxpayer subsidies the industry has relied on for years are starting to shrink.
“Tax and fiscal subsidies really shift the investment landscape,” said Bronwen Tucker, a research analyst at nonprofit Oil Change International, which works to track the true price of fossil fuels. The group found that, since the Paris Agreement was signed in 2015, G-20 countries have still been forking over at least $77 billion in public financing annually to the oil, gas and coal industries. That’s more than three times the amount of subsidies those countries offered to clean energy during the same, post-Paris period. Still, the International Energy Agency said last month that fossil fuel subsidies are starting to decline, with recent coronavirus-triggered price drops presenting an opportunity for nations to disengage. Subsidy declines are not necessarily fast enough to stop global warming, but they may be enough to do more damage to an already reeling fossil fuel industry.
Public Spending
For now, however, the pandemic’s overall effect has been to prop up energy companies and their fellow travelers.
“Some countries are putting in good support for renewables and green transitions as government stimulus comes in, but overall we’re still seeing more support for fossil fuels than renewables,” Tucker said. “We know the fossil fuel sector is in decline and is going to have lots of ups and downs before being fully replaced by renewables.”
Lagging Behind
Emerging markets are the next big frontier in ESG. Right now, environmental, social and governance investing only accounts for 0.2% of total assets under management in South Korea, 0.6% in Brazil and 1.4% in China.
Sunrun, the largest U.S. residential-solar company, surged to a record high share price after its $1.46 billion deal to buy rival Vivint Solar.
Pension funds are looking to improve their tracking of efforts to achieve United Nations sustainable development goals.
A rare high-coupon green “coco” bond debuted in Europe.
Japan, which has the highest per capita plastic consumption rate in the world, just required all retailers to start charging for plastic bags. The government aims to double its material recycling rate by 2030, requiring a five-fold expansion of plastic recycling capability.
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>>> U.S. Utility Giant Kills Pipeline, Sells Assets to Berkshire
Bloomberg
By Rachel Adams-Heard, Katherine Chiglinsky, and Gerson Freitas Jr
July 5, 2020
https://www.bloomberg.com/news/articles/2020-07-05/berkshire-hathaway-buys-dominion-gas-assets-in-9-7-billion-deal?srnd=premium
Dominion, Duke Energy cancel planned Atlantic Coast project
Dominion will retain interest in LNG terminal in Maryland
Energy’s natural gas transmission and storage business in a deal with an enterprise value of $9.7 billion.
One of the largest utilities in America is starting to turn its back on natural gas.
Dominion Energy Inc., the second-biggest U.S. power company by market value, on Sunday said it’s selling substantially all of its gas pipeline and storage assets to Berkshire Hathaway Inc. for $4 billion. In a separate statement, Dominion and its partner Duke Energy Corp. said they’re killing the controversial Atlantic Coast gas pipeline along the U.S. East Coast, citing ongoing delays and “cost uncertainty.”
The moves come as utilities face increasing pressure from local governments, investors and environmentalists to quit the fossil fuel. While long heralded as a cleaner alternative to coal and heating oil, gas is now getting shoved aside in the fight against climate change as states including New York, California and Dominion’s home base of Virgina have all passed laws for utilities to be carbon free within decades.
“This transaction represents another significant step in our evolution as a company,” Dominion Chief Executive Officer Thomas Farrell said in a statement, citing the company’s goal of reaching net-zero emissions by 2050.
The push away from gas positions Dominion as more of a pure-play state-regulated utility at a time when oil and pipeline operators have lagged the broader market. In the last year, an index of pipeline companies has fallen 36%, while the S&P 500 Index has gained 4.7%.
Read More: Wall Street Falls Out of Love With Once-Coveted Fossil Fuel
To be clear, Richmond, Virginia-based Dominion, which operates utilities in eight states, isn’t walking away from fossil fuel altogether. It will still sell gas to customers for heating and cooking. It’s retaining an interest in its Cove Point liquefied natural gas export terminal in Maryland. And 40% of the electricity the company generates comes from plants fueled by gas, coal and oil, according to its website.
“They’ll still be burning lots of gas for decades ahead in the core utility business,” Bloomberg Intelligence analyst Kit Konolige said in an email.
But pressure is mounting. The law Virginia enacted in April requires Dominion’s utility in the state to be to be carbon-free by 2045.
Atlantic Coast is the third U.S. gas pipeline project to scrapped or shelved this year. Williams Cos. opted not to reapply for a permit in May for a $1 billion pipeline extension after regulators in New York blocked it. And in February the Oklahoma-based company canceled plans for a pipeline that would have run from Appalachia to New York.
While the Atlantic Coast pipeline project won a key victory last month when the U.S. Supreme Court sided against environmentalists and upheld a crucial permit, the project still faced formidable opposition and costs. “That would indicate that that wasn’t a strategic decision as much it was as a practical decision,” said Paul Patterson, an analyst at Glenrock Associates LLC.
Deal with Berkshire
Dominion’s deal with Berkshire calls for the giant conglomerate to assume $5.7 billion in debt. The utility will use $3 billion of the proceeds to buy back shares. Dominion also cut its projected 2021 dividend payment to around $2.50 a share, reflecting the assets being divested and a new payout ratio that aligns it better with industry peers.
The transaction is expected to close during the fourth quarter. It will require the approval of federal agencies including the U.S. Department of Energy.
Berkshire is amassing more than 7,700 miles (12,400 kilometers) of natural gas storage and transmission pipelines and about 900 billion cubic feet of gas storage in the deal with Dominion. Warren Buffett’s conglomerate will also acquire 25% of Cove Point.With this transaction, Buffett has ended his period of relative silence on the acquisition front since the pandemic.
The Dominion deal is set to be Berkshire’s largest acquisition ranked by enterprise value since its purchase of Precision Castparts Corp. in 2016. It will expand the company’s already sprawling empire of energy operations, which currently has operations in states including Nevada and Iowa.
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>>> Chesapeake’s Demise Marks End of Shale Model That Changed the World
Bloomberg
By Joe Carroll and David Wethe
June 12, 2020
https://www.bloomberg.com/news/articles/2020-06-12/chesapeake-s-demise-marks-end-of-shale-model-that-changed-world?srnd=premium
Drilling pioneer never escaped burden incurred by late founder
CEO Lawler running out of rescue options amid perptual glut
It will go down as wildest of the shale wildcatters, the overreaching pioneer of fracking techniques that minted vast fortunes and, now, have left behind ruin.
At long last, financial reality has caught up with Chesapeake Energy Corp., avatar of the boom and subsequent bust of North American shale.
Chesapeake’s spiral toward oblivion accelerated this week with executives said to be preparing for a potential bankruptcy filing, signaling the imminent end of Chief Executive Officer Doug Lawler’s 7-year campaign to turn around the troubled gas explorer. For a company that’s been skirting disaster for most of the past decade, the Covid-19-driven collapse in world energy prices merely added one more exclamation point to a tale of risk, hubris and debt.
Chesapeake never got out from under its borrowings
Chesapeake may be shale’s biggest corporate casualty, but it is hardly the first -- and won’t be the last. Its self-inflicted wounds have sapped confidence across the entire industry, leaving many smaller operators teetering on the edge of catastrophe.
As the remnants of shale’s turn-of-the-century heyday turn to dust, it’s unclear who -- if anyone -- will step into the void. Supermajors like Exxon Mobil Corp. and Chevron Corp. already have written off their own gas-heavy assets, and are instead focusing on oil-rich shale fields. But any shift in the global supply-and-demand balance for gas would prompt the most sophisticated giants to reassess the value of acquiring and drilling mothballed gas projects.
Extreme Pressure
Almost three dozen North American explorers, frackers and pipeline operators have fled to bankruptcy courts since the start of this year, buckling under $25.2 billion in cumulative debts, according to law firm Haynes and Boone LLP. Chesapeake’s indebtedness would swell that encumbrance by almost 40%.
And even with crude prices recovering from the unprecedented April collapse into negative territory, energy-sector bankruptcies are expected to grow in coming months because many shale companies are in too far over their heads. “Extreme financial pressure is being felt at all levels of the energy industry,” Haynes and Boone said in a report.
The template for the shale model that’s now unraveling for many companies was established by Chesapeake and its late co-founder Aubrey McClendon.
Experimental Drilling
The late Aubrey McClendon during the CERAWeek 2009 conference in Houston.
Chesapeake was the brainchild of McClendon and his pal Tom Ward, who started out with $50,000 in borrowed money in rented offices. The company went public in 1993 and soon was experimenting with sideways drilling and hydraulic fracturing to pummel open shale formations previously regarded as impermeable -- and therefore, worthless -- by geologists.
At the time, the outlook for domestic gas production was so grim that Alan Greenspan predicted the U.S. would need huge imports of liquefied gas to keep industries and furnaces running. Tens of billions of dollars were invested in massive new gas import terminals that were rendered obsolete before they even opened as Chesapeake and other shale drillers flooded the continent with gas.
By the time Ward struck out on his own to form SandRidge Energy Inc. in 2006, Chesapeake was spending on average $1 billion a year to snap up drilling rights from Texas to Pennsylvania. At the start of 2007, Forbes magazine named Chesapeake the best managed oil and gas company.
Grand Ambition
Under McClendon, Chesapeake raised production more than 10-fold between 2000 and 2013, invested heavily in experimental natural gas-fueled transport, and even toyed with expanding overseas before its geologists concluded that many European shale formations were unsuitable for drilling.
At its peak, Chesapeake pumped more American gas than anyone aside from Exxon and boasted a market valuation of almost $38 billion.
The other side of that coin was that the company only generated positive cash flow in two out of the past 30 years. When gas output from newly tapped shale fields flooded markets and prices tumbled, Chesapeake had to scramble to find new investors or joint-venture partners to provide cash infusions. By 2012, the company’s net debt load was twice the size of Exxon’s, a company that had a market value 27 times larger. Chesapeake warned it was on the verge of running out of cash.
While all of that was still brewing, little-known oil wildcatters like Harold Hamm were quietly adapting the technology McClendon and the other shale-gas innovators employed for use on crude-drenched rocks in North Dakota. Those breakthroughs reversed the terminal decline in U.S. crude production, turned America into an energy powerhouse and shattered OPEC’s decades-long grip on the world’s most important commodity.
Double Magnums
When times were good, Chesapeake spared no expense recruiting young talent to Oklahoma City and a corporate headquarters modeled after an Ivy League university campus. In between stockpiling double magnums of Bordeaux and collecting antique speedboats, McClendon singlehandedly transformed the northwest side of the city from a rundown backwater to a bustling commercial corridor.
But the good times never last forever. McClendon was ousted during an Icahn-led board revolt in 2013, and three years later he was indicted on federal bid-rigging charges. Just hours after vowing to fight the charges at all costs and clear his name, he died when his Chevy Tahoe slammed into a concrete highway abutment at 78 miles an hour along a desolate country road.
“They were absolutely guns blazing with their growth, but it took a lot of money to do that,” said Robert Clarke, research director at Wood Mackenzie Ltd. “Right now we’re looking at the ugly side of all that excess.”
Escape Routes
Although Lawler inherited many of the burdens that sank the company, the fateful 2019 takeover of WildHorse Resource Development Corp. that included the assumption of more than $900 million in debt was his own undertaking. The move -- intended to pivot Chesapeake toward oil and away from gas -- occurred just in time to expand the company’s exposure to the crude-market collapse.
In the end, Chesapeake ran out of escape routes from its $9.5 billion debt load. Gas prices were too low for too many years, and lenders and private-equity investors had long since shut the door on shale. That left asset sales as the sole avenue for raising cash, but in a market already drowning in a surfeit of gas, Lawler couldn’t find buyers.
McClendon’s legacy has haunted Chesapeake long after his 2013 ouster and his 2016 death. Lawler, the former Anadarko Petroleum Corp. exploration boss recruited by Carl Icahn and O. Mason Hawkins, has spent his entire tenure trying to right the ship.
Things were so dire in 2016 that the CEO was forced to pledge almost everything the company owned to keep open a credit lifeline. Lawler, who declined to be interviewed for this story, also sought to demonstrate he was the anti-McClendon. His predecessor’s long, drawn-out conference calls with analysts were replaced with curt recitations of bullet points. Austerity reigned at the company’s once-lavish headquarters, and Lawler eschewed McClendon’s fondness for opulent displays.
“If you see me out at a dinner, here in Oklahoma City and on company expense,” Lawler said at an event in 2014, “and you see me drinking a $500 bottle of wine, I would ask you to hit me over the head with it.”
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Pipelines - >>> Why Energy Transfer Believes Its 15%-Yielding Dividend Is Safe
The midstream giant sees the light at the end of the tunnel.
Motley Fool
Matthew DiLallo
May 24, 2020
https://www.fool.com/investing/2020/05/24/why-energy-transfer-believes-its-15-yielding-divid.aspx
Units of Energy Transfer (NYSE:ET) have cratered roughly 35% this year. That sell-off pushed the yield on the master limited partnership's distribution up to an eye-popping 15%. When a payout reaches that level, it's because the market doesn't believe it's sustainable.
However, Energy Transfer has full confidence in its ability to maintain its distribution, given what it sees ahead. That was one of the key takeaways on its first-quarter conference call.
Drilling down into the current numbers
CFO Tom Long drove the discussion on the call. One of the things he noted was that Energy Transfer generated $1.42 billion of cash during the quarter. As a result, he pointed out that the "coverage ratio for the quarter was 1.72 times, which resulted in excess cash flow after distributions of $594 million." In other words, the company is generating enough cash to cover its payout with room to spare.
Unfortunately, there's a bit more to this story. The concern with the payout is twofold. First, Energy Transfer is spending a lot of money on capital projects to expand its operations. It invested $1 billion during the first quarter, implying it outspent its retained cash by more than $400 million. That means it tacked more debt onto its balance sheet, which is a concern since its leverage ratio remains above its targeted level of 4.0 to 4.5 times debt-to-EBITDA.
On a positive note, that outspend should shrink in future quarters after the company cut its capital budget by $400 million due to the turmoil in the energy market, putting it track to spend $3.6 billion this year. Meanwhile, Long noted that it's "evaluating another $300 million to $400 million for potential reduction this year." If it defers that investment, it will further narrow its spending gap, taking additional pressure off its balance sheet.
The upcoming inflection point
Given its elevated leverage, the market remains concerned that Energy Transfer might have to reduce its distribution if industry conditions deteriorate further so that it can use that cash to reduce debt. That's the course of action taken by many energy companies during this downturn.
However, Energy Transfer believes it can maintain its payout through this rough patch because it sees better days ahead. The biggest driver of this view is that the company expects capital spending to come down significantly next year as it completes its current slate of capital projects. Long stated on the call that: "As we think about future capital spend over the next three to four years, we anticipate an annual run rate of less than $2 billion. We remain committed to generating free cash flow and still expect to be free cash flow positive in 2021 after growth capital and equity distributions."
In other words, Energy Transfer expects to produce enough cash next year to fund its current distribution as well as all growth-related spending with room to spare. He provided an initial glimpse of how much excess cash flow it could generate by noting that while:
We've not put out guidance for 2021, as you know, but I think it is worth talking about when you look at 2019, we had over $3 billion of what we call retained cash flow. That's above the distributions. When you really look at this year, and you see where we currently have guidance, you'll see that we have free cash flow, we're right at that cusp. When you get to the $2 billion and less than $2 billion [in capital spending] for 2021, you can really look and see what type of free cash flow we have.
As Long points out, in 2021, Energy Transfer could produce around $1 billion in free cash after covering the distribution and capital spending. It can use that money to reduce debt in the near-term and then potentially return more cash to investors via a higher distribution or unit repurchase program once leverage is within its target range.
Walking a tight rope this year
Energy Transfer believes that it can generate enough cash this year to fund its payout and the bulk of its capital expenses, which will help keep it from putting more pressure on its balance sheet. Meanwhile, it expects to hit an inflection point next year when it finishes several large expansion projects, which will boost cash flow as capital spending declines. That has it on track to generate roughly $1 billion in excess cash, which it can use to pay off debt. The MLP believes it can maintain its distribution during this year's market turbulence and for the long term. While it's a higher-risk option, the high-yield provides an enticing reward.
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>>> 7 Best Energy Stocks to Ride Out Oil's Recovery
Kiplinger
by Aaron Levitt
May 12, 2020
When it comes to energy stocks, "safety" is in the eye of the beholder.
The world faces a massive supply glut as the coronavirus pandemic has simply removed much of the world's demand for oil. Energy has become so depressed that, a few weeks ago, the unthinkable happened: crude futures went negative. This means producers were paying contract holders to take crude off their hands.
The energy market has normalized since then, and oil has moved higher, but we're still looking at low average prices not seen since the Clinton administration. Prices are still well below breakeven costs for most energy stocks, even some of oil's elder statesmen. Dividends have been cut or suspended. Some - including Whiting Petroleum (WLL) and Diamond Offshore (DOFSQ) - have filed for bankruptcy, and other oil and gas stocks could face the same fate.
Thus, few energy investments feel "safe" right now. But as is the case after every oil crash, some energy stocks will survive. And of that group, some represent considerable bargains. They might not look pretty at the moment; a few have had to cut back on capital projects, even buybacks and dividends. But these moves have made them likelier to survive this downturn and come back swinging on an upturn in oil prices.
Here are seven of the best energy stocks to speculate on as oil tries to claw its way back. It could be a bumpy ride - every one of them could experience more volatility if oil prices swing wildly again. But thanks to smart fiscal management so far in this crisis, they might pan out well for adventurous investors.
Magellan Midstream Partners, LP
Market value: $9.6 billion
Distribution yield: 9.6%*
Historically, pipeline and other energy infrastructure companies - often structured as master limited partnerships (MLPs) - were billed as "toll road operators" for the energy sector. Crude, regardless of price, needs to be stored and shipped, and these infrastructure players do just that, collecting fees along the way. There was little commodity price risk because they were paid on volume.
In an effort to boost profits, many MLPs and other pipeline plays moved into processing and other tangential businesses. This exposed them to directly to the price of crude, which intensified their pain in the current downturn.
Magellan Midstream Partners, LP (MMP, $42.72), however, has largely stuck to its guns. It continues to operate one of the largest networks of pipelines moving crude oil and refined products around the country, with some storage assets as well. In other words, Magellan mostly just moves crude and refined products from Point A to Point B.
In May, the company reported a 38% year-over-year jump in first-quarter net income despite oil's crash during the first three months of the year. Distributable cash flow (DCF) - a non-GAAP (generally accepted accounting principles) measure of profitability that represents cash that can be used to pay distributions - declined, but only by 3.6%.
Better still, Magellan says distribution coverage is expected to be 1.1 to 1.15 times what the company needs to pay shareholders for the rest of the year, despite the weakness in energy prices. This, a month after the company extended its streak of quarterly distribution increases that stretches back to 2010.
In the end, Magellan is as classic a toll-taking pipeline play as they come. Thanks to that, the MLP should be among the best energy stocks to ride out oil's current malaise.
* Distributions are similar to dividends, but are treated as tax-deferred returns of capital and require different paperwork come tax time.
Marathon Petroleum
Market value: $21.3 billion
Dividend yield: 7.1%
Marathon Petroleum (MPC, $32.70) should be another survivor of the current energy crash.
Unlike energy stocks such as former spinoff Marathon Oil (MRO), MPC has little commodity price risk - or at least, it doesn't have the same kind of risk that exploration-and-production companies have. That's because, as a refiner, Marathon can actually benefit from lower crude oil prices: The lower the cost for feedstocks, the better the margins on finished products such as gasoline, jet fuel, even plastic.
That's the good news.
The bad news is that MPC has suffered lower overall fuel demand. As we hunker down to work from home, rather than drive to work or fly to meetings, refined-product use is tumbling. The Energy Information Administration estimates that U.S. gasoline consumption fell by 1.7 million barrels per day during the first quarter of 2020. In the same quarter, Marathon was forced to take a whopping $12.4 billion impairment charge and suffered a net loss of $9.2 billion.
That might sound worse than it really is. In reality, the refining industry is prone to swings - COVID-19 is just the latest. Institutional investors realize this, which is why MPC has been able to easily tap the debt markets. MPC has made moves such as raising $2.5 billion in senior notes and adding a $1 billion revolving credit facility, giving the company available borrowing capacity of about $6.75 billion.
Marathon Petroleum also has slashed capital expenditures by $1.4 billion, suspended share buybacks and decided to idle some refining facilities. But so far, it hasn't touched the dividend.
The EIA estimates gasoline demand will improve during the back half of 2020. Marathon appears to be well-equipped to survive the current headaches and eventually bounce back, likely with its high-yielding dividend intact.
ConocoPhillips
Market value: $45.3 billion
Dividend yield: 4.0%
"Déjà Vu" is French for "already seen." And for major independent energy producer ConocoPhillips (COP, $42.27) ... well, it has seen something like this before.
Back in 2014, the last time crude oil took a serious plunge, ConocoPhillips was a different animal. It was full of expensive projects and bloated capital spending requirements, and it wasn't nearly the shale player it was today. In the years since, Conoco sold expensive deep-sea operations, cut its dividend, paid off debt and become a shale superstar. This "lean and mean" operation worked, and COP became the blueprint for many other energy firms.
That also prepared ConocoPhillips to better withstand the current low-oil environment.
Yes, COP did decide to tighten its belt in March and April, announcing capital expenditure, output and share repurchase reductions. And yes, ConocoPhillips did lose $1.7 billion during the first quarter. But it still managed to generate $1.6 billion in cash flows from operations - enough to pay its dividend, expenditures and buybacks. The company also finished the quarter with more than $8 billion in cash and short-term investments, and more than $14 billion in liquidity once you factor in the $6 billion left on its revolver.
In fact, the company's in a good enough position that CEO Ryan Lance told CNBC he's "on the lookout" for acquisition targets.
Conoco, in taking its lumps years ago, became a better energy stock. That should give investors confidence in its ability to navigate this crisis.
Royal Dutch Shell
Market value: $127.9 billion
Dividend yield: 3.9%
Integrated energy giant Royal Dutch Shell (RDS.A, $32.76) did something recently that it hasn't done since World War II: It cut its dividend, from 47 cents per share to 16 cents. The news shocked the energy sector and broke the company's 75-year streak of payout continuity.
Shares of RDS.A, which are off 44% year-to-date, dropped nearly 13% on the announcement.
But perhaps investors should be buying with two fists. Because Royal Dutch Shell could end up being stronger for it once this is all done.
Shell's dividend cut was more proactive than reactive. Truth be told, Shell's first quarter didn't look all that bad. While the company suffered a small $24 million net loss, its "current cost of supplies (CCS) basis" earnings, backing out certain items, came to $2.9 billion, which wasn't far off CCS earnings from Q4 2019. Cash from operations clocked in at $14.8 billion, which would've been only a little shy of capital expenditures and its original dividend amount.
Shell appears to be taking the Conoco approach to this downturn.
To start the announcement of the dividend cut, Shell CEO Ben van Beurden said, "The world has fundamentally changed." And it's clear he's preparing for it. Shell might have been able to squeeze out its dividend for a few more quarters under these circumstances, but instead, the company decided to focus on fiscal strength now, enabling it to not just survive, but potentially be acquisitive and otherwise expand when the time is right.
It was a bitter pill for existing shareholders. But RDS.A still might be one of the best energy stocks for new shareholders, who will enjoy a decent yield around 4% from a company much better positioned to ride out the rest of this downturn.
EOG Resources
Market value: $29.0 billion
Dividend yield: 3.0%
The story at EOG Resources (EOG, $49.84) has always been the strength of its asset base.
EOG was one of the earliest frackers, and it moved into some of the best shale fields long before anyone else. This gave it prime acreage in places such as the Permian Basin, Eagle Ford and Bakken fields. The result of these premier wells has been lower costs, higher production rates and better cash generation than many competing energy stocks.
Despite its positioning, oil, which currently trades in the mid-$20s, still is too low for EOG to make a profit off it. So the company is pulling out its 2014 playbook. That is, EOG is drilling wells but not completing them. This will allow EOG to take advantage of low services costs and "turn the spigot on" at a later date. For now, it's shutting off roughly 40,000 barrels of oil per day worth of production, and it's reducing its capex spending by about $1 billion from a previously updated budget. All told, EOG has cut back planned capex by 46% from its original 2020 estimates.
The combination of already low costs and savings via well shut-ins allows EOG to keep its balance sheet healthy. EOG Resources finished Q1 with $2.9 billion of cash on hand and $2 billion available on its unsecured revolver. It also had no trouble raising an additional $1.5 billion in a bond sale at the end of April.
If oil manages to get into the low $30s, EOG should be able to fund its capital budget and dividends via cash flow for the rest of the year.
Schlumberger
Market value: $24.1 billion
Dividend yield: 2.9%
It stands to reason that if oil firms are suspending drilling, the firms providing drilling equipment won't see much business. That has been the case for Schlumberger (SLB, $17.36), which is off 57% year-to-date as rig counts in North America plunge.
Schlumberger's North American revenues slipped 7% quarter-over-quarter in Q1, following a double-digit decline at the end of 2019, and overall sales declined 5%. Margins contracted as SLB had to cut its services prices to compete. All of this translated into a hefty GAAP loss.
The biggest headline, however, was a 75% cut to the dividend.
Schlumberger is thinking ahead. The company reported positive free cash flow of $178 million - after recording a negative number a year ago. (Cash flow was even more robust in the quarters prior, however, so naturally prices are taking a toll.) Cutting the dividend, from 50 cents quarter to 12.5 cents, should save about $500 million quarterly. That'll help bolster its $3.3 billion cash position and help it pay off its debts more quickly.
Also, while North America is painting a bleak picture, SLB's hefty international operations are showing a little resilience. While off 10% from the previous quarter, sales were up 2% year-over-year. State-run oil companies operate under a very different directive than public ones; as such, they often keep drilling when many public companies wouldn't.
Schlumberger does indeed need oil prices to continue rebounding for the stock to emerge from this deep slump. But the combination of a more fortified balance sheet and a wide operational footprint should help keep the company afloat until then.
First Solar
Market value: $4.5 billion
Dividend yield: N/A
One of the biggest misconceptions is that solar energy and oil prices go hand in hand. As a result, when oil drops, solar stocks tend to plunge, too.
That's just silly. Petroleum-powered electric plants are a dying breed in the U.S., and currently comprise about half a percent of overall production. Solar now accounts for 1.8% and is assuredly on the rise.
But this misconstrued relationship could mean an opportunity for investors in leader First Solar (FSLR, $42.87).
First Solar not only makes high-efficiency panels, but it even builds and operates utility-scale solar plants. And while shares have declined 23% year-to-date, the company showed signs of resiliency in its first-quarter earnings. Revenues were marginally higher than in the year-ago period, and the company delivered a $90.7 million profit versus a $67.6 million loss. FSLR also recorded 1.1 gigawatts (direct current) of new net bookings for its Series 6 panels. That means utilities and installers still are looking out to the future despite the coronavirus' economic impact.
First Solar also boasts $1.6 billion in cash and marketable securities, and it's cash flow-positive. The company has provided limited guidance, but it says it plans on spending $450 million to $550 million in capital projects. That means without earning another dime, First Solar still has about three years' worth of working capital on its hands.
First Solar is the largest player in a growing field. And solar's tether to oil goes both ways, giving FSLR the potential to be one of the best energy stocks as oil prices recover.
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>>> Why These 3 Oil Refinery Stocks Jumped More Than 30% in April
A crude storage crunch could be a win for oil refineries.
Motley Fool
by John Bromels
May 7, 2020
https://www.fool.com/investing/2020/05/07/why-these-3-oil-refinery-stocks-jumped-more-than-3.aspx
What happened
Shares of oil refiners HollyFrontier (NYSE:HFC), Phillips 66 (NYSE:PSX), and Valero Energy (NYSE:VLO) rose between 34% and 40% in April, according to data provided by S&P Global Market Intelligence. HollyFrontier's shares were up 34.8%, Phillips 66's increased 36.4%, and Valero's soared 39.7%.
Of course, these gains only partially offset the losses refiners sustained in February and March, due in part to the Saudi Arabia-Russia oil price war, and flagging demand for fuel and other refined products due to the coronavirus pandemic. Year to date, all three companies' shares are down by more than one-third, with HollyFrontier's stock price down 43.5%, Phillips 66's down 34.4%, and Valero's down 34.8%.
So what
U.S. refining wasn't in such good shape to begin with. In Q4 2019, major refiners saw their fuel and petrochemical margins tumble as oversupply caused margins to sag. Then, in Q1, oil prices were cut basically in half. That's not necessarily a bad thing for refiners, which make money not from selling crude at prevailing rates, but from the "crack spread": the difference between the cost of a barrel of crude oil and the selling price of the refined products that can be made from it. In theory, a lower oil price can lead to a wider crack spread, benefiting refiners.
But because of the existing oversupply -- and, in March, reduced demand due to the coronavirus -- the selling price of refined products was driven lower, preventing refiners from significantly increasing their margins. Most refineries aren't even operating at full capacity anymore, which is causing problems further up the oil chain, as storage facilities fill up with crude oil that isn't being processed.
Like much of the rest of the oil industry, HollyFrontier, Phillips 66, and Valero have taken steps to adjust their spending levels as they ride out the uncertainty in the sector. HollyFrontier is cutting its 2020 capital expenditures by 15% and is currently running its refineries at just 70% of capacity. Phillips 66 had a similar reaction: It cut its 2020 capital budget by 18.6%, suspended share repurchases, and delayed the start of construction on several pipeline projects. Valero suspended its share buybacks, too, while also deferring $400 million in capital projects until next year, resulting in a projected 16% drop in 2020 capital spending. It said it plans to run its refineries at about 73% of capacity during the current quarter.
All in all, the three refiners' efforts are remarkably similar, as is their share-price performance for the year so far:
Now what
In late April, crack spreads began to significantly improve. On its Q1 earnings call, Phillips 66 reported that the average 3:2:1 crack spread -- referring to three barrels of crude being refined into two barrels of fuel and one barrel of heating oil -- was $9.82 during the first quarter. By mid-April, that figure had already soared into the high teens.
With the crack spread improving and the U.S. taking tentative steps toward reopening, plus a crude oil glut ensuring that refiners would be kept busy in the coming months, Wall Street decided that refiners weren't in such bad shape after all, and bid up their stocks. Those with retail operations, like Phillips 66 and Valero, were also expected to see increased demand as businesses begin to reopen.
The oil sector, though, is still a volatile place. Crude prices are still too low for most shale drillers to profitably produce oil. Yet crude oil inventories are rising to the point that storage capacity is running out. Demand is still low, and OPEC+ production cuts are only in effect through May.
With all that in mind, while refiners are a better bet than many other oil companies, investors may want to avoid refinery stocks -- along with the rest of the industry -- until the dust settles.
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>>> Warren Buffett Sold Phillips 66 -- Here's Why I'm Holding (and May Buy More)
Berkshire Hathaway sold its remaining stake in Phillips 66. I don't plan to follow Buffett's move.
Motley Fool
Jason Hall
May 20, 2020
https://www.fool.com/investing/2020/05/20/warren-buffett-sold-phillips-66-heres-why-im-holdi.aspx
This quarter's Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) 13-F filing with the Securities and Exchange Commission -- the document that discloses the company's massive stock portfolio holdings at the end of the prior quarter -- surprised a lot of investors. We already knew that Buffett sold Berkshire's stake in the major airlines, but we didn't know what the Oracle of Omaha bagged with his elephant gun. Turns out, not much of anything: Berkshire was by far a net seller in the quarter.
One of the stocks that Buffett unloaded in the quarter was Phillips 66 (NYSE:PSX). Not only is Phillips 66 a personal holding, but it's also the oil stock I've touted the most as being worth buying in the coronavirus crash. And despite Buffett's decision to move on from my favorite oil stock, I'm not changing my view. To the contrary: It's still on my radar as a company I'm interested in buying more of.
From the biggest shareholder to a steady seller
Warren Buffett seems to have an occasional infatuation with Phillips 66 that started before it was even a stand-alone company. In 2008, Buffett invested billions in ConocoPhillips (NYSE:COP), but at the time it was an integrated oil and gas company, not the independent producer we know it as today, resulting from the 2012 spinoff of Phillips 66 as a separate company.
Berkshire sold off all of ConocoPhillips soon after the spinoff, but kept most of the 27 million shares of Phillips 66 it got. Buffett regularly touted Phillips 66's management team as being one of the best in the business, lauding its wonderful job managing capital. It does so in two ways Buffett loves seeing from companies he invests in: buying back shares, and paying (and increasing) a great dividend.
Buffett's love affair with the company peaked in the summer of 2016, when Berkshire owned 15% of Phillips 66. The heat of summer's passion faded, and Berkshire became a net seller of the company's stock almost every quarter, finally unloading its shares completely by the end of this past March.
Reading the tea leaves
Without getting too deeply into trying to read Buffett's mind, we can see that the Berkshire portfolio has substantially reduced its exposure to the energy industry over the past few years. I think it's likely that this is intentional. As a sector, the oil and gas industry has been a terrible investment over the past decade, and it's reasonable to conclude that Buffett, along with portfolio managers Todd Combs and Ted Weschler, have found other, more compelling investment ideas outside the oil patch.
The bottom line is that with the exception of Phillips 66, Buffett's biggest oil investments have not done well. Even the sweetheart deal with Occidental Petroleum (NYSE:OXY) could be a loser if that company ends up filing for bankruptcy.
Either way, that's a lot of guessing at reasons why Buffett is selling that may or may not be correct. Moreover, it really doesn't matter why. Buffett and the other Berkshire managers aren't managing your stock portfolio.
How Phillips 66 has done since Buffett started selling
Berkshire sold the last of its Phillips 66 shares last quarter, but it was the portfolio-management equivalent of washing the dregs out of your teacup. The company sold 227,436 shares to bring its holding to zero; at one point, Berkshire had owned more than 80 million Phillips 66 shares.
Since Berkshire started selling, Phillips 66 has been a solid investment. The coronavirus crash has cratered its stock price and erased a massive portion of its gains, but at the peak in late 2019, Phillips 66 investors had enjoyed more than 60% in total returns since Buffett started selling. That was actually a little better than the market as a whole, as illustrated by the SPDR S&P 500 ETF Trust (NYSEMKT:SPY):
That past performance doesn't make Phillips 66 a buy, but it's a reminder that it's steadily been one of the best investments in oil and gas. That solid performance is a product both of the parts of the oil and gas business it operates in that give it some durable advantages, and of how well its management team has proven able to navigate oil markets.
Why it's a buy today
As a starting point, Phillips 66 isn't an oil producer. That part of the business stayed with ConocoPhillips when the two split, and that's proven a big benefit. Oil prices have spent the past eight years going through extreme volatility, with two massive price crashes that have hit the stand-alone producer far more than the integrated midstream, refining, and petrochemicals producer.
To the contrary, while low prices have weighed on ConocoPhillips, Phillips 66's advanced refineries have unlocked more profits when U.S. oil is cheaper than overseas crude. It's not only been a better investment than the producer, it's outperformed the market:
Next, Phillips 66 also counts on natural gas for its fastest-growing businesses in the midstream and chemicals segments. Natural gas demand hasn't been hit nearly as hard as oil, because it's used more for electricity production and as a feedstock to make things like plastics -- think bleach and hand-sanitizer bottles -- and fertilizers. So while the refining and fuel marketing segments will struggle for much of 2020, this weakness will be partly offset by its other segments.
The business is holding up well enough, along with a rock-solid balance sheet, that the board of directors made the call just last week to maintain the quarterly dividend, while other oil giants have had to cut their payouts.
Lastly, the oil crash has turned Phillips 66 into an absolute bargain. Shares have recovered from the bottom, but are still down more than 30% this year. Considering the company's ability to weather the current environment, and that its segments should prove some of the quickest to profit from the eventual recovery in oil demand, it's absolutely worth buying now -- even if Buffett and Berkshire have moved on.
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>>> Refiners Optimistic As Drivers Hit Road -- WSJ
May 09 2020
By Rebecca Elliott
https://www.advfn.com/stock-market/NYSE/VLO/stock-news/82418016/refiners-optimistic-as-drivers-hit-road-wsj
Americans are starting to get back behind the wheel, welcome news for the companies that turn oil into gasoline and diesel.
Fuel makers including Valero Energy Corp. and Phillips 66 have said they expect gasoline demand to continue to rebound after plunging to roughly half of normal levels in early April, as states reopen from lockdowns imposed to limit the spread of the new coronavirus.
As a result, some refiners are looking to produce more gasoline again after choking back output in recent weeks. Such a move should help keep prices at the pump low for longer. Regular gasoline averaged about $1.80 a gallon in the U.S. on Thursday, down from $2.89 a year earlier, according to the price tracker GasBuddy.
"People have been cooped up, they want to drive," Phillips 66 Chief Executive Greg Garland told investors recently, offering a glimmer of hope as the largest U.S. refiners posted their worst quarterly earnings in years.
Marathon Petroleum Corp. reported a first-quarter loss of $9.2 billion, the company's largest quarterly loss on record, FactSet data show. The company took $12.4 billion in charges tied to items that include the value of its refineries, pipelines and inventory of oil and refined products.
Phillips 66's quarterly loss, at $2.5 billion, was its largest ever. The company attributed it in large part to impairments, lower refinery utilization and thinner margins. Valero reported a $1.9 billion quarterly loss, its biggest since 2008.
It wasn't that long ago that refiners were raking money in as soaring U.S. crude production created regional bottlenecks, allowing them to access pockets of relatively inexpensive oil.
Fuel makers typically do well when oil prices are low because people drive more. But the recent oil-price crash has largely been driven by a rapid decline in demand as people stay home and travel less to avoid contracting Covid-19. That means the second quarter is expected to be grim for refiners, too.
Nevertheless, fuel makers were generally optimistic about an eventual recovery in appetite for their products, saying they think gasoline consumption will continue to climb, even as people remain wary of getting on an airplane.
"We see a fairly gradual recovery in demand," Gary Simmons, Valero's chief commercial officer, told investors in late April.
Mr. Simmons said he expects gasoline demand to return eventually to around pre-Covid-19 levels, explaining that some people will embrace driving over public transportation because of concern about coronavirus transmission, offsetting those who continue to work from home.
Refiners sharply curtailed fuel making in March and April as businesses closed and airlines grounded planes, running their facilities at an average of about two-thirds capacity in mid-April, Energy Information Administration data show. That level is down from about 90% capacity a year earlier.
Companies adjusted their operations to minimize their output of jet fuel and gasoline in favor of diesel, which is used to power the trucks that remained on the road to transport food and other necessities.
But fuel makers have generated so much diesel that stockpiles are rising, federal data show. Gasoline reserves, while still quite high, are falling as demand inches back up. U.S. gas consumption in the week ended May 1 was up roughly a third from its low four weeks earlier, although still well below demand a year ago, according to the EIA.
"There's probably a few months before we can really give a better sense for exactly how this is going to play out, but we're definitely off the lows and seeing some nice improvement," Timothy Griffith, president of Marathon Petroleum's Speedway gas station chain, said recently. The Ohio-based refiner is responding by tweaking its systems to generate more gasoline and less diesel.
Average prices at the pump for regular gasoline in the U.S. fell as low as $1.74 a gallon in late April, their lowest level since February 2016, the depths of the last oil crash, GasBuddy data show.
Prices will likely only go up from here, but gasoline should remain cheap by historical standards for some time as Americans burn through the excess fuel that has built up in storage, said Patrick De Haan, GasBuddy's head of petroleum analysis.
"There's a very strong possibility that though prices have started to move up, we may be looking at an overall period of six to 12 months when prices remain somewhat depressed," Mr. De Haan said.
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Phillips 66, ConocoPhillips - >>> Oil Crash 2020: 4 Experts Weigh In on Stocks to Buy Right Now
Despite an unprecedented downturn in oil demand that's set to wreak havoc for many months ahead, there are some companies that look buy-worthy right now.
Motley Fool
Jason Hall, Tyler Crowe, Matthew DiLallo, And John Bromels
May 3, 2020
https://www.fool.com/investing/2020/05/03/oil-crash-2020-4-experts-weigh-in-on-stocks-to-buy.aspx
The COVID-19 pandemic, along with Saudi Arabia and Russia's war for global market share dominance, has brought much of the oil industry to its knees. We've already seen some companies go bankrupt just a couple of months into the downturn, and more bankruptcies are on the way as the supply-and-demand imbalance gets even worse with each passing day. That makes much of the oil patch a minefield for investors to avoid.
But even within this minefield there are a core group of well-capitalized and diversified companies that have both the operations and balance sheet strength to navigate the epic downturn. Four Motley Fool energy experts contributed a top oil stock that looks worth buying now: French energy giant Total SA (NYSE:TOT), refining and midstream leader Phillips 66 (NYSE:PSX), dominant and well-built oil and gas giant ConocoPhillips (NYSE:COP), and midstream stalwart Magellan Midstream Partners (NYSE:MMP).
Integrated model and low North American exposure
Tyler Crowe - (Total SA): There are three appealing qualities for Total today compared to most other companies in the oil and gas industry:
Its integrated business model means it can generate some revenue from downstream operations and other venues as its exploration and production business suffers.
It has low exposure to North American oil production where prices are even worse than the international market.
It has lots of cash on the books and has already eliminated $5 billion in cash expenses for the year.
Oil prices are so low these days that no company can produce oil and profits simultaneously. That is even worse in North America, where spot prices for certain crudes such as West Texas Intermediate and Western Canadian Select are priced much lower than the international benchmark, Brent. Of the oil majors, Total has the least exposure to North America, so its price realizations will likely be better than most.
Also, with a highly profitable refining and retail segment as well as a significant contribution from its integrated gas, renewables, and power segments, Total's chances of avoiding taking on significant debt to get through this are much lower than others in this industry.
This isn't to say that Total will come out of this downturn unscathed, but the damage will likely be lower than others and could make it one of the better bets on the oil and gas industry today.
Big enough, strong enough
John Bromels - (Phillips 66): Refiners are somewhat insulated from low crude oil prices because they make their money off the "crack spread" -- the difference between the cost of crude oil and the selling prices of the refined products and petrochemicals made from it. Unfortunately, there's a lack of demand for refined products like gasoline right now, and that has sent shares of refiner and marketer Phillips 66 down 33.8%.
With a glut of crude oil on the market in the U.S. and limited storage, oil prices are likely to stay low even after drivers start returning to the roads, increasing demand for refined gasoline. That should drive higher margins at Phillips 66's refineries while low gas prices simultaneously increase traffic to its filling stations. Phillips 66's size, strong balance sheet, and $1.6 billion cash hoard should ensure it can survive until that point.
The oil industry is a dangerous place these days, but Phillips 66 is one of the surest bets in the sector.
Built for times like these
Matt DiLallo - (ConocoPhillips): ConocoPhillips learned some valuable lessons during the last oil market downturn, which are paying dividends this time around. That experience had the oil giant put a priority on increasing its flexibility -- both operationally and financially -- so that it can quickly adjust to changes in market conditions.
One of the most important things it did was to build a fortresslike balance sheet. ConocoPhillips entered this currently turbulent period with the second-lowest leverage ratio in its peer group and a mountain of cash on its balance sheet. That has given it the financial flexibility to maintain its dividend. Meanwhile, it has focused on operating assets that not only boast some of the lowest supply costs in the sector but are flexible enough that it can adjust on the fly. That's allowed it to quickly reduce spending and production so that it can save that low-cost oil for better market conditions.
ConocoPhillips' flexibility will also allow it to move quickly when market conditions improve. It can turn wells back on and ramp up its drilling program. On top of that, it could potentially take advantage of opportunities that arise to bolster its portfolio via acquisition. This unparalleled flexibility puts it in an elite class.
A well-structured infrastructure giant
Jason Hall - (Magellan Midstream): If independent oil producers are the most at-risk from the oil crash, then top midstream companies are probably the safest. In this segment, Magellan is one of the very best. Magellan owns pipelines and storage facilities that are critical in the logistics of crude oil and refined products.
On one hand, now isn't a great time to be in the business of moving crude oil or refined products in North America. There is an overabundance of crude oil, but with gasoline demand at Vietnam War-era levels right now, Magellan's cash flows will feel a pinch. A protracted downturn would have a bigger impact on its bottom line than many expect, forcing the giant to tap more debt for cash to fund its distribution, or even back down from its plan to keep paying investors through the downturn. That's the downside case.
The upside from here is that, while oil production will be the last segment to benefit from a recovery of economic activity, supplying refined products should prove one of the first. That's excellent news for Magellan, which counts on the refined products business for the majority of its operating profits.
Between the diversity in its business that should prove helpful in weathering the storm and a balance sheet that gives it plenty of room to navigate the downturn and continue paying a dividend yield that's above 10% right now, Magellan Midstream looks buy-worthy today.
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>>> The Humbling of Exxon
The industrial giant missed the shale boom, overspent on projects, and saw its debt rise to $50 billion as its stock plummeted.
4-30-20
Bloomberg
By Kevin Crowley and Bryan Gruley
https://www.bloomberg.com/features/2020-exxonmobil-coronavirus-oil-demand/?srnd=businessweek-v2
Darren Woods, chief executive officer of ExxonMobil Corp., was chipper as he bandied with industry analysts on Jan. 31 about his company’s poor 2019 performance. The coronavirus had yet to spread far beyond China, but Woods had prepared to say a few words about it if anyone asked. No one did.
As for the lower earnings and sliding share price, Woods assured his conference-call audience that things were under control. Oil prices languishing in the $60-a-barrel range weren’t a problem but an opportunity. “We know demand will continue to grow, driven by rising population, economic growth, and higher standards of living,” Woods said. “We believe strongly that investing in the trough of this cycle has some real advantages.” He went on to describe how Exxon would spend in excess of $30 billion on exploration and other projects in 2020, more than any other Western oil company. “While we would prefer higher prices and margins”, he said, “we don’t want to waste the opportunity this low-price environment provides.”
Over the next several weeks, Covid-19 ravaged the oil industry by vaporizing global demand just as Russia and Saudi Arabia launched a price war. Investors were stunned to see oil fall to an 18-year-low of $22.74 a barrel at the end of March. An agreement aimed at cutting output and boosting prices failed to halt the slide, and on April 20 some oil contracts were trading for less than zero—sellers were paying buyers to take the crude. The fallout for producers large and small has been devastating. “You’re seeing fragilities exposed,” says Kenneth Medlock III, senior director of the Center for Energy Studies at Rice University’s Baker Institute for Public Policy. “Covid-19 is doing things that nobody could have imagined.”
Perhaps no company has been humbled as profoundly by recent events as Exxon, the West’s largest oil producer by market value and an industry paragon that sets the bar not just for itself but for its competitors. And the pandemic isn’t primarily to blame; the culprit is just as much the company itself.
The coronavirus has laid bare a decade’s worth of miscalculations. Exxon missed the wild and lucrative early days of shale oil. An adventure in the oil sands of Canada swallowed billions of dollars with little to show for it. Political tensions doomed a megadeal in Russia. Exxon ended up spending so much on projects that it has to borrow to cover dividend payments. Over a 10-year period, Exxon’s stock has declined 10.8% on a total return basis, which includes dividends. The company’s major rivals all posted positive returns in that period, except for BP Plc, which had the Deepwater Horizon spill in the Gulf of Mexico in 2010. The wider S&P 500 Index has returned nearly 200%.
The oil business is all about how much you produce, how low you get your costs, and how well you capture resources for the future. Exxon produces about 4 million barrels a day—essentially the same as 10 years ago, despite repeated vows to push the number higher. Meanwhile, the company’s debt has risen from effectively zero to $50 billion, and its profit last year was a bit more than half what it was a decade ago. Once the undisputed king of Wall Street, Exxon today is worth less than Home Depot Inc., which has less than half the revenue.
Exxon’s Return on Invested Capital
Fiscal years
Former CEO Rex Tillerson oversaw that eventful span before leaving to become President Trump’s secretary of state. Under Tillerson, Woods ran Exxon’s then-successful refining business. The rangy, white-haired graduate of Texas A&M University is known for his unfailing optimism and affability. (Woods declined to be interviewed for this article.) The size of the job he has now is difficult to overstate. In an unprecedented crisis he’s guiding what author Steve Coll, in his book Private Empire: ExxonMobil and American Power, called “a corporate state within the American state?…?one of the most powerful businesses ever produced by American capitalism.”
For four decades Exxon has plowed ahead, eyes on the distant horizon, keeping its share price steady, financial returns healthy, and dividend rising through wars and recessions, Democratic administrations and Republican. Now the world will see how well Exxon can survive a pandemic—and whether it has what it takes to thrive in the aftermath.
On Jan. 30, 2009, Exxon reported a 2008 profit of $45.2 billion, at that time the biggest annual profit ever recorded by a public U.S. company. Revenue was $425 billion, the stock closed that day at $76, and Exxon pumped more oil than any OPEC member except Saudi Arabia and Iran.
Tillerson had been CEO for three years. A gruff Texan who’d risen through Exxon’s rough-and-tumble drilling and exploration businesses, he was about to make his biggest deal to date: the $31 billion acquisition of XTO Energy Inc., the largest independent U.S. producer of natural gas. The deal was bold not just because of the price, but also because in buying XTO, Exxon was tacitly acknowledging that concerns over greenhouse gases would spur demand for cleaner gas. The purchase also surprised some investors, who couldn’t easily see how the company would make a return. This wasn’t like Exxon, known for an iron discipline about cutting deals that offered clear, reliable payoffs. Tillerson told analysts, “We’ll probably suffer in the near term as we put it together. This is really about value creation over the next many years.”
XTO’s expertise was in extracting gas from subterranean rock using newly developed fracturing techniques. But as Exxon assimilated XTO, wildcatters such as Harold Hamm of Continental Resources Inc. and Scott Sheffield of Pioneer Natural Resources Co. were discovering that fracking worked for oil, too. Soon it became clear that the real riches in North Dakota and West Texas shale were in oil, because crude was rising in price while gas was plummeting.
As the decade wore on, the magnitude of oil accessible in U.S. shale would make the country an energy superpower to rival OPEC. Yet it would be years before Exxon would embrace shale oil. “I would be less than honest if I were to say to you?...?we saw it all coming, because we did not, quite frankly,” Tillerson said at a 2012 event at the Council on Foreign Relations. Later, in 2019, he told a Houston industry conference that he “probably paid too much for XTO,” a rare Exxon mea culpa. Tillerson didn’t respond to requests for comment for this article.
Exxon wasn’t the only energy giant to whiff early on in the shale oil boom. So did Chevron, Royal Dutch Shell, and BP. That’s partly because the business was undergoing a fundamental change that the supermajors weren’t eager to accept. For decades, politicians and consumers were paranoid about running short of oil and gas. The biggest companies, led by Exxon, spent great sums exploring and drilling in ever more exotic and forbidding geographies, seeking the next mother lode.
Shale changed the calculus. Nobody doubted anymore that there were oceans of oil in the ground; it was a matter of getting it out as inexpensively as you could. The Hamms and Sheffields, fueled by cheap money from Wall Street, were driving down extraction costs and ramping up production in old American oilfields that the big boys had long ago abandoned. Some of them were a short drive from Exxon’s Irving, Texas, headquarters. Exxon, meanwhile, was taking chances on faraway lands.
Consider western Canada, where Exxon invested in the Kearl oil sands project. If you believed the world was short of crude, it sounded great: millions and millions of barrels waiting to be squeezed from Alberta sand, and Exxon’s technical prowess to plumb them. But upfront costs ran 18% higher than expected, and in 2014 oil prices began a nearly two-year swoon as OPEC flooded the world with oil in the hope of suffocating American shale drillers.
With crude dipping below $40 a barrel, Exxon’s hand was forced. In early 2017, after investing more than $16 billion, the company had to erase 3.3 billion barrels from its listing of crude reserves, most of it from Alberta. The company couldn’t control oil prices, of course, but the oil sands write-off was nevertheless part of the deepest reserves cut in Exxon’s modern history. (Exxon last year rebooked some of the Alberta reserves.)
Russia seemed more of a sure thing. Russian President Vladimir Putin and Tillerson had a history. In 2003, under then-CEO Lee Raymond, Exxon had come close to buying into Yukos Oil Co., the Russian oil producer owned by Putin adversary Mikhail Khodorkovsky. Putin balked at the prospect of Exxon calling the shots on production and other matters; Tillerson, then an Exxon senior vice president, was just as wary of Putin meddling with Yukos. He helped persuade Raymond to back off, which forged a bond between Putin and Tillerson that no other Western oil company executive enjoyed.
In 2011, Putin and Tillerson agreed on the first piece of what was envisioned as a $300 billion exploration deal that opened vast tracts of the Russian Arctic thought to contain billions of barrels of oil. It was an ideal match: Exxon wanted the natural resources, Putin the expertise and money. Then, in 2014, the Obama administration imposed sanctions on Russia for its annexation of Crimea. The sanctions prevented Exxon from continuing work on most of the Russia project. Another big fish had gotten away. Again, Exxon probably couldn’t have predicted Crimea—nor was it alone in seeking access to Russian crude. But maybe that’s what you get for trusting Putin.
By the time Tillerson departed to join the Trump administration, Exxon looked a lot different than it did when it reported those record earnings. Revenue and profit were a fraction of what they’d been, and the stock had lost its premium to other S&P 500 Index energy companies for the first time since 1997. Worse, for the first time since the Great Depression, Standard & Poor’s had stripped Exxon of its top credit rating. And the company faced a New York state lawsuit alleging that it had intentionally misled investors about the dangers of climate change. (The company won the case in December 2019.)
When Woods became CEO in January 2017, there were the predictable media stories about him stepping out of Tillerson’s shadow. That wasn’t going to be easy given the big write-off, the S&P downgrade, and the other unfortunate circumstances Woods inherited. But he was determined to rebuild Exxon with projects in Brazil, Guyana, Mozambique, and Papua New Guinea—the sorts of efforts that for some shareholders conjured unpleasant memories of Canada and Russia. Exxon also had finally jumped into shale oil with a $6 billion acquisition of acreage—negotiated by Tillerson—in West Texas’ prodigious Permian Basin.
Other supermajors weren’t as eager to embark on new endeavors. Like Exxon, they’d spent heavily, then paid for it during the 2014-16 crash. Burned investors were cooling on energy stocks and diverting their money into tech, pharma, and other sectors. Energy now makes up less than 3% of the S&P 500 Index, compared with more than 10% in 2009.
The growing movement to transition away from fossil fuels to solar, wind, and other energy sources was also peeling away investment. Such is the clamor in Europe that Royal Dutch Shell Plc and BP both have pledged to become carbon neutral by 2050 and invest heavily in renewable energy sources. Exxon has made no such pledge, instead investing in early-stage green technologies while insisting that the world will need more and more oil and gas until at least 2040, driven by China and India. Some on Wall Street see demand peaking as early as 2030.
2020 Breakeven Prices
Breakeven defined as oil price needed to cover capital spending and dividends.
At his first annual Investor Day, in March 2017, Woods vowed to spend more on new ventures so Exxon would be ready when the market turned. “We are confident,” he declared before dozens of analysts and shareholders in New York City. “Our job is to compete and succeed in any market, irrespective of conditions or price.”
Even then, a lot of institutional investors were inclined to take an Exxon CEO’s word as gospel. But an odd turning point came a year into Woods’s tenure. Wall Street analysts threw a little tantrum about the lack of forward-looking data in Exxon’s quarterly reports. They were growing weary of sunny promises belied by a lackluster share price.
With the company planning to spend so much money on stuff rivals saw little need for, the analysts zeroed in on why Exxon’s CEO never appeared on quarterly conference calls to answer their questions, as the top bosses at almost every other S&P 500 company did. “We think times have changed, and that Exxon may not necessarily be able to expect the market will continue to offer it the benefit of the doubt,” a Barclays Plc analyst wrote in a February 2018 investor note. In other words, Exxon was no longer a special case.
Two months later, Jeff Woodbury, Exxon’s then-investor relations vice president, promised that Woods would soon start participating in conference calls, saying, “We believe that the investment community did not have a very good understanding of what our value growth potential was.”
Taking On Debt
“Good morning, everyone,” Woods said when he stepped onstage at Exxon’s most recent Investor Day, on March 5 in New York. He waited for a response. When none came, he said, “Good morning, everyone?” Still nothing. “Come on now,” Woods said. “A little bit of energy here.” Nervous titters rippled through the audience.
On that Thursday, the coronavirus had only begun to wreak havoc with America’s health and economic well-being. Social distancing wasn’t yet happening widely, though guests at the Exxon presentation were offered small bottles of hand sanitizer. Woods mentioned the virus as part of a “very challenging short-term-margin environment” facing Exxon in 2020. It was a new twist on a familiar spiel that investors could have heard Tillerson spinning years before. “The longer-term horizon is clear, and today our focus is on that horizon,” Woods said.
Exxon was for the most part sticking with its plan. Woods said he intended to pare spending barely 6%, to a maximum of $33 billion for the year, and emphasized the company’s “optionality”—a word he uses a lot—to adjust spending to react to market conditions. While others retrench, Woods said, “We believe the best time to invest in these businesses is during a low, which will lead to greater value capture in the coming upswing. You can do that if you have the opportunities and the financial capacity, which we do. This is a key competitive advantage of ours.”
Within 48 hours, Woods’s plan was in trouble. The Russians and Saudis, unable to agree on how much crude to pump, started pushing oil prices down. At the same time, demand was spiraling lower as lockdowns proliferated around the world. Storage tanks and pipelines were overwhelmed with unwanted oil, refineries reduced their inflows of raw crude, high-cost wells were shut. Analyst Paul Sankey of Mizuho Securities USA observed in an investor note that Exxon was “stepping up when the industry was stepping back. Turns out, they were stepping off a cliff.”
On March 16, S&P again downgraded Exxon’s credit rating, to AA from AA+, and said it could happen again “if the company does not take adequate steps to improve cash flows and leverage.” A week later the stock closed at $31.45, the lowest since 2002. Investors started to wonder whether Exxon might end its string of 37 straight yearly increases in its dividend. To cover that $14.7 billion payment—third-highest among S&P 500 companies—along with its aggressive capital spending, Exxon needed crude to fetch about $77 a barrel, the highest breakeven among oil majors, according to RBC Capital Markets.
The stock began to recover in early April, but it was all too much. On April 7, Woods said Exxon would cut 2020 capital spending to $23 billion—a drop of an additional $10 billion, or 30%—and shave operating expenses by 15%. The bulk of the cuts would be aimed at the Permian. Exxon would defer some activities in its Guyana project while postponing investment decisions elsewhere. “They cried uncle,” says Rice University’s Medlock. With the cuts, the breakeven dropped to $60 a barrel, still tops among the biggest companies.
You could almost feel Woods gritting his teeth in the company’s statement that day: “The long-term fundamentals that underpin the company’s business plans have not changed—population and energy demand will grow, and the economy will rebound.” Despite the cuts, Exxon still expected Permian production would rise. In other words, the company wasn’t abandoning its strategy; it was just hitting pause in deference to Covid-19.
Woods certainly can’t be faulted for not foreseeing the oil carnage of April, with the industry abandoning fracking and laying off more than 50,000 workers in March alone. And Exxon isn’t seeking government intervention to help save U.S. shale oil as Hamm, Sheffield, and others are. With as many as one in three shale players expected to exit the market one way or another, Exxon could be in a position to snap up cheap acreage after the virus retreats. “The large companies might actually get bigger on the back of this,” says Medlock.
For now, though, it’s hard not to see Exxon as just another company getting tossed around by the market. After the recent Investor Day, a reporter asked Woods if Exxon was still capable of navigating today’s up-and-down-and-down-some-more energy business. “I don’t think you stay in business for 135 years,” Woods said, “without being attentive to the needs of your customers, your stakeholders, and the communities that you operate in.” It wasn’t actually an answer.
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>>> Exxon Shareholders Seek Board Change, Lobbying Disclosure Votes
Bloomberg
By Alastair Marsh and Joe Carroll
April 24, 2020
Investor support for splitting chairman/CEO role is growing
Oil supermajor is urging holders to reject both resolutions
https://www.bloomberg.com/news/articles/2020-04-24/exxon-shareholders-seek-board-change-lobbying-disclosure-votes?srnd=premium
Two of the most proactive petitioners of Exxon Mobil Corp. on its climate record have asked shareholders to vote for changes to the oil supermajor’s board and lobbying policies.
The Church Commissioners for England and the New York State Common Retirement Fund called on Exxon investors to support splitting the chairman and CEO roles, and require the company to disclose its lobbying policies and expenditures. The petitioners also said they’ll be voting against re-election of the entire board.
Support for installing an independent chairman has been growing among Exxon investors: More than 40% voted yes at last year’s meeting, an increase from about 38% in 2018. A simple majority is required to pass such a resolution.
Splitting the chief executive and chairman is a perennial topic at Exxon’s annual gatherings and would represent a tectonic shift in the how the Western Hemisphere’s biggest oil explorer my market value is governed. For decades, a single executive has overseen boardroom deliberations as well as the small coterie of executives that oversees day-to-day operations.
‘Time Has Come’
In an open letter Friday, the church commissioners and the New York retirement group urged investors to use their votes at the company’s May 27 annual meeting because “the time has come for change in the governance and strategy of the corporation.”
Oil Slump May No Longer Be a Curse for Renewable Energy
Wall Street Is Bending to Pressure to Halt Arctic-Oil Loans
Trump Developing Plan to Aid Oil Industry Despite Opposition
Sub-Zero Oil Slams U.S. Drilling in Worst Decline on Record
Exxon is urging holders to reject the proposals. A spokesman pointed to the company’s proxy filing when in response to a request for comment.
“A combined Chairman and CEO role ensures items of greatest importance for the business are brought to the attention of, and reviewed by, the board in a timely manner,” the company said in its proxy statement. “As new issues arise, market dynamics change, or risk exposures evolve, the Chairman/CEO is best positioned, with deep company knowledge and industry experience, to highlight those issues with the board, ensuring appropriate oversight and discussion.”
Climate Criticism
Exxon also urged a no vote on the lobbying resolution, saying it already makes ample disclosure of its positions and expenditures via its website and through local, state and federal governmental filings.
Exxon has drawn criticism from climate activists and ESG investors for doing too little to minimize it’s impact on global warming, even as European rivals such as BP Plc and Royal Dutch Shell Plc have pledged to make large, long-term reductions in carbon emissions. Just last month, Exxon Chief Executive Officer Darren Woods dismissed those kinds of pledges as nothing more than a “beauty competition” that would do little to arrest climate change.
Even if the open letter galvanizes investor support, Exxon has already escaped a more invasive proposal. Last month, the U.S. Securities & Exchange Commission blocked for a second consecutive year an activist resolution to set strict climate goals. The measure asked if and how Exxon would align its business model with the Paris climate accord, and take responsibility for so-called Scope 3 emissions.
Governance Role
“As the world, Exxon Mobil’s peers, and investors confront the climate emergency, Exxon Mobil is carrying on as if nothing has changed,” Edward Mason, head of responsible investment for the Church Commissioners, said in the letter. ‘’It is crystal clear to us that Exxon Mobil’s inadequate response to climate change constitutes a broad failure of corporate governance and a specific failure of independent directors to oversee management.”
The Church Commissioners and the New York retirement fund lead engagement with Exxon as part of Climate Action 100+, a group of investors pressing the world’s biggest emitters of greenhouse gases to change their ways.
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>>> Exxon's CEO On How Oil Giant Plans To Maintain Dividend, Focus On Balance Sheet
Benzinga
Jayson Derrick
April 07, 2020
https://www.benzinga.com/news/20/04/15759671/exxons-ceo-on-how-oil-giant-plans-to-maintain-dividend-focus-on-balance-sheet?utm_campaign=partner_feed&utm_source=yahooFinance&utm_medium=partner_feed&utm_content=site
Exxon's CEO On How Oil Giant Plans To Maintain Dividend, Focus On Balance
Oil giant Exxon Mobil Corporation is committed to maintaining its dividend, mostly due to a decades-long focus on maintaining a healthy balance sheet, CEO Darren Woods said Tuesday on CNBC's "Squawk Box."
CEO Says Exxon's Focus Unchanged
Exxon remains committed to satisfying the needs of its large retail investor base in paying dividends, and it won't shy away from tapping its balance sheet to come up with cash if needed in the short-term, Woods said.
The main focus of the balance sheet remains unchanged in that it is needed to support new projects, he said.
Exxon was on the receiving end of an S&P rating downgrade in March from AA+ stable to AA stable, but this has no impact on how management looks at its balance sheet, the CEO said.
Recovery Will Come, Woods Says
An oil recovery is "on the way," but the exact timing can't be anticipated, Woods said.
Exxon's current strategy is to invest in projects with no particular recovery curve to "get through" current headwinds, he said.
What's Next For Exxon
Improving standards of living and economic growth are among the two largest drivers of demand for oil, the CEO said.
These trends will re-emerge in the future. and Exxon needs to "be ready to meet those demands when that recovery happens," he said.
The stock was trading 3.95% higher at $42.07 at the time of publication Tuesday.
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>>> Oil Price War Ends With Historic OPEC+ Deal to Cut Output
Bloomberg
By Javier Blas, Salma El Wardany, and Grant Smith
April 12, 2020
https://www.bloomberg.com/news/articles/2020-04-12/oil-price-war-ends-with-historic-opec-deal-to-cut-production?srnd=premium
OPEC+ alliance agrees to cut production by 9.7m barrels a day
Weekend of intense diplomacy yields deal with hours to spare
The world’s top oil producers pulled off a historic deal to cut global petroleum output by nearly a 10th, putting an end to the devastating price war between Saudi Arabia and Russia.
After a week-long marathon of bilateral calls and four days of video conferences with government ministers from around the world -- including the OPEC+ alliance and the Group of 20 nations -- an agreement finally emerged to tackle the impact of the global pandemic on demand.
The talks almost fell apart because of resistance from Mexico, but came back from the brink after a weekend of urgent diplomacy, including the personal intervention of President Donald Trump, who helped broker the solution.
“Unprecedented measures for unprecedented times,”said Ed Morse, a veteran oil watcher who is head of commodities research at Citigroup. “Unprecedented in historical discussions of production cuts, the U.S. played a critical role in brokering between Saudi Arabia and Russia for the new OPEC+ accord.”
OPEC+ will cut 9.7 million barrels a day -- just below the initial proposal of 10 million. The U.S., Brazil and Canada will contribute another 3.7 million barrels on paper as their production declines. OPEC officials were still waiting to hear more from Group of 20 members -- though it’s not clear if those numbers will represent real cuts or just production idled because of market forces.
“We have demonstrated that OPEC+ is up and alive,” Saudi Energy Minister Prince Abdulaziz bin Salman told Bloomberg News in an interview minutes after the deal was done. “I’m more than happy with the deal.”
Brent crude fell to close to a 18-year low
The deal caps a tumultuous month when Brent crude, the global benchmark, plunged to its lowest in nearly two decades, falling toward $20 a barrel. Earlier this year, it traded above $70 a barrel. OPEC+ ministers had to race onto a video conference call on Easter Sunday, less than four hours before the oil market reopened, to close the deal.
With the virus paralyzing air and ground travel, demand for gasoline, jet-fuel and diesel is collapsing. That threatened the future of the U.S. shale industry, the stability of oil-dependent states and squeezed the flow of petrodollars through an ailing global economy.
Mexico won a diplomatic victory as it will only cut 100,000 barrels -- less than its pro-rated share, having blocked the deal since the plan was first revealed on Thursday. Now its future inside OPEC+ is uncertain, as it’s is expected to decide over the next two months whether to leave the alliance, delegates said.
The biggest winner appears to be Trump, who refused to actively cut American oil production and personally brokered the deal over phone calls with Mexican President Andres Manuel Lopez Obrador, Russian President Vladimir Putin and King Salman of Saudi Arabia.
“Perhaps what’s most remarkable about Saudi Arabia and Russia delivering one of the largest supply cuts ever is that the person who brought them back together and pressured hardest to cut was historically OPEC’s harshest critic, President Trump,” said Jason Bordoff, a former White House official during the Obama administration and now at Columbia University.
Trump became the first American president to push for higher oil prices in more than 30 years, reversing his personal opposition to the cartel.
“I hated OPEC. You want to know the truth? I hated it. Because it was a fix,” Trump told reporters at the White House last week. “But somewhere along the line that broke down and went the opposite way.”
The production restraints are set to last for about two years, though not at the same level as the initial two months. Copying the model adopted by central banks to taper off their bond buying, OPEC will also reduce the size of the cuts over time. After June, the 10 million barrel cut will be tapered to 7.6 million a day until the end of the year, and then to 5.6 million through 2021 until April 2022.
The production deal doesn’t take effect until May 1, leaving OPEC+ countries, which have significantly increased production over the last month, able to continue flooding the market for nearly another three weeks.
Under the deal, Saudi Arabia will cut its production just a fraction under 8.5 million barrels a day -- its lowest level since 2011. The OPEC+ deal measures the Saudi cut from a baseline of 11 million barrels a day, the same as Russia. But in reality the kingdom’s production will decline from a much higher level. In April, Saudi Arabia boosted output to a record 12.3 million barrels a day as part of its war with Russia for market share.
“We want to regain the stability of the oil market,” Prince Abdulaziz said.
The question now for the oil market is whether the cuts will be enough to throw a floor under prices as demand for energy craters. After the outline of the deal was announced on Thursday, oil prices in New York fell more than 9% as traders thought the cuts weren’t large enough.
With countries around the world extending their lockdowns, the death toll mounting in New York, and unemployment exploding in America, the oil market is now far more worried about consumption than supply. OPEC itself acknowledged the challenge, with its chief warning ministers demand fundamentals were “horrifying.” In an internal presentation seen by Bloomberg News, OPEC told ministers it expected global oil demand to plunge 20 million barrels a day in April.
“Demand is down by more than double the 9.7 million barrels-a-day cut agreed,” said Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd. “And with the issue with Mexico taking so long to sort, the credibility of the group has taken a hit”.
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>>> The Secret Weapon Giving Mexico Power in the Oil Price War
Bloomberg
By Javier Blas and Amy Stillman
April 11, 2020
https://www.bloomberg.com/news/articles/2020-04-11/the-secret-weapon-that-gives-mexico-power-in-the-oil-price-war?srnd=premium
Mexico’s hedge strengthens its hand as negotiations drag on
The option could hand Mexico a multi-billion dollar payout
As Mexico and Saudi Arabia fight over a deal to bring the oil-price war to an end, Mexico has a powerful defense: a massive Wall Street hedge shielding it from low prices.
With talks well into their third day, the Mexican sovereign oil hedge, which insures the Latin American country against low prices and is considered a state secret, is a factor that may make the country less inclined to accept the OPEC+ agreement.
For the last two decades, Mexico has bought so-called Asian style put options from a small group of investment banks and oil companies, in what’s considered Wall Street’s largest -- and most closely guarded -- annual oil deal.
The options give Mexico the right to sell its oil at a predetermined price. They are the equivalent of an insurance policy: the country banks all gains from higher prices but enjoys the security of a minimum floor. So if oil prices remain weak or plunge even further, Mexico will still book higher prices.
The hedge isn’t the only reason Mexico is holding out. But it strengthens the country’s hand and makes it less desperate for a deal than countries whose budgets have been ravaged by the collapse in oil prices since the start of the year -- first because of the coronavirus and then because of the price war launched by Saudi Arabia.
The main reason driving President Andres Manuel Lopez Obrador, a left-wing populist, to resist the deal is his pledge to revive oil production via state-owned Petroleos Mexicanos. Slashing 400,000 barrels a day to comply with the OPEC+ deal, rather than the 100,000 barrels a day that Mexico has counter-offered to Saudi Arabia, would put on hold his ambitious plan to return Pemex to its former glory.
The price of Mexican oil is at its lowest in at least 20 years
The hedge has shielded Mexico in every downturn over the last 20 years: it made $5.1 billion when prices crashed in 2009 during the global financial crisis, and it received $6.4 billion in 2015 and another $2.7 billion in 2016 after Saudi Arabia waged another price war.
The operation comes at a cost. In recent years, Mexico has spent about $1 billion annually buying the options.
“The insurance policy isn’t cheap,” Mexican Finance Minister Arturo Herrera told broadcaster Televisa on March 10. “But it’s insurance for times like now. Our fiscal budget isn’t going to be hit.”
Pemex, the state-owned company, has its own separate, smaller oil hedge. This year, Pemex hedged 234,000 barrels a day at an average of $49 a barrel.
State Secret
Mexico has disclosed very few details about its insurance for 2020 after it declared the sovereign hedge a state secret. However, based on limited public information, alongside historical data about previous years, it’s possible to make a rough estimate of the potential payout if prices remain low.
The government told lawmakers it has guaranteed revenues to support the assumptions for oil prices made in the country’s budget -- of $49 a barrel for the Mexican oil export basket, equivalent to about $60-$65 a barrel for Brent crude.
It locks in that revenue via two elements: the hedge, and the country’s oil stabilization fund. The fund historically has only provided $2-$5 a barrel, so it’s realistic to assume that Mexico hedged at $45 a barrel at least for its crude. In the past, Mexico has hedged around 250 million barrels, equal to nearly all its net oil exports in an operation that runs from Dec. 1 to Nov. 30.
Using all those elements, a rough calculation suggests that if the Mexican oil export basket were to remain at current levels, the country would receive a multi-billion dollar payout. Since December, the Mexican oil basket has averaged $42 a barrel.
If current low prices for Mexican oil continue until the end of November, the average would drop to just above $20 a barrel, and the hedge would pay out close to $6 billion, according to Bloomberg News calculations.
Representatives of the Finance Ministry and Energy Ministry declined to comment.
<<<
>>> Oil Stocks Haven’t Hit The Bottom Just Yet
Oilprice.com
by Robert Rapier
March 31, 2020
https://finance.yahoo.com/news/oil-stocks-haven-t-hit-220000277.html?.tsrc=fin-srch
It’s hard to overstate the nature of what has happened in the oil markets since the beginning of the coronavirus (COVID-19) outbreak in early January. At that time, supply and demand looked reasonably balanced. OPEC and its partners (primarily Russia) were taking action to make sure that balance was maintained. I felt confident enough in the fundamentals to predict that oil prices wouldn’t fall below $50/bbl this year.
But since then we have experienced the fastest and most dramatic change in oil market conditions that I have ever seen in my career. And when a market sell-off turns into panic, the market moves can become irrational.
As John Maynard Keynes once said, “The market can stay irrational longer than you can stay solvent.” Thus, it’s prudent to apply a great deal of caution in the current environment.
Sure, Energy Stocks Are Cheap
Oil is the most important commodity in the world. It’s still how our supply chains and critical services are moving around. But oil production has expanded so much in recent years, we suddenly found supply way in front of demand as people have stopped moving about. Oil prices — and the energy sector — were crushed in response (with a strong nudge from Russia and Saudi Arabia).
Energy stocks look extremely cheap — and they are. But it doesn’t mean they won’t get cheaper.
The challenge is that the fundamentals are changing so rapidly that we don’t even have a good handle on what those fundamentals currently are. When this sell-off began, I said that it could be 10 percent, 25 percent, or 50 percent — we just didn’t know because we are dealing with a moving target.
What seems undeniable is that we still have a period of bad news in front of us before conditions begin to improve.
Advice for Investors
The collapse of oil demand, the overall decline in the stock market, – and most importantly – the price war that Russia and Saudi Arabia have started have crushed the energy sector. Investors aren’t discriminating between good and bad companies (recognizing that at $20 oil, you would be hard-pressed to find good oil and gas companies). The entire sector is on sale.
With oil prices all the way down into the $20s, Russia may eventually decide that the pain is too great and come back to the table. But in the interim, many shale oil producers will probably be forced out of business.
What should investors do now? It may be instructive to review what happened in 2015 as oil prices collapsed. The hardest hit were shale oil producers, especially those with a lot of debt. There will likely be another wave of bankruptcies.
So, I would only invest new money into the energy sector with the utmost caution.
ConocoPhillips, which I have previously recommended, isn’t primarily a shale oil producer. The company has retooled to break even at $40 oil (although we are a long way from there now). ConocoPhillips can sustain low prices longer than other producers. COP will be one of the last pure oil companies standing, but its share price has taken a gut punch from the collapse in oil prices.
Pipeline companies, especially master limited partnerships (MLPs), were in a bubble in 2014. Their values collapsed along with oil prices, but the underlying fundamentals got stronger for those that weren’t highly leveraged.
MLPs like Enterprise Products Partners even increased their distributions throughout the oil price collapse. It will take a long bear market before the strongest MLPs have to think about cutting distributions. But some of the highly leveraged MLPs are already announcing distribution cuts.
Refiners fared well the last time oil prices collapsed. They make their money on the price differential between crude oil and finished products. They often make their biggest profits when oil prices are falling. That’s what we saw in 2015, when Valero returned 43 percent as other energy companies were plummeting. Conditions are different today with gasoline demand collapsing, but refiners should be in a better overall position than oil producers.
The large integrated companies have sufficiently deep pockets to survive the challenging times ahead. Many of the oil supermajors have gone decades without cutting dividends, despite enduring several challenging oil markets.
The bottom line, however, is that we just don’t know how bad this is going to get. The oil markets are certainly not alone in rapidly shedding market capitalization. The recent drop in the S&P 500 was the fastest since the 1987 market crash. That should have the full attention of investors.
If you have cash on the sidelines, I would be extremely cautious in chasing these energy stocks down. We can’t yet see the light at the end of the tunnel. When investing becomes more akin to gambling, it’s best to only invest money you can truly afford to lose.
By Robert Rapier
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>>> Energy Pipelines
https://www.realwealthnetwork.com/learn/what-are-the-best-investments/
Energy pipeline operators are an undervalued market, but produce some of the highest returns. Along with appreciation potential, investors can expect dividends between 5% to 9%. Because fewer people are investing in this sector, shares can be bought on the cheap and returns continue to rank among the best.
According to Rob Thummel, a portfolio manager and investor in this sector, “The U.S. needs energy infrastructure, and global energy demand should continue to grow; the sector is undervalued.”
Energy Pipeline Investments to Consider:
Enterprise Products Partners (EPD): $28 per share, yield: 6.2%
Kinder Morgan (KMI): $21 per share, yield: 4.7%
Energy Transfer (ET): $12 per share, yield: 9%
J.P. Morgan Alerian Index MLP: yield: 8%
<<<
>>> Oil-Industry Collapse Accelerates as Scores of Rigs Go Dark
Bloomberg
By Joe Carroll, Sayer Devlin, and David Wethe
March 27, 2020
https://www.bloomberg.com/news/articles/2020-03-27/oil-drillers-slash-u-s-activity-by-biggest-margin-in-four-years?srnd=premium
Crude prices heading for worst quarterly decline in 30 years
Once-booming Permian accounts for more than half of shutdowns
The oil industry’s meltdown is accelerating as explorers shut down scores of drilling rigs across the U.S. in response to cratering crude prices and expanding supply gluts.
Oil companies idled 40 rigs this week, twice the pace of last week’s reduction and the steepest contraction since April 2015, according to data released by Baker Hughes Co. on Friday.
More than half the shutdowns occurred in the Permian Basin of West Texas and New Mexico, an ominous sign for an industry that survived the last market crash in large part by retreating to that region because of its resilience to weak pricing.
Rigs targeting oil fell by the most since 2015
Benchmark U.S. oil futures have plunged 65% this year and are on pace for the most painful quarter since at least 1990. This week’s rig shutdowns bring the two-week total to 59, a cut of almost 9% of the nation’s active fleet.
North America, which has been roiled by contractions in the past, may see a sharper, more abrupt cut in drilling activity before the end of the second quarter, Schlumberger Ltd., the world’s biggest oilfield service company, said this week.
Halliburton Co., the king of fracking and the No. 3 overall service provider, is planning for almost two thirds of all rigs on the continent to shut down by the fourth quarter.
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>>> Why the World Worries About Russia’s Natural Gas Pipeline
Bloomberg
By Anna Shiryaevskaya and Dina Khrennikova
June 13, 2019, Updated on December 23, 2019
https://www.bloomberg.com/news/articles/2019-06-13/why-world-worries-about-russia-s-natural-gas-pipeline-quicktake
'Germany Is Making a Tremendous Mistake by Relying on Pipeline,' Says Trump
A new natural gas pipeline into Europe from Russia is shaking up geopolitics. Nord Stream 2, as it’s called, worries leaders in Eastern Europe, has put German Chancellor Angela Merkel on the hot seat and most recently has become the target of U.S. sanctions. The punitive measures approved by U.S. President Donald Trump have stymied construction just as the final sections of pipe were about to be laid.
1. What is Nord Stream 2?
It’s a planned 1,230-kilometer (764-mile) undersea pipeline that will carry natural gas from Russian fields to the European network at Germany’s Baltic coast. It will double the capacity of an existing undersea route -- the original Nord Stream -- that opened in 2011. Russia’s Gazprom PJSC owns the project, with Royal Dutch Shell Plc and four other investors including Germany’s Uniper SE and Wintershall AG providing half of the 9.5 billion-euro ($10.7 billion) cost. Denmark removed one of the project’s last hurdles in October when it approved construction of the link through its waters.
2. Why is it important?
Before the first Nord Stream opened, Russia was sending about two-thirds of its gas exports to Europe through pipelines in Ukraine, a nation with which it has had tense (or worse) relations since the Soviet Union collapsed. That left Gazprom exposed to disruptions. A pricing dispute prompted Russian leaders to halt gas flows through Ukraine for 13 days in 2009. Since then, relations between the two countries have worsened, culminating in the Ukrainian popular revolt that kicked out the country’s pro-Russian president and led to Russia seizing the Crimean Peninsula. The Nord Stream projects are just one part of Gazprom’s decades-long effort to diversify its export options to Europe. Russia expects European gas demand to increase as some nations move away from nuclear and coal power and as their domestic gas production decreases.
Who’s Dependent on Russia’s Gas?
Fourteen countries get more than 50% of their gas from Russia
3. Why is the U.S. involved?
Trump and members of the U.S. Congress worry that Nord Stream 2 will make Europe overly dependent on Russia. Trump has said that Germany in particular will become “a captive to Russia.” And it’s clear that the U.S. is keen to increase its own sales to Europe of what it calls “freedom gas.” Legislation to sanction companies constructing Nord Stream 2 advanced in the U.S. Senate, where Republican Ted Cruz, one of the authors, said it would “deprive Putin the resources to fuel his expansionism and military aggression.” Trump enacted the sanctions as part of an annual defense bill, and contractor Allseas Group SA removed its pipelaying vessels from the route. Germany lashed out against the U.S. move as an “incomprehensible” interference in its internal affairs, and Russia said it would retaliate.
4. What do the sanctions mean for the project?
Even U.S. officials acknowledged that the sanctions are too little, too late, to prevent Nord Stream 2 from being completed. But they will delay the pipeline’s opening until the second half of 2020, or more than six months later than previous estimates. So far, neither the pipeline operator, Nord Stream 2 AG, nor its parent company Gazprom PJSC have announced a backup construction plan. German officials expect the companies to use Russian ships to lay the final kilometers of the link. Pressure testing, cleaning, and filling the link with buffer gas may take six to seven weeks after the link construction is completed, based on the schedule for building the original Nord Stream.
5. Do others oppose Nord Stream 2?
Countries that sit between Russia and Germany collect transit fees on the natural gas that flows through their territories. Those nations include Ukraine, Poland and Slovakia. They have all been worried that they will lose at least part of their revenue after the launch of the link. Those concerns have been partially alleviated after Gazprom reached a deal to continue gas transits via Ukraine through at least 2024.
6. Is Europe really captive to Russian gas?
The European gas market has become more competitive as LNG vies to replace declining local production from the North Sea and the Netherlands. Gazprom estimates that in 2018 its share of the European market grew to just under 37%, from about 34% in 2017. The company’s domestic rival, Novatek PJSC, is also expanding its LNG sales in Europe. But not all countries are equally dependent on Russian imports. Gazprom remains the traditional key supplier for Finland, Latvia, Belarus and the Balkan countries, but western Europe gets gas from a wider range of sources, including Norway, Qatar and North Africa. More nations, from Germany to Croatia, are seeking to build LNG import terminals to accept shipments from around the world.
7. Will the U.S. sell more gas to Europe?
Prospects are clouded. Gas from the U.S. must be chilled into a liquid form and shipped in tankers across the Atlantic at a great cost. Russia is supplying its gas mostly through the world’s largest network of pipelines that have been in place for decades, while adding significant volumes of low-cost LNG produced at its new Arctic plant. Nevertheless, U.S. suppliers have had some success securing deals with Poland, which is eager to loosen Russia’s grip over its energy supply. As U.S. LNG export capacity increases, more cargoes end up in European hubs. But a global glut has lowered prices in Europe so much that U.S. LNG is struggling to compete.
8. Does the U.S. have other options?
U.S. LNG exports are finding a home in Asia, where prices are often higher, or in nearby Latin American markets. Narrowing regional price differences and the ongoing trade war between the U.S. and China may become an obstacle, however. China’s imports of U.S. gas have slumped since Beijing slapped tariffs on the fuel last year in retaliation to the levies imposed by the White House. Still, U.S. LNG is gaining ground in Europe, competing with tanker-borne fuel from Qatar and Russia. This year, quite a few U.S. cargoes landed in Spain, France and the U.K., even as South Korea and Japan accounted for the bulk of the deliveries.
Europe may disappoint Trump if he really expects it to be a “massive buyer” of U.S. LNG.
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>>> U.S. Says It Has Thwarted $6 Billion Russia-Germany Gas Pipeline
Bloomberg
By Patrick Donahue and Matthew Miller
February 15, 2020
https://www.bloomberg.com/news/articles/2020-02-15/u-s-says-it-has-thwarted-6-billion-russia-germany-gas-pipeline?srnd=premium
Gazprom won’t complete Nord Stream 2 link, Brouillette says
Trump administration will continue efforts to halt project
President Donald Trump’s top energy official said he’s confident that Russia won’t be able to complete the Nord Stream 2 gas pipeline in the Baltic Sea -- and signaled that the U.S. will press forward with its opposition to the project.
Asked about Russian efforts to circumvent U.S. sanctions on the pipeline by completing it on its own, U.S. Energy Secretary Dan Brouillette said “they can’t” -- and dismissed claims that project owner Gazprom PJSC will face only a short delay.
“It’s going to be a very long delay, because Russia doesn’t have the technology,” Brouillette said in an interview at the Munich Security Conference on Saturday. “If they develop it, we’ll see what they do. But I don’t think it’s as easy as saying, well, we’re almost there, we’re just going to finish it.”
The pipeline, which would pump as much as 55 billion cubic meters of natural gas annually from fields in Siberia directly to Germany, has become a focus for geopolitical tensions across the Atlantic. Trump has assailed Germany for giving “billions” to Russia for gas while it benefits from U.S. protection.
Nord Stream 2’s owners had invested 5.8 billion euros ($6.3 billion) in the project by May 2019, according to company documents.
Why World Frets About Russia’s Nord Stream 2 Pipeline: QuickTake
U.S. sanctions in December forced Switzerland’s Allseas Group SA, which was laying the sub-sea pipes, to abandon work, throwing the project into disarray. The U.S. has said Europe should cut its reliance on Russia for gas and instead buy cargoes of the fuel in its liquid form from the U.S.
“It’s distressing to Americans that, you know, Germany in particular and others in Europe would rely upon the Russians to such a great degree,” Brouillette said, adding that he is unaware of additional sanctions should Russia move to defy the U.S.
Even as he spoke, signs emerged that Gazprom’s attempts at completion may be underway. A Russian pipe-laying vessel, the Akademik Cherskiy, left the port where it had been stationed in Nakhodka on Russia’s Pacific coast last Sunday. Russian Energy Minister Alexander Novak last year mentioned that vessel as an option to complete the pipeline in Denmark’s waters. The vessel is now expected to arrive in Singapore on Feb. 22, according to ship-tracking data on Bloomberg.
Akademik Cherskiy pipe-laying vessel started moving, only to indicate Singapore as its next indication
While Gazprom has said it’s looking at options to complete the pipeline, it hasn’t given any details on where it will find the ship to do the work. One of the pipeline’s financial backers, Austrian gas and oil company OMV AG, has predicted that the Russians will follow through.
“From my point of view, they will find a solution,” Rainer Seele, OMV’s chief executive officer, told Bloomberg on Saturday.
The pipeline was just weeks away from completion, with 94% already constructed, when U.S. sanctions halted work. There’s a small section in Denmark’s waters that needs to be finished. Before the halt, Nord Stream 2 hoped to finish construction by the end of 2019 or in the first few months of this year. That would allow gas deliveries in time to supply Europe by winter 2020-2021.
Besides OMV, Nord Stream 2’s other European backers are Royal Dutch Shell Plc, Uniper SE, Engie SA and Wintershall AG.
<<<
>>> A Tale of Two Oil Giants With Two Strategies That Aren’t Working
Bloomberg
By Kevin Crowley
February 1, 2020
https://www.bloomberg.com/news/articles/2020-02-01/tale-of-two-oil-giants-with-two-strategies-that-aren-t-working
Exxon spending too high, Chevron growth too low: fund manager
With energy under pressure, both posted disappointing earnings
Everyone from environmentalists to investors is beating up on fossil fuels, and American energy giants Exxon Mobil Corp. and Chevron Corp. are taking increasingly diverging approaches as they try to weather the storm.
The problem is, neither strategy is working right now.
Exxon is using the downturn in oil, gas and chemical prices as an opportunity to unleash its giant balance sheet to fund a slew of mega-projects around the world. Chevron is sticking with austerity -- to such an extent that Chief Executive Officer Mike Wirth admitted he sounds like “a broken record” repeating a mantra of financial discipline.
The companies posted their worst results in years on Friday, dragged down by weak performance across most business lines. The origin of much of their current problems can be traced back to America’s shale revolution, which in little over a decade ended a domestic shortage of oil and gas and created a seemingly limitless source of supply, pushing energy prices lower.
Why Big Central Banks Are Becoming Climate Warriors
Exxon and Chevron have also become lightning rods in the backlash against fossil fuels. As pressure mounts for the industry to do more to address environmental concerns, investors have increasingly fled the sector. Energy now accounts for just 3.8% of the S&P 500 Index, down from 16% in 2008.
Losing Weight
Oil and gas stocks' importance in the S&P 500 Index is shrinking
Both companies are “competing in a sector that has systematically destroyed value for investors over the past decade,” said Mark Stoeckle, a Boston-based fund manager at Adams Funds with $2.5 billion of assets. “It’s going to take time, and consistent results to convince the investing public” otherwise.
Exxon slumped 4.1% Friday after fourth-quarter earnings trailed analysts’ estimates. Low natural gas and petrochemical prices meant it failed to generate enough cash to over its dividend for the period.
Still, Chief Executive Officer Darren Woods remains steadfast in his pursuit of a $35 billion-a-year capital investment plan that aims to build oil and gas projects from Guyana to Mozambique. It’s a classic counter-cyclical strategy: Invest while prices are low and competitors are pulling back, and reap the rewards when the commodity cycle turns.
“While we would prefer higher prices and margins, we don’t want to waste the opportunity that this low price environment provides,” Woods said on a conference call. Exxon has the option of “utilizing our financial capacity” or taking on debt to pursue its goals, he said.
What Bloomberg Intelligence Says
“Chevron has a better balance sheet than Exxon Mobil, but its growth portfolio is limited to the Permian and Tengiz. It will likely have to address the lack of low-cost opportunities over the next 12-18 months through an acquisition of exploration or development projects.”
--Fernando Valle, analyst
In contrast, Chevron sees shale as having fundamentally changed the market, forcing the industry to adapt. The company reported its biggest quarterly loss in a decade after writing down the value of North American gas fields.
“We conditioned ourselves and our investors to believe that the only path to the future was by doing these great big projects,” Wirth said on a conference call. “We’re not nearly as reliant on those alone to sustain and grow cash flows into the future.”
The Chevron boss reaffirmed his commitment to cutting costs, increasing capital efficiency and churning out cash to buy back shares through commodity cycles. Flagship projects in far-flung foreign locations are largely on the back burner; the real gains are to be made in shale -- or unconventional production, to use oil industry jargon -- in West Texas.
“Grinding away on enormous unconventional positions may not be quite as glamorous as doing the big projects in terms of giving you a lot of things to talk about, but it really drives strong financial outcomes,” Wirth said.
While Chevron made a “brilliant decision” to walk away from a $32 billion agreement to buy Anadarko Petroleum Corp. last year, there’s lingering concern that the oil major may still seek a deal to bulk up for growth, according to Stoeckle. Investors are concerned its growth and spending levels are too low while Exxon’s are too high, he added.
Chevron’s stock fell 3.8% Friday, the most in nine months. Some $19 billion was wiped off Exxon and Chevron’s market value on the day.
Former hedge fund manager and CNBC television host Jim Cramer summed up the mood in typically hyperbolic fashion.
"I’m done with fossil fuels. They’re done,” he said. “The world’s turned on them.”
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>>> Oil’s 2019 Milestones Tell Decade’s Story of Energy Abundance
Bloomberg
By Grant Smith
December 22, 2019
https://investorshub.advfn.com/secure/post_new.aspx?board_id=25494
Aramco IPO, Abqaiq attack, OPEC cuts leave investors unmoved
Oil supplies remain plentiful and analysts see peak demand
Global oil markets notched up a number of milestones this year that echoed the story of the past decade: the world has shifted from an era of supply tightness to plenty.
What distinguished the developments of 2019 was not just how big they were but often how little impact they had. From the world’s biggest-ever initial public offering to its worst-ever supply disruption, a barrage of sanctions on exporters to two OPEC interventions, never before had so many momentous events left investors so unmoved.
At the heart of that indifference was the force that has transformed world energy balances over the past 10 years: the American revolution in shale oil and gas, which is cushioning global markets against shocks that would once have sent prices rocketing. This too achieved a landmark in 2019, turning the U.S. into an net exporter of crude and refined oil.
And there was another turning point showing the years ahead may also be marked by supply abundance. For the first time, the world’s leading energy institution predicted that demand for oil -- once expected to keep growing almost indefinitely -- will stall at the turn of the next decade.
“This year is probably the first in my recollection where oil prices so extremely decoupled from geopolitical risk,” said Amy Myers Jaffe, senior energy and environment fellow at the Council on Foreign Relations in New York. “It was also the year when analysts and car companies started to talk about the possibility of peak car and peak demand with increasing probability.”
Despite supply shocks, oil remains below 2019 peak
The biggest headlines of 2019 came out of the world’s largest oil exporter, Saudi Arabia. Riyadh finally floated part of state oil giant Saudi Aramco after a laborious three-year process, securing a valuation of $2 trillion that made it the world’s biggest company.
Yet the 1.5% stake sold was just a portion of the original plan, and mostly marketed to local buyers instead of the foreign investors once courted, as fund managers balked at the lofty asking price.
A far more traumatic ordeal rocked Saudi Arabia in September, when a swarm of missiles and armed drones blasted its Abqaiq processing facility and briefly disabled half the kingdom’s output capacity. Yemen’s Houthi rebel group claimed responsibility, although the U.S. Secretary of State Michael Pompeo blamed Iran directly.
The sudden loss of 5.7 million barrels a day was exactly the crisis the industry had feared for decades, and in previous years might have triggered a prolonged rally. Although prices initially rocketed 19% in an unprecedented surge, the gains dissipated in two weeks.
Riyadh’s attempts to shore up oil prices also yielded lackluster results. The Saudis led the OPEC cartel and its partners in not one but two coordinated production cutbacks this year, an unusual level of activity for the organization, and reduced its own output far more than initially planned.
Their efforts were amplified by extreme levels of political involvement in the oil market, as U.S. sanctions squeezed exports from OPEC members Iran and Venezuela to the lowest in decades. Yet prices remain about 12% below this year’s high, trading near $66 a barrel in London.
The main source of the cartel’s struggle remained the U.S. shale-oil industry, which has turned the country into the world’s biggest oil producer, and propelled nationwide production to a new record of almost 13 million barrels a day this year.
Even as the shale boom shows some signs of slowing, production from offshore deposits once thought unviable in an era of low prices -- such as Brazil and Norway -- is springing to life.
“Despite major geopolitical tensions around the world, oil markets have remained surprisingly calm,” said Fatih Birol, executive director of the International Energy Agency in Paris. “This is mainly due to significant amounts of oil supply coming into the market from the U.S. as a result of the shale revolution, and from other non-OPEC producers.”
The transformation though isn’t confined to the supply side of the market.
The IEA, which for years projected that oil demand would increase for the foreseeable future, predicted last month that consumption will plateau at the turn of the next decade as efforts to avert catastrophic climate change spur the use of more efficient car engines and electric cars.
Oil Demand Plateau
The IEA anticipates a marked slowdown in consumption growth after 2025
Growth in world oil demand will dwindle from about 1 million barrels a day, or 1%, currently to roughly 100,000 a day in the 2030s, the IEA said. Sales of passenger vehicles with internal combustion engines are probably already in decline, according to Bloomberg New Energy Finance.
The change is increasingly occupying financial investors, who are shifting their portfolios from fossil fuels to more sustainable energy sources. Reflecting that anxiety, the organizers of the “Oil & Money” conference, held annually in London for the past four decades, announced a re-branding that will remove both words from the title.
Perhaps the greatest symbol of changing attitudes has been the rise of 16-year-old Swedish environmental activist Greta Thunberg. The “strike for climate” she began at school last year became a global phenomenon, leading her to address the United Nations in New York and earn Time magazine’s ‘Person of the Year’ award -- a level of international popularity the organizers of the Aramco IPO can only dream of.
<<<
>>> 5 ETFs to Master Master Limited Partnerships
These MLP ETFs generate income and could be useful when oil bounces back
InvestorPlace
By Todd Shriber
Dec 14, 2018
There was a time when master limited partnerships (MLPs) and the corresponding MLP ETFs were somewhat immune to declines in oil prices. Those days are gone and oil’s fourth-quarter woes prove as much.
The fourth-quarter loss of almost 10% for the Alerian MLP Infrastructure Index, a widely followed MLP benchmark, only looks good compared to the quarterly loss of almost 23% for the United States Oil Fund (NYSEARCA:USO).
Despite the challenges presented by rising interest rates and falling oil prices, some income investors remain fond of MLPs due to asset class’s reputation for lofty yields and high income potential. The Alerian MLP Infrastructure Index yields 8.12% compared to 2.86% on the S&P 500 Energy Index.
With some market observers opining that a bottom is near for oil prices, here are some MLP ETFs for income investors to consider.
Alerian Energy Infrastructure ETF (ENFR)
crude oil
Expense ratio: 0.65% per year, or $65 on a $10,000 investment.
The Alerian Energy Infrastructure ETF (NYSEARCA:ENFR) avoids some of the potential tax pitfalls associated with pure play MLP ETFs because this fund is not a dedicated MLP ETF. ENFR targets the Alerian Midstream Energy Select Index, which includes a slew of companies that are not structured as MLPs. This MLP ETF includes some midstream companies, which could be poised to rally if oil bounces back.
“For most of this year, midstream and other energy stocks were underperforming relative to the gains in crude,” said Alerian in a recent note. “It may feel like ancient history now, but WTI crude closed above $76 per barrel on October 3. Since then, oil prices have declined more than 30% through November 30, dragging down energy stocks. The midstream space has been negatively impacted, but it is holding up much better than its energy counterparts.”
Due to the fact that is not a pure MLP ETF, ENFR is not as high-yielding as some rival funds. Its trailing 12-month yield is just 2.79%, but in a rough quarter for energy investments, ENFR is down less than 8%. That is significantly less than some traditional MLP ETFs.
First Trust North American Energy Infrastructure Fund (EMLP)
Expense ratio: 0.95% per year, or $95 on a $10,000 investment.
Many MLP ETFs are passively managed and as such have lower fees than the 0.95% charged by the actively managed First Trust North American Energy Infrastructure Fund (NYSEARCA:EMLP). Across a slew of asset classes, actively manged funds are lagging passively managed counterparts, but EMLP is a star among active MLP ETFs.
Oil is one of the worst-performing commodities in the current quarter and the same is true of energy at the sector level, but EMLP actually posted a November gain of almost 4% and is down just 2% for the fourth quarter.
Since inception six and a half years ago, this MLP has returned nearly 6%, a performance that compares favorably with the category average. TransCanada Corp. (NYSE:TRP) and Enterprise Products Partners L.P. (NYSE:EPD) combine for 11.50% of EMLP’s weight. This MLP ETF has a five-star Morningstar rating.
Tortoise North American Pipeline Fund (TPYP)
Expense ratio: 0.40% per year, or $40 on a $10,000 investment.
The Tortoise North American Pipeline Fund (NYSEARCA:TPYP) is a passively managed MLP ETF that tracks the Tortoise North American Pipeline Index. While TPYP lacks the benefits of active management, the fund has recently been steady among MLP ETFs, posting a November gain and a modest-by-comparison fourth-quarter loss.
Like the aforementioned ENFR, TPYP is not a pure play MLP ETF. TPYP can allocate up to 25% of its weight to MLPs, but that number is currently closer to 20%. TPYP, which also has a five-star Morningstar rating, has a distribution yield of almost 4.20%.
Investors are displaying an affinity for TPYP this year. The MLP ETF has added $77.50 million in assets year-to-date, a significant chunk of its roughly $192 million in assets under management.
Global X MLP & Energy Infrastructure ETF (MLPX)
Expense ratio: 0.45% per year, or $45 on a $10,000 investment.
The Global X MLP & Energy Infrastructure ETF (NYSEARCA:MLPX) targets the Solactive MLP & Energy Infrastructure Index and is one of the more tax-efficient MLP ETFs on the market.
“Unlike traditional MLP funds, MLPX avoids fund level taxes by limiting direct MLP exposure and investing in similar entities, such as the General Partners of MLPs and other energy infrastructure corporations,” according to Global X.
MLPs and general partners combine for 36.51% of MLPX’s weight while energy infrastructure represent 39.57% of the fund’s weight. This MLP ETF holds 37 stocks with its top 10 holdings combining for approximately two-thirds of the fund’s weight. The average market capitalization of the MLPX roster is $9.12 billion, putting this MLP ETF in mid-cap territory.
VanEck Vectors High Income Infrastructure MLP ETF (YMLI)
great investors
Expense ratio: 0.83% per year, or $83 on a $10,000 investment.
The VanEck Vectors High Income Infrastructure MLP ETF (NYSEARCA:YMLI) is an MLP ETF targeting MLPs with favorable dividend and yield traits. With a trailing 12-month yield of 8%, this MLP ETF makes good on its yield promise.
YMLI is one of the more focused offerings in the MLP ETF space with just 25 holdings. The fund’s components have weights ranging from 2.48% to 5.97%. YMLI, which tracks the Solactive High Income Infrastructure MLP Index, is off about 8.65% in the fourth quarter and resides 18% below its 52-week high.
The fund’s P/E ratio of 14.24 reflects the energy sector’s value proposition relative to the broader market, but there is some volatility with this bet as highlighted by a three-year standard deviation of 22.34%.
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>>> U.S. Concedes Defeat on Nord Stream 2 Project, Officials Say
Bloomberg
By Jennifer Jacobs, Nick Wadhams, and Lars Paulsson
December 17, 2019
https://www.bloomberg.com/news/articles/2019-12-18/u-s-concedes-defeat-on-nord-stream-2-pipeline-officials-say
Pipeline connecting Russia, Germany seen as security threat
U.S. sending new ambassador Sullivan to Moscow next month
The U.S. has little leverage to prevent the Nord Stream 2 gas pipeline project between Russia and Germany from being completed, two administration officials said, acknowledging the failure of a years-long effort to head off what officials believe is a threat to European security.
The massive $11-billion project is just weeks away from completion and has led President Donald Trump to call Germany “a captive to Russia.” He has criticized the European Union for not doing more to diversify imports away from the nation that supplies more than a third of its gas.
Senior U.S. administration officials, who asked not to be identified discussing the administration’s take on the project, said sanctions that passed Congress on Tuesday as part of a defense bill are too late to have any effect. The U.S. instead will try to impose costs on other Russian energy projects, one of the officials added.
The admission is a rare concession on what had been a top foreign-policy priority for the Trump administration and highlights how European allies such as Germany have been impervious to American pressure to abandon the pipeline. It also shows how the U.S. has struggled to deter Russia from flexing its muscles on issues ranging from energy to Ukraine to election interference.
“It has been a commercial project, but with a huge geopolitical dimension attached to that,” Peter Beyer, who is German Chancellor Angela Merkel’s trans-Atlantic policy coordinator, told Bloomberg Television in an interview in Berlin on Wednesday. “I’m expecting that the sanctions, if Donald Trump is going to sign that bill, will not have a big effect on that project.”
The administration is hoping to sharpen its focus on Russia when Deputy Secretary of State John Sullivan, who was confirmed as ambassador to the country last week, heads to Moscow next month. The post has been vacant since early October, when former envoy Jon Huntsman stepped down, and ties between the two countries have only continued to sour.
On a visit to Poland in February, Secretary of State Michael Pompeo said the Nord Stream 2 project “funnels money to Russians in ways that undermine European national security.”
Who’s Dependent on Russia’s Gas?
Fourteen countries get more than 50% of their gas from Russia
Trump has indicated that he’ll sign the legislation passed Tuesday. The penalties on companies building the project, led by Russian energy company Gazprom PJSC, would be effective immediately, according to a Senate Republican aide.
Some 350 companies are involved in building the undersea link, most notably the Swiss company Allseas Group SA, whose ships are laying the last section of pipe in Danish waters.
The sanctions targets vessels that lay the pipeline as well as executives from companies linked to those ships. They could be denied visas and have transactions related to their U.S.-based property or interests blocked.
The sanctions bill includes a 30-day “wind-down period” that allows targeted companies to halt their operations after the law comes into effect. Yet that could give Gazprom just enough time to finish work.
The last section of pipe can be completed by about Jan. 11, well before the end of the period, according to Anna Borisova, an analyst at BloombergNEF in London. Nord Stream 2 will be in a position to be commissioned between April and June 2020, after additional connection work and testing, she said.
“The project seems safe,” Borisova said. “We don’t see major risks.”
relates to U.S. Concedes Defeat on Nord Stream 2 Project, Officials Say
White line indicates the path the Solitaire pipe lay vessel has taken in the past few weeks. The yellow line shows the route Nord Stream 2 will follow thorough Danish waters.Source: Ship tracking data and BloombergNEF
Trying to stymie that strategy, U.S. Senators Ted Cruz and Ron Johnson sent a letter to AllSeas CEO Edward Heerema Wednesday warning the company that it would face “crushing and potentially fatal” sanctions if it continued work on the pipeline. The senators said that the 30-day “wind-down” period was not intended to give AllSeas time to finish the project.
“If you were to attempt to finish the pipeline in the next 30 days, you would devastate your shareholders’ value and destroy the future financial viability of your company,” they wrote.
The new pipeline is set to ship as much as 55 billion cubic meters of Russian gas annually directly to Germany, doubling capacities of the existing Nord Stream link. The U.S. and Eastern European nations see it as a threat to the Ukrainian transit route that has been in place for decades, bringing revenues to the smaller Former Soviet Union nation. The new link theoretically gives Russia the ability to bypass Ukraine as a transit corridor.
Gas traders in Europe are watching carefully for the date when work will finish and gas flows will start through Nord Stream 2. Its importance has increased along with tensions between Russia and Ukraine, which are negotiating a renewal for the 10-year gas transit contract that expires this month. Officials from the two countries plan and the European Commission plan to discuss the matter in Berlin on Thursday.
The completion of Nord Stream 2 could would bring fresh supplies of gas to Europe’s already glutted market. That would make it more difficult for the U.S. to gain a bigger foothold in shipping cargoes of liquefied natural gas by tanker into Europe.
U.S. sales of the fuel made up 26% of imports in November. Flexible terms for contracts from U.S. producers mean that they will sell to where prices are highest, meaning more cargoes may head to Asia in the coming months.
Beyer recognized the need for Europe to buy the fuel from a wider range of sellers.
“From a European standpoint, not only German, we need to diversify our energy interests,” he said. “We are also interested in receiving LNG from the United States of America.”
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$NIO from CNN Money The 13 analysts offering 12-month price forecasts for Nio Inc have a median target of 14.36, with a high estimate of 89.08 and a low estimate of 6.41. The median estimate represents a +454.31% increase from the last price of 2.59. https://money.cnn.com/quote/forecast/forecast.html?symb=NIO
$nevdf has $14.58 million in Cash
>>> The Wall Street Bankers Who Burst Aramco’s $2 Trillion Bubble
Bloomberg
By Javier Blas, Dinesh Nair, and Matthew Martin
December 11, 2019
https://www.bloomberg.com/news/articles/2019-12-11/the-wall-street-bankers-who-burst-aramco-s-2-trillion-bubble
Arguments between bankers and Aramco centered on valuation
Shares started trading in Riyadh today and jumped 10%
The chairman of the world’s biggest oil company was about to lose his temper.
At a meeting in Riyadh on a sultry October evening, Achintya Mangla, one of JPMorgan Chase & Co.’s most senior bankers, had told Yasir Al-Rumayyan there was no way international investors were going to value Saudi Aramco -- just weeks away from an initial public offering -- at $2 trillion.
Al-Rumayyan, who’d risen in just a few years from head of a mid-sized investment bank in Riyadh to one of the most powerful jobs in the global economy, erupted. He unleashed a torrent of expletives in Arabic and English that shocked the roomful of battle-hardened bankers. The chairman was probably worried about telling his boss, the crown prince who locked up many of the nation’s wealthiest people in a five-star hotel just two years ago.
In the three and a half years since Saudi Arabia’s Mohammed bin Salman first proposed an initial public offering of Aramco, the state oil company that pumps 10% of the world’s oil, the $2 trillion valuation had caused trouble.
The prince, who runs the day-to-day affairs of the kingdom, had long insisted on the stratospheric valuation, almost double any other business on the planet, and nobody had been able to convince him global investors didn’t agree. Anyone who argued with him got pushed aside, including Khalid Al-Falih, sacked as Aramco chairman and oil minister earlier this year.
This account is based on interviews with bankers, consultants, executives, government officials and members of the royal family, many of whom asked not to be identified discussing private meetings and conversations. Aramco, the banks and fund managers all declined to comment.
When bankers pitched for a role on the IPO this year, they told Al-Rumayyan what he needed to hear: that $2 trillion wasn’t out of the question. The range initially pitched by Wall Street was $1.7 trillion to $2.4 trillion, according to people involved in the process.
But as the sale came closer, the valuation was becoming unsustainable. In September and early October, Aramco’s bankers toured the world informally pitching the deal to fund managers from Boston to London to Tokyo. Everywhere, foreign investors told the company the valuation was too high. In Switzerland, where trillions are managed for the world’s richest people, fund manager Pictet & Cie. had an initial valuation as low as $800 billion.
The bankers took notes. A spreadsheet summarizing feedback, seen by Bloomberg News, is a who’s who of the global fund industry, from Capital Group, a large investor in natural resources, to BlackRock, the biggest fund manager. The consensus from foreign investors was around a valuation of around $1.2 trillion. A few signaled they could go a bit higher. “Up to $1.5 trillion based on dividend,” was the feedback from Franklin Templeton, the emerging markets specialist and among the most generous.
The problem for many investors was summarized in two words: dividend yield. At $2 trillion, Aramco would pay shareholders a dividend equivalent to a return of less than 4% on their money, well below what Exxon Mobil Corp., Royal Dutch Shell Plc, Chevron Corp. and other major oil companies pay.
Investors need a much higher yield, requiring a lower valuation. Wellington Asset Management, which controls $1 trillion in assets, told bankers the dividend yield needed to rise to 7% to 8% to make the company a worthwhile investment, implying a valuation of about $900 billion.
The job of JPMorgan’s Mangla that evening in October was to break the news to the client. Speaking on behalf of the band of banks hired for the deal, he burst the $2 trillion bubble, according to two people who attended the meeting.
Mangla wasn’t the only one who tried to give Al-Rumayyan an unvarnished version of events. Jonathan Penkin, a senior equity capital markets banker at Goldman Sachs Group Inc., was told not to speak at any more meetings after he tried to talk about the valuation later in October, according to people familiar with the discussions. Motassim Al-Ma’Ashouq, the top Aramco executive in charge of the IPO preparations, and the person who had met foreign investors in preparatory talks, was also sidelined.
“Saudi Arabia has always had this problem: top-down decision making,” said Karen Young, a Middle East specialist at the American Enterprise Institute in Washington and a specialist in the political economy of the Middle East. “There’s a culture of fear. Savvy and able technocrats don’t feel comfortable speaking up.”?
Saudi Arabia also drew a blank with strategic investors, which often agree to buy into an IPO earlier than others, becoming cornerstone shareholders on the deal. Aramco’s banks pitched from China to Singapore, Russia to Malaysia. Everywhere, they got a polite thanks, but no thanks.
Al-Rumayyan, 49, who had no experience of the oil and gas industry before becoming Aramco chairman, felt betrayed by the very same Wall Street bankers who had told him that securing a $2 trillion IPO was possible. Saudi Arabia had a tough choice -- go ahead, lose face and settle for a valuation below $1.5 trillion and attract foreign investors. Or delay the deal, perhaps forever.
Riyadh, keen to restore the kingdom’s standing after the murder of Jamal Khashoggi, opted for a third way: ignore foreign investors, and sell the Aramco shares at home. The government would pressure wealthy local families, many of whom had members locked up in Riyadh’s Ritz-Carlton in 2017, and bring in a few friends in the Middle East region, including funds controlled by the governments of the United Arab Emirates and Kuwait. Even then, it had to compromise on the valuation, settling for $1.7 trillion.
The new IPO is a shadow of the initial plan, but still allows the crown prince to claim victory. Last Thursday, Aramco announced it raised a record $25.6 billion, beating the $25 billion set by Chinese e-commerce giant Alibaba Group. The valuation means the world’s most valuable company, until now Apple Inc., will trade in Riyadh not in the U.S.
For Wall Street, already stung by the collapse of WeWork’s IPO and Uber Technology Inc.’s chronic under-performance, Aramco is another embarrassment. After offering unrealistic valuations to win a place on the deal, the world’s most famous banks were unable to deliver, attracting scorn from their client and derision from investors. Now, many banks face the prospect of not getting paid for nearly four years of work.
The fact the IPO happened at all this year was a surprise.
The deal has been in the works since early 2016, when Prince Mohammed told The Economist newspaper he thought privatization would aid his Vision 2030 campaign to modernize the oil-dependent Saudi economy. But the sale, initially scheduled for 2018, was delayed several times as the Saudi leadership grappled with where to list it and how much it was worth.
By the start of this year, then Aramco chairman and oil minister, Al-Falih, believed the IPO was in the deep freeze and he hoped the deal would go away for good. But the crown prince and Al-Rumayyan, who headed the sovereign wealth fund that would get the proceeds, were still keen. He sought advice.
Throughout the stop-start IPO, one banker played a key role, although he rarely sought the limelight. The boutique operation of Michael Klein, a veteran Wall Street dealmaker who’d gone out on his own when he wasn’t made CEO of Citigroup Inc. during the financial crisis, advised Aramco directly, helping the company’s chairman to select the banks which would handle the IPO. Alongside Lazard Ltd. and Moelis & Co., Al-Rumayyan appointed his firm as an independent financial adviser.
If anyone could have warned Al-Rumayyan that Wall Street was inflating the Aramco valuation to win the IPO mandate, it was the ever-present Klein. He never did. According to several people, Klein thwarted attempts to have a discussion with the Saudi government about the valuation.
Another boutique bank, Evercore Inc., who worked on the IPO from 2016 to 2018, didn’t return. One of their top bankers, David Waring, warned the kingdom early in the process the $2 trillion was going to be very hard to achieve. Second time around, they ensured they weren’t on the deal by proposing a fee Aramco refused to pay.
While work on the IPO had slowed to a crawl, the crown prince was still insisting the sale take place by early 2021. But in the summer, Al-Rumayyan became anxious the U.S.-China trade war was going to cause an economic slowdown, sending crude prices tumbling and ruling out an IPO for several years.
“The royal palace panicked thinking oil prices were about to crash,” said a person who has worked on the IPO for nearly four years. “They saw two options: rush the IPO immediately, or forget about it until much, much later”.
First, Saudi Arabia tried to juice the oil market, cutting production to 9.6 million barrels a day, more than 700,000 barrels a day below its official OPEC quota. For the kingdom, it was an unprecedented move. Even so the price of oil briefly dropped to close to $55 a barrel in August, below the $60 to $70 a barrel range that was needed to support the IPO.
Al-Rumayyan, convinced time was running out, decided the deal needed to be fast-tracked, persuading Prince Mohammed that if he wanted an IPO, he should put him in charge.
Paid the Price
Al-Falih, who mixed administrative ability with an abrasive style, paid the price for his opposition. He was removed as Aramco chairman on Sept. 3 and replaced by Al-Rumayyan. (He was replaced as oil minister a few weeks later.) The IPO’s champion now sat at the head of the company.
With little time to organize the deal, Aramco ruled out an international listing. But Al-Rumayyan still wanted to bring billions in international money into Saudi Arabia. To ensure success – and positive coverage from analysts – he hired almost every bank on Wall Street including Goldman Sachs, Morgan Stanley, Bank of America and JPMorgan.
Al-Rumayyan and Amin Nasser, the Aramco CEO, thought the IPO would be fairly easy. Only a few months earlier, the company had sold its first -- massively oversubscribed -- international bond.
Perhaps blinded by that success, Aramco walked into the IPO under-prepared. Despite four years of work, executives still struggled to answer simple questions from foreign investors, its legal team couldn’t produce documents on time, and nobody at Aramco could convincingly explain why Aramco deserved its $2 trillion valuation.
Then in the early hours of Sept. 14, a fleet of drones attacked the very heart of the Saudi oil industry – the giant crude processing plant at Abqaiq in the kingdom’s eastern desert. Half of Aramco’s production was knocked out in minutes.
Saudi Aramco Oil Refineries Attacked by Drones
Blamed Iran
The kingdom blamed Iran for the attack, but said there would be no interruption in oil supplies to customers around the world. Oil traders, looking at photos of punctured tanks and mangled pipework, were skeptical. Many assumed the IPO would have to be delayed.
Prince Mohammed told advisers a delay would be a victory for Iran. The new oil minister, the crown prince’s half-brother Prince Abdulaziz bin Salman, and Aramco CEO Nasser promised the damage could be fixed in weeks. Bankers on the IPO were told to keep working.
Saudi Arabia did everything they could to boost the valuation: tax rates were cut further and investors were offered incentives to buy the shares. The intention to float was finally announced by Al-Rumayyan and Nasser on Nov. 4.
But the feedback from international investors didn’t improve. At a meeting in the early hours of Nov. 17, Saudi Arabia decided to scale back the size of the IPO and scrap plans to market the shares internationally. A roadshow in London and other financial capitals was scrapped. The Wall Street banks, who’d fought so hard to get a mandate, were dumped.
The deal became what Prince Abdulaziz, the oil minister, described as “our family and friends” IPO, relying on local retail investors, rich Saudis and regional governments. The Saudi government even spent more than $2 billion of its own cash buying shares. An unsuccessful attempt was even made to persuade Qatar – under economic blockade by Riyadh – to make a large investment.
The deal got done. Prince Mohammed might even get his wish. In a press conference at OPEC’s Vienna HQ Prince Abdulaziz scolded the international press for their coverage of the IPO and said the company would trade at more than $2 trillion in a few months. On the first day of trading, the price jumped 10%, giving a market value of $1.88 trillion.
“Those who have not subscribed in Aramco will be chewing their thumb to the point that I will be worried about them that they go and fix themselves in the hospital,” the oil minister said later in an interview.
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>>> Saudi Aramco Investors Should Cash Out Now, Bernstein Says
Bloomberg
By Dan Murtaugh
December 11, 2019
Aramco Fair Value Should Be Between $1.3T - $1.4T: Sanford C. Bernstein
Neil Beveridge, senior oil analyst at Sanford C. Bernstein, discusses the Aramco IPO.
https://www.bloomberg.com/news/articles/2019-12-12/saudi-aramco-investors-should-cash-out-now-bernstein-says?srnd=premium
Saudi Aramco investors should take profit now after shares in the world’s biggest company jumped 10% in their first day of trading Wednesday, analysts at Sanford C. Bernstein & Co. recommended in a note to clients.
A low dividend yield, the political risk of the government still running the company, and a bleak outlook for oil prices all point to a fair valuation for Saudi Aramco that’s about 28% lower than the $1.88 trillion it reached after its first day of trading in Riyadh, Bernstein analysts including Neil Beveridge and Oswald Clint said in the Thursday note.
Aramco Opens Up, Just Barely
Biggest listed company to have one of world's smallest free floats
Note: Values are calculated using Dec. 6 close. Aramco market capitalization based on company's IPO price. Free floats for Alphabet and Facebook measured for their class A stock. The companies also have other share classes with different ownership levels.
There may still be some short term upside because of index inclusion and the difficulty of shorting stocks on the Saudi Tadawul Stock Exchange, Bernstein said. The company jumped a second day on Thursday, pushing the oil giant beyond the $2 trillion valuation that Crown Prince Mohammed bin Salman set as a target more than three years ago.
“For investors who have benefited so far, we would take profit here,” Bernstein said in the note. “For those who have not, we would wait until a better entry point, which will inevitably come.”
The current valuation only makes sense with oil at $100 a barrel, so the downside will eventually materialize, it added. Brent crude on Thursday was trading near $64.
Bernstein initiated coverage of Aramco with the equivalent of a sell rating and a target price of 25.50 riyals, below the 35.20 riyal settlement on its first day of trading. On Thursday, the stock climbed by the daily 10% limit at the open to 38.70 riyals before trimming gains. It was up 7% at 37.65 riyals as of 9:49 a.m. London time.
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>>> How Turkey Is Spoiling Big Plan for Mediterranean Gas
Bloomberg
By Selcan Hacaoglu
December 10, 2019
https://www.bloomberg.com/news/articles/2019-12-10/how-turkey-is-spoiling-big-plan-for-mediterranean-gas-quicktake?srnd=premium
The discovery over the last decade of sizable natural gas fields lying beneath the eastern Mediterranean has driven a vision of the region’s often-divided nations cooperating to exploit the reserves. They would enrich themselves, while their exports would help Europe reduce its dependence on Russian gas. One catch: Turkey wasn’t part of the picture, and with an active navy in the region, it’s playing the part of spoiler. Its recent maritime pact with Libya has added another snarl.
1. How much gas does the eastern Mediterranean hold?
The big finds are the Aphrodite field off Cyprus (thought to hold 8 trillion cubic feet of gas); the Tamar and Leviathan fields off Israel’s coast, (11 and 22 trillion cubic feet respectively; and Egypt’s Zohr field (30 trillion cubic feet). Zohr ranks as the world’s 20th-largest gas field, but it’s a fraction the size of the whoppers on the list, which are concentrated in Russia. Still, the U.S. Geological Survey estimated in 2010 that there were 122 trillion cubic feet of recoverable gas in the Levant Basin and an additional 223 trillion cubic feet in the Nile Delta Basin, raising the prospect that there’s more to be found.
2. What’s the vision for cooperation?
In early 2019, Cyprus, Israel and Egypt together with neighbors Greece, Jordan, the Palestinian Authority and Italy founded the East Mediterranean Gas Forum. It’s an effort to establish a regional gas market and an exporting hub to Europe, which is eager to diversify its sourcing to guard against further disruptions of supply from Russia. Cooperation is an imperative in part because pipelines are needed to connect producers to consumers. One project envisions an undersea pipe carrying gas from Israeli and Cypriot reserves to Greece and then beyond.
3. Why was Turkey left out?
Because the Republic of Cyprus was included, and the two are bitter foes. Cyprus was in effect partitioned in 1963 when fighting erupted between Turkish Cypriots in the north and Greek Cypriots in the south. It was fully divided in 1974 after Turkey captured the northern third of the island following a coup by supporters of union with Greece. The breakaway Turkish Cypriot state in the north is recognized only by Turkey, which continues to base troops there. The government in the south is recognized internationally.
4. What has Turkey said?
Turkish officials oppose exploitation of gas resources by the Republic of Cyprus without an agreement on sharing proceeds with Turkish Cypriots. Beyond that, they say no energy project in the region has a chance to survive without Turkey’s participation. They argue that the shortest route for a gas pipeline from the region to Europe would cut through waters under Turkey’s domain.
5. What’s Turkey done?
It’s used its warships to interfere with gas exploration. Turkish vessels in 2018 blocked a ship contracted by the Italian oil company Eni SpA from approaching a work site off Cyprus. And Turkey has deployed newly procured drilling ships to search for gas in the area. A vessel called the Fatih is drilling in waters below Cyprus’s finger-like Karpas peninsula under an agreement with the Turkish Cypriots. The Barbaros is searching for energy in waters south of the island. And another, the Yavuz, is plying an area off the southwestern corner of the island called block 7, over which both Turkey and Cyprus claim drilling rights. Cyprus has an agreement with Eni and France’s Total SA to explore for oil and gas there.
6. How do both countries claim drilling rights?
Under the United Nation’s Convention on the Law of the Sea, coastal nations maintain an exclusive economic zone as far out as 200 nautical miles from their coast where they are entitled to fishing, mining and drilling rights. Where two zones intersect, as they do in the case of Turkey and Cyprus, the countries are obligated to come to a settlement. But Turkey hasn’t ratified the convention. It takes the unorthodox position that island states such as Cyprus are only entitled to rights within their legal territorial waters, which go out just 12 nautical miles. Cyprus has petitioned the International Court of Justice to intervene.
7. What’s the latest complication?
Turkey and Libya in December approved a deal demarcating an 18.6-nautical mile (35-kilometer) line that will form the maritime boundary separating their economic zones. Greece, Cyprus and Egypt see the deal as a brazen Turkish bid for dominance in the eastern Mediterranean. Libya is also in conflict with Greece over offshore exploration licenses Athens issued for waters south of the Greek island Crete, which is located between Turkey and Libya. Turkey’s President Recep Tayyip Erdogan said the agreement with Libya will enable joint exploration activities in the Mediterranean.
8. How have other countries responded?
The U.S. said it is deeply concerned by Turkey’s gas explorations in the waters off Cyprus and has urged Turkey to halt them. The European Union has responded to the operations by freezing most high-level contacts with Turkey and cutting the flow of funds to Ankara that were to have eased Turkey’s integration with the bloc. It’s also weighing sanctions. Accusing its Western allies of siding with Cyprus, Turkey has vowed to continue its explorations, demonstrating its desire for an increasingly independent role in regional policies.
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>>> This ETF Could Beckon if Energy Stocks Rebound
ETF Trends
December 4, 2019
https://finance.yahoo.com/news/diversification-benefits-real-asset-etf-205827675.html
There are rumblings that the energy sector, a laggard for much of this year, could be ready to rebound in 2020. Investors can participate in that action without making a full commitment to the sector via the FlexShares Morningstar Global Upstream Natural Resource Index Fund (GUNR) .
The FlexShares global natural resources strategy takes an “upstream” focus that targets companies with ownership or direct access to the raw materials. These natural resource companies have revenues, earnings, cash flows, and valuations that are closer linked to natural resources. The upstream focus provides improved correlation to commodity futures compared to downstream operations, granting investments greater inflation protection.
While GUNR is not 100% allocated to energy stocks, it's top 10 lineup is home to many of the higher quality American and European oil majors that currently look attractive on valuation, including Exxon Mobil (XOM), a stock Bank of America Merrill Lynch is bullish on for 2020.
“BAML said the stock was its top U.S. oil major pick for 2020 and that countercyclical investments and asset sales should vanquish market skepticism over whether it can outperform its peers,” reports Barron’s.
GUNR specifically identifies upstream natural resources equities based on a Morningstar industry classification system, with a balanced exposure to three traditional natural resource sectors, including agriculture, energy, and metals.
Bullish On Oil
Some analysts are bullish on global oil names, such as BP Plc (BP), Royal Dutch Shell (RDS-A) and France’s Total (TOT). That's good for GUNR because those names are also found among the ETF's top 10 holdings.
The expected global supply glut is also the latest threat to the Organization of the Petroleum Exporting Countries and other producers, which have already enacted production caps in an attempt to stabilize prices and balance the market. Predictably, geopolitical headwinds factor into the oil equation. Fortunately, more supply cuts could be in the offing.
One reason some investors may be revisiting GUNR is that the energy sector is being viewed as a value destination and there has recently been a rotation to value away from growth.
Analysts also expect the volume of U.S. crude oil in storage should diminish in the weeks ahead before reversing course at the end of peak driving season, along with the start of the seasonal refinery maintenance period.
“Energy could surprise and emerge as one of the top sectors in the next 10 years. Stoeckle favors Chevron (CVX) , ConocoPhillips (COP) , BP (BP) , and Total (TOT) . The European stocks are particularly cheap, in part because of the divestment effort. BP stock, at $37, and Royal Dutch Shell, at $58, both trade for just 13 times projected 2019 earnings and yield 6.5%,” according to Barron’s.
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>>> The History and Future of Breeder Reactors
Power Engineering
Issue 3 and Volume 7.
By Sharryn Dotson, Editor
6-25-14
https://www.power-eng.com/2014/06/25/the-history-and-future-of-breeder-reactors/#gref
There are four countries in the world that currently have operating fast breeder nuclear reactors: China, Japan, India and Russia. That total is down from nine countries, including the U.S., that had operating breeder reactors, some since the 1950s, according to World Nuclear Association (WNA).
Why the decline in the use of breeder reactors? It helps to understand how the reactor works to understand why some countries decided to abandon their programs, while others have not only expanded their use of the reactors, but improved on the technology over the years.
WNA defines a fast breeder reactor as one that produces more fissile material than it consumes. If the reactors burn more fuel than they produce, they are burner reactors, which are the general types of technology seen around the world. Many breeder reactors use plutonium or uranium as fuel, but some can also burn thorium or mixed oxide (MOX) fuels. Fast neutron reactors cannot use water for cooling because collisions with the hydrogen nuclei in water quickly remove most of the kinetic energy from the neutrons, and the fissile material in a reactor core must be more concentrated to sustain a chain reaction with fast neutrons, the WNA said.
The 280-MWe Monju fast breeder reactor in Japan was restarted in 2010 after it was shutdown for 15 years. Courtesy: JNC
“Fast breeder reactors are capable of generating more fissile material than consumed,” said Val Aleyaseen, process systems engineer with Candu Energy Inc. in a previous article. “Following an initial load of fertile material, which could be from RU (recovered uranium), DU (depleted uranium), and/or MOX, the neutron economy is high enough to breed more fissile fuel. This would mean that the fuel could eventually be self-sustained and would not require any new material.” Aleyaseen went on to say that capital costs of breeder reactors are estimated to be at least 25 percent more than light water reactors.
The availability of these different types of fuels and technologies has made it difficult or expensive for some countries to maintain a breeder reactor program. The U.S., Germany and the U.K. have all largely abandoned their breeder reactor programs, while France and Kazakhstan have shut down reactors but continue to research and develop reactor technologies. Japan has two that have been operating since 1978 and 2010. Russia has one currently in operations and one that is in the process of fuel loading. China has a breeder reactor that has also been in operations since 2010.
The cost of developing the reactors was also a reason that countries have stopped working on the technology. The U.S. reported that it spent $15 billion in 2007 dollars; Japan, $12 billion; U.K., $8 billion; Germany, $6 billion and Italy, $5 billion.
Researchers with the Electric Power Research Institute (EPRI) are evaluating the different breeder reactor technologies as one among many that could comprise a balanced portfolio of research and development investments to provide energy generation options if and, when needed, and at the scale needed.
Russia's Beloyarsk nuclear power plant is home to two fast breeder reactors, one of which is expected to begin operations in 2014. Courtesy: Wikipedia
“EPRI’s role is not to sell people on one reactor over another or pick winners and losers, but rather to provide evidence-based information and analysis to support the prioritization and long-range planning needed to take concepts from idea to commercial viability,” said Andrew Sowder, senior technical leader with EPRI.
Sowder said his current research, in collaboration with Vanderbilt University in Tennessee, is focused on developing and applying decision support tools that can be used by stakeholders to evaluate technologies against their own criteria and against existing energy systems.
EPRI is including sodium-cooled fast reactors (SFRs) in its own feasibility assessments. “One compelling aspect of the sodium-cooled fast reactor is the extensive experience globally with the technology, spanning more than five decades and twenty or so experimental and demonstration reactors,” said Sowder. “The basic technology has been demonstrated. You can look around the world and find SFRs in operation today.”
EPRI’s international engagement has helped with its research on advanced reactors. “EPRI interacts with the international vendor and utility communities because they are the ones who will need to build and operate these things,” Sowder said. “For example, we have interacted with AREVA as they operate a number of nuclear fuel cycle facilities, such as the reprocessing center at La Hague, that are relevant to transitioning to advanced nuclear fuel cycles such as those employing fast reactors. We are also beginning to reach out to counterparts in the United Kingdom given the active pursuit of new nuclear generation there and the current interest in credible technology option assessments.”
Sowder said fast breeder reactors are likely still decades away from being deployed commercially in the U.S. even with a robust R&D program and long-term commitment, not just because of technological uncertainties, but due to regulatory advancements that need to occur in parallel to license any new reactor technology.
“The way to a technology’s maturation is basic research, development, demonstration and commercialization,” he said. “The technology, even while it is being demonstrated, will still have some issues.” For example, one challenge involves managing the use of the sodium as a coolant, which burns in air and reacts violently when it comes in contact with water, a challenge that Sowder says is manageable technically but clearly present concerns for the operator and regulator.
“The challenge for commercializing any new nuclear technology is the mindset that comes with the long time frames involved,” Sowder said. “If you really want an option available by, say, 2050, you need to start working toward that goal now.”
Some countries are working toward the goal of developing fast neutron reactors. France is developing its 600-MWe Advanced Sodium Technological Reactor for Industrial Demonstration (Astrid) prototype; and Allegro, a 50-MWT to 100-MWt gas-cooled fast reactor. Belgium’s SCK.CEN is planning the Multipurpose Hybrid Research Reactor for High-tech Applications (MYRRHA) 57-MWt research reactor to be the pilot reactor at the ALFRED project, or the Advanced Lead Fast Reactor European Demonstrator.
GE's PRISM sodium-cooled reactor was first developed in 1981. Courtesy: GE Energy
GE-Hitachi (GEH) has created an advanced nuclear reactor called the Power Reactor Inherently Safe Module, or PRISM. It is a sodium-cooled reactor that can burn recycled used nuclear fuel, depleted uranium, and fuel that had not been used. It will also shut itself down without any human intervention and will generate heat that can be removed without fans, automatic systems or manual removal, according to Eric Loewen, chief consulting engineer – Advanced Plants with GEH.
The U.S. government started a large-cooled reactor program back in 1971 under President Nixon, but it was canceled in 1983. GE developed the initial concept of PRISM in 1981 before it was picked up at the U.S. Advanced Liquid Reactor Program, Loewen said. Eight other U.S. companies helped to further develop PRISM.
“We have kept to the same principles and essence of the first design made back in 1981,” Loewen said.
While the reactor is a fast spectrum reactor, it would be configured to burn plutonium stockpiles if picked for the Sellafield site in the UK, Loewen said.
As breeder reactors are more developed over time and companies find innovative ways to use them, costs can potentially decrease and more countries may be willing to restart or begin breeder reactor programs.
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>>> Germany is closing all its nuclear power plants. Now it must find a place to bury the deadly waste for 1 million years
CNN
By Sheena McKenzie
12-1-19
https://www.msn.com/en-us/news/world/germany-is-closing-all-its-nuclear-power-plants-now-it-must-find-a-place-to-bury-the-deadly-waste-for-1-million-years/ar-BBXxJfK?li=BBnb7Kz
When it comes to the big questions plaguing the world's scientists, they don't get much larger than this.
Where do you safely bury more than 28,000 cubic meters -- roughly six Big Ben clock towers -- of deadly radioactive waste for the next million years?
This is the "wicked problem" facing Germany as it closes all of its nuclear power plants in the coming years, according to Professor Miranda Schreurs, part of the team searching for a storage site.
Experts are now hunting for somewhere to bury almost 2,000 containers of high-level radioactive waste. The site must be beyond rock-solid, with no groundwater or earthquakes that could cause a leakage.
The technological challenges -- of transporting the lethal waste, finding a material to encase it, and even communicating its existence to future humans -- are huge.
But the most pressing challenge today might simply be finding a community willing to have a nuclear dumping ground in their backyard.
Searching for a nuclear graveyard
Germany decided to phase out all its nuclear power plants in the wake of the Fukushima disaster in 2011, amid increasing safety concerns.
The seven power stations still in operation today are due to close by 2022.
With their closure comes a new challenge -- finding a permanent nuclear graveyard by the government's 2031 deadline.
Germany's Ministry for Economic Affairs and Energy says it aims to find a final repository for highly radioactive waste "which offers the best possible safety and security for a period of a million years."
The country was a "blank map" of potential sites, it added.
Currently, high-level radioactive waste is stored in temporary facilities, usually near the power plant it came from.
But these facilities were "only designed to hold the waste for a few decades," said Schreurs, chair of environmental and climate policy at the Technical University of Munich, and part of the national committee assisting the search for a high-level radioactive waste site.
As the name suggests, high-level radioactive waste is the most lethal of its kind. It includes the spent fuel rods from nuclear power plants. "If you opened up a canister with those fuel rods in it, you would more or less instantly die," said Schreurs.
These rods are "so incredibly hot, it's very hard to transport them safely," said Schreurs. So for now they're being stored in containers where they can first cool down over several decades, she added.
There are dozens of these temporary storage sites dotted across Germany. The search is now on for a permanent home at least 1 kilometer underground.
Between a rock and a hard place
The location will need to be geologically "very very stable," said Schreurs. "It can't have earthquakes, it can't have any signs of water flow, it can't be very porous rock."
Finland, which has four nuclear power plants and plans to build more in the future, is a world leader in this field. Work is well underway on its own final repository for high-level waste -- buried deep in granite bedrock.
Germany's problem is "it doesn't have a whole lot of granite," said Schreurs. Instead, it has to work with the ground it's got -- burying the waste in things like rock salt, clay rock and crystalline granite.
Next year the team hope to have identified potential storage sites in Germany (there are no plans to export the waste). It's a mission that stretches beyond our lifetimes -- the storage facility will finally be sealed sometime between the years 2130 and 2170.
Communications experts are already working on how to tell future generations thousands of years from now -- when language will be completely different -- not to disturb the site.
Schreurs likened it to past explorers entering the pyramids of Egypt -- "we need to find a way to tell them 'curiosity is not good here.'"
People power
For now, nobody wants a nuclear dumping ground on their doorstep.
Schreurs admitted public mistrust was a challenge, given Germany's recent history of disastrous storage sites.
Former salt mines at Asse and Morsleben, eastern Germany, that were used for low- and medium-level nuclear waste in the 1960s and 1970s, must now be closed in multibillion-dollar operations after failing to meet today's safety standards.
The fears around high-level waste are even greater.
For more than 40 years, residents in the village of Gorleben, Lower Saxony, have fought tooth-and-nail to keep a permanent high-level waste repository off their turf.
The site was first proposed in 1977 in what critics say was a political choice. Gorleben is situated in what was then a sparsely populated area of West Germany, close to the East German border, and with a high unemployment rate that politicians argued would benefit from a nuclear facility.
Over the decades, there have been countless demonstrations against the proposal. Protesters have blocked railway tracks to stop what they described as "Chernobyl on wheels" -- containers of radioactive waste headed for Gorleben's temporary storage facility.
An exploratory mine was eventually constructed in Gorleben, but it was never used for nuclear waste. And in the face of huge public opposition, the government in recent years decided to start afresh its national search for a dumping ground.
"If we did not build this big, strong and long-lasting resistance, I think the salt mine would already be used," said Kerstin Rudek, 51, who grew up in Gorleben and has been campaigning against a permanent nuclear repository for the last 35 years.
That doesn't mean she and other activists plan on quitting their campaign anytime soon. "They haven't canceled out Gorleben completely, so we are very suspicious it might still be chosen," said Rudek.
With more than 400 nuclear power plants around the world, many nearing the end of their operating lifetimes, the issue of waste storage will only become more urgent, said Schreurs.
Germany is in the unique position of knowing exactly how much waste it will be dealing with. Knowing where to put it is the challenge.
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>>> U.S. Posts First Month in 70 Years as a Net Petroleum Exporter
Bloomberg
By Stephen Cunningham
November 29, 2019
https://www.bloomberg.com/news/articles/2019-11-29/u-s-posts-first-month-in-70-years-as-a-net-petroleum-exporter?srnd=premium
Exports surpass imports in September by 89,000 barrels a day
The U.S. solidified its status as an energy producer by posting the first full month as a net exporter of crude and petroleum products since government records began in 1949.
The nation exported 89,000 barrels a day more than it imported in September, according to data from the Energy Information Administration Friday. While the U.S. has previously reported net exports on a weekly basis, today’s figures mark a key milestone that few would have predicted just a decade ago, before the onset of the shale boom.
President Donald Trump has touted American energy independence, saying that the nation is moving away from relying on foreign oil. While the net exports show decreasing reliance on imports, the U.S. still continues to buy heavy crude oil from other nations to meet the needs of its refineries. It also buys refined products when they are available for a lower cost from foreign suppliers.
“The U.S. return to being a net exporter serves to remind how the oil industry can deliver surprises -- in this case, the shale oil revolution - that upend global oil prices, production, and trade flows,” said Bob McNally, a former energy adviser to President George W. Bush and president of the consulting firm Rapidan Energy Group.
U.S. Petroleum Net Imports Dip Below Zero
Soaring output from shale deposits led by the Permian Basin of West Texas and New Mexico has been in main driver of the transition -- but America’s status as a net exporter may be fragile. Many Texas wildcatters are predicting a rapid decline in production growth next year, while some Democratic contenders for the White House have called for a ban on fracking -- the controversial drilling technique that unleashed the boom.
In its Short-Term Energy Outlook earlier this month, the EIA flagged the turnaround and forecast total net exports of crude and products of 750,000 barrels a day in 2020, compared with average net imports of 520,000 barrels a day this year.
Analysts at Rystad Energy said this week the U.S. is only months away from achieving energy independence, citing surging oil and gas output as well as the growth of renewables.
“Going forward, the United States will be energy independent on a monthly basis, and by 2030 total primary energy production will outpace primary energy demand by about 30%,” said Sindre Knutsson, vice president of Rystad Energy’s gas markets team.
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>>> Epitome of America’s Shale Gas Boom Now Warns It May Go Bust
Bloomberg
By Rachel Adams-Heard, David Wethe, and Kriti Gupta
November 5, 2019
https://www.bloomberg.com/news/articles/2019-11-05/chesapeake-cuts-2020-spending-view-by-30-amid-shale-slowdown
Chesapeake issues ‘going concern’ notice in regulatory filing
Shares fall as much as 17%, most in more than three years
Shale Is Under Huge Pressure, Vanda Insights' Hari Says
Chesapeake Energy Corp. -- once the epitome of America’s shale-gas fortunes -- is warning it may not be able to outlast low fuel prices.
Reflecting growing pain across the energy sector, the Oklahoma-based company’s shares and bonds tumbled Tuesday after it said it may not be viable as a “going concern” if low oil and natural gas prices persist. The warning came just over an hour after the company posted a wider-than-expected loss for the third quarter.
A decade ago, Chesapeake was a $37.5 billion company led by the energetic Aubrey McClendon, an outspoken advocate for the gas industry. Chesapeake became the second-largest U.S producer of the fuel. But in 2016, McClendon was indicted by a federal grand jury on charges of conspiring to rig bids for the purchase of oil and gas leases. A day later, he was dead after his car collided with a highway overpass.
On Tuesday, Chesapeake’s market value was $2.6 billion. The company was brought there by years of low gas prices, the result of an industry that has been the victim of its own success in cracking open shale-rock formations for access to additional supplies.
Chesapeake has spent the years since McClendon’s death selling assets, cutting jobs and trying to produce more oil in an effort to chip away at a mountain of debt. Its notice Tuesday comes as shale producers struggle to prove to investors they can produce positive cash flow, not just grow at any cost.
Energy Distress
Oil and gas companies are going bankrupt at the fastest pace since 2016
When times were good, Chesapeake’s campus was home to an army of construction cranes as McClendon, a graduate of Duke University, sought the look of a leafy private university for the company’s headquarters. It had the accouterments of a country club, with an multistory health center featuring two massage therapists on staff, a large daycare facility, a soccer field and running track.
McClendon at one point had amassed about $400 million of real estate in the Oklahoma City area, including at least two shopping centers, a church and a grocery store. He invested in local restaurants and plastered the Chesapeake name on the arena housing the Oklahoma City Thunder basketball team, which he partly owned. All of that drew fire from investors, who said the company should focus more on oil and gas while selling non-core assets.
The going-concern warning signals that Chief Executive Officer Doug Lawler’s six-year campaign to rescue Chesapeake from the billions of dollars in debts amassed by McClendon may be on the verge of failure. Lawler, who was hand-picked for the job by activist investor Carl Icahn, long sought to convert the gas giant into an oil company, to no avail.
If oil and gas prices remain low, the company may not be able to comply with its leverage ratio covenant during the next year, “which raises substantial doubt about our ability to continue as a going concern,” Chesapeake said Tuesday in a quarterly filing. The warning comes less than a year after Lawler orchestrated the $1.9 billion takeover of shale explorer WildHorse Resource Development Corp.
Shares fell as much as much as 17%, the most in more than three years. Chesapeake’s 8% coupon notes due 2025 are among the most actively traded securities in the high yield market, according to Trace. The bond’s price dropped by over $4, the largest price drop on record for the security. Chesapeake’s 8% coupon notes due 2027 also plunged to their lowest price ever.
Chesapeake has underperformed peers amid a shale slowdown
The shale boom has sent gas prices tumbling to less than $3 per million British thermal units from an all-time high near $16 in 2005. Terminals originally designed to import the fuel have been converted to export plants as the supply surge overwhelms domestic demand, leaving producers to seek international markets for their output.
Chesapeake executives tried to assuage some fears on a third-quarter conference call. The producer continues to look at opportunities to improve its balance sheet, including asset sales, deleveraging acquisitions and capital funding options, they said.
“We could go out and seek a waiver at any time from our bank group, but at the moment we continue to be focused on the strategic levers that result in permanent debt reduction,” Chief Financial Officer Nick Dell’Osso Jr. said.
‘Massive Debt’
Chesapeake’s borrowings totaled $9.73 billion as of Sept. 30, up from $8.17 billion at the end of last year.
“With massive debt, leverage is not going down every quarter you continue to outspend,” Neal Dingmann, an analyst at SunTrust Robinson Humphrey Inc., said by phone. “What is leverage going to look like next year and how are you going to address it internally or externally? That’s the story.”
Though Chesapeake plans to reduce spending by almost a third next year as it seeks to generate free cash flow, its third-quarter capital expenditures rose 16% from a year earlier as it completed more wells. The producer is standing by its budget guidance for full-year 2019.
Chesapeake has already taken some steps to cut debt. In September, the company announced a $588 million debt-for-equity swap. In an earnings statement earlier Tuesday, Chesapeake said it had restructured gas gathering and crude transportation contracts in South Texas and the Brazos Valley to improve future returns.
“They need to walk people through how they plan to get free cash flow,” Sameer Panjwani, an analyst at Tudor, Pickering, Holt & Co., said by phone. “A big part of it could be asset sales. They’ve talked about it before on a high level, but how far along are they in some of these processes?”
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>>> Permian Basin Is Now an Anchor Dragging Down Jobs in Texas, Dallas Fed Says
Bloomberg
By David Wethe
November 27, 2019
https://www.bloomberg.com/news/articles/2019-11-27/permian-jobs-machine-now-a-boat-anchor-to-texas-dallas-fed-says?srnd=premium
Region lost 400 jobs in the first 10 months of this year
That compares with 16,700 positions added a year earlier
The world’s biggest shale patch is now officially a drag on jobs creation in the Lone Star state.
Employment in the Permian Basin of West Texas has fallen by 400 jobs through the first 10 months of the year, a massive change from the 16,700 jobs added through the same period last year, according to a report Wednesday from the Federal Reserve Bank of Dallas.
“Permian Basin job growth has been sluggish this year,” according to the report. “This marks the first time since 2016 that Permian Basin employment has lagged Texas job growth.”
The employment numbers are just the latest in a series of signs highlighting a slowdown throughout the 55 million-acre (22 million hectare) region in West Texas and New Mexico. With investors pressing oil explorers to focus on returning profits to shareholders, drilling activity in the Permian has dropped to the lowest level in nearly two years.
Housing is also starting to take a hit there, the Dallas Fed said. In October, the region’s median home price fell 2.6% from August to $301,045. Monthly home sales fell 3.6% from September.
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Berkshire buys shares -Occidental Petroleum Corporation (OXY), together with its subsidiaries, engages in the acquisition, exploration, and development of oil and gas properties in the United States and internationally. The company operates through three segments: Oil and Gas, Chemical, and Midstream and Marketing. The Oil and Gas segment explores for, develops, and produces oil and condensate, natural gas liquids (NGLs), and natural gas. The Chemical segment manufactures and markets basic chemicals, including chlorine, caustic soda, chlorinated organics, potassium chemicals, ethylene dichloride, chlorinated isocyanurates, sodium silicates, and calcium chloride; vinyls comprising vinyl chloride monomer, polyvinyl chloride, and ethylene. The Midstream and Marketing segment gathers, processes, transports, stores, purchases, and markets oil, condensate, NGLs, natural gas, carbon dioxide, and power. This segment also trades around its assets consisting of transportation and storage capacity; and invests in entities. The company has strategic partnership with Ecopetrol S.A. Occidental Petroleum Corporation was founded in 1920 and is headquartered in Houston, Texas.
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>>> Billionaires Circle Distressed Assets in U.S. Oil and Gas Patch
Bloomberg
By Rachel Adams-Heard
November 14, 2019
https://www.bloomberg.com/news/articles/2019-11-14/billionaires-circle-distressed-assets-in-u-s-oil-and-gas-patch?srnd=premium
‘Grave dancer’ Sam Zell sees opportunities in oil industry
Dallas Cowboys owner Jerry Jones eyes Louisiana gas assets
Billionaires are circling the distressed U.S. oil and gas patch, looking to pick up assets on the cheap at a time when the state of the industry is scaring off other investors.
Sam Zell has teamed up with Tom Barrack Jr. to buy oil assets in California, Colorado and Texas at fire-sale prices from companies trying to get ahead of a coming credit crunch. Dallas Cowboys owner Jerry Jones said his Comstock Resources Inc. is in talks to acquire natural gas assets in Louisiana from struggling Chesapeake Energy Corp.
“I compared it recently to the real estate industry in the early 1990s, where you had empty buildings all over the place, and nobody had cash to play,” Zell said in an interview on Bloomberg TV Thursday. “That’s very much what we’re seeing today.“
Sam Zell: We Don't Buy Markets, We Buy Deals
Sam Zell, Equity Group Investments chairman and founder, says he’s buying distressed assets as the U.S. oil sector sees a slowdown. Leon Kalvaria, Citigroup chairman of the institutional clients group, and Bloomberg’s Sonali Basak also takes part in the conversation on “BloombergDaybreak: Americas.” (Source: Bloomberg)
Thanks to the shale revolution, the U.S. has become the world’s biggest oil producer. The investors behind that growth, however, have little to show for it. After years of churning through cash with paltry shareholder returns, independent oil and gas drillers are down more than 40% since 2014. Lenders are becoming more discerning after easy money enabled much of the original boom.
Oil and gas prices, meanwhile, remain depressed.
That’s fueling a slowdown. The number of active drilling rigs in the U.S. has declined, and some of the biggest independent producers are lowering growth plans. Chesapeake Energy Corp., once the second-biggest U.S. producer of natural gas, warned investors last week that it may not be viable as a “going concern” if low oil and gas prices persist.
Here’s Sam
Enter the billionaires.
“What we’re seeing are situations where companies are taking steps in anticipation of problems rather than responding to problems,” said Zell, 78.
He and Barrack teamed up in September to create Alpine Energy Capital LLC, a rebranded Colony HB2 Energy, which was formed in 2018 and recently closed a $320 million investment with California Resources Corp.
“The seller in that was a big company -- not in trouble but not terribly liquid, and therefore looking for ways to, in effect, get somebody else to put up the money to keep the game going,” Zell said.
A sale of Chesapeake’s Louisiana assets has been pegged as one of the few remaining options for a company that has become a poster child for the promise and peril of the shale industry.
Jones, 77, who owns 73% of Comstock, said through his assistant that a deal could be valued at more than $1 billion. That would give Chesapeake a cash infusion at a time when all eyes are on the company’s ability to pay its debts.
That cash-flush opportunists like Zell, who’s been called “the grave dancer” for his ability to buy at the bottom of markets, see value in assets belonging to an industry that’s in distressed-sale mode could signal that the bottom is here -- or, at least, close.
Real Estate
Zell can call the top of markets, too. Many people said that’s what he did with the U.S. commercial real estate market in 2007, when he unloaded a portfolio of office buildings to Blackstone Group Inc. At the time, he denied that was the case.
It remains to be seen, of course, if oil and gas prices have hit bottom. Forecasts for next year don’t paint a pretty picture, but some analysts are pointing to a slowdown in U.S. production growth as reason to believe prices will pick up at the end of 2020 and into 2021.
Unlike Jones, Zell said he’s staying away from gas for now.
“The oil situation is in much better shape,” Zell said. “And the amount of capital is disappearing.”
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>>> Sam Zell Says He’s Buying Distressed Oil Assets During the Slowdown
Bloomberg
By Rachel Adams-Heard and Alix Steel
November 14, 2019
https://www.bloomberg.com/news/articles/2019-11-14/sam-zell-says-he-s-buying-distressed-oil-assets-amid-slowdown?srnd=premium
Billionaire says he’s bought assets from California to Texas
Oil patch looks like real estate in the early 1990s, he says
Sam Zell
Real estate billionaire Sam Zell says he’s a buyer of distressed assets as the U.S. oil sector sees a slowdown.
He’s bought assets in California, Colorado and Texas at fire-sale prices from companies that are raising cash in anticipation of potential problems in the future, Zell said Thursday in an interview on Bloomberg TV. He said some oil companies are running out of money to drill and are selling their cash flow to raise more capital.
“The amount of capital available in the oil patch is disappearing,” Zell said Thursday. “I compared it to the real estate industry in the early 1990s, where you had empty buildings all over the place, nobody had cash."
The U.S. oil sector is seeing a decline in the number of active drill rigs as the equity and debt markets remain closed to most exploration and production companies. Chesapeake Energy Corp., once the second-biggest U.S. producer of natural gas, warned investors last week that it may not be viable as a “going concern” if low oil and gas prices persist.
‘Keep The Game Going’
Zell and Tom Barrack Jr.’s Colony Capital Inc. said in September that they were teaming up to create Alpine Energy Capital LLC, a rebrand of Colony HB2 Energy, which was formed in 2018 and recently closed a $320 million investment with California Resources Corp.
That deal was structured as a so-called DrillCo, in which private investors pay to drill certain fields. Once oil begins flowing, the private firm receives the majority of the cash flow until costs are recouped and pre-agreed profit targets are attained.
“The seller in that was a big company -- not in trouble but not terribly liquid, and therefore looking for ways to, in effect, get somebody else to put up the money to keep the game going,” Zell said. “What we’re seeing are situations where companies are taking steps in anticipation of problems rather than responding to problems.”
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>>> Shell to Buy French Offshore Wind-Power Developer
Bloomberg
By Kelly Gilblom
November 5, 2019
https://www.bloomberg.com/news/articles/2019-11-05/shell-to-buy-offshore-wind-developer-eolfi-in-clean-power-bet?srnd=premium
Eolfi is specialist in floating wind developments off France
Shell is boosting low-carbon investments due to climate change
Royal Dutch Shell Plc has agreed to buy French offshore wind developer Eolfi SA, continuing its expansion into renewable power.
The Anglo-Dutch oil major is boosting spending on low-carbon energy as it faces pressure to address the risks climate change poses to its business. Shell’s biggest renewable bets so far have been on acquiring retail customers, through the purchase of a U.K. utility and an electric car charging company.
Eolfi has a foothold in one of the most developed markets for floating wind projects, in the shallow waters off France, which could give Shell the experience and expertise it needs to boost investments in the technology.
“Eolfi has been a pioneer of floating wind development,” said Dorine Bosman, vice president of offshore wind for Shell. “We believe the union of Eolfi’s expertise and portfolio with Shell’s resources and ability to scale-up will help make electricity a significant business for Shell.”
Winning in Wind
Oil companies are investing more in offshore wind projects
By 2030, installed capacity of floating offshore wind could reach 1.2 gigawatts across seven countries, with France becoming the biggest market, according to a forecast from BloombergNEF. So far Equinor ASA has dominated the sector, winning the right to build the world’s biggest offshore wind farm in the U.K. with partner SSE Plc in September.
The head of Shell’s business unit that includes low-carbon investments, Maarten Wetselaar, said earlier this year he thinks the oil major could become the largest electricity company in the world within 15 years as it pivots away from fossil fuels. Wind will be a key component of that strategy, executives have said.
In January Shell said it’s teaming up with a pension fund to bid for a Dutch utility called Eneco, which focuses on clean power. On Thursday, CFO Jessica Uhl said bids for the company were due within a week. Shell’s overall budget for “new energies” is about $2 billion a year, less than 10% of its capital expenditure budget, though it’s expected to rise to as much as $3 billion by 2021.
Shell didn’t disclose terms for the purchase of Eolfi. The company has more than 65 employees in Paris, Lorient, Marseilles and Montpellier. It has developed over 200 onshore and offshore renewable energy projects in five countries, according to a statement from Shell. The deal is expected to close in December.
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>>> The Permian Basin Is Facing Its Biggest Threat Yet
Investors are tiring of America’s fracking revolution.
Bloomberg
By Kevin Crowley
October 24, 2019
https://www.bloomberg.com/news/articles/2019-10-24/investors-are-souring-on-america-s-fracking-revolution?srnd=premium
The cowboy-booted wildcatters who figured out how to squeeze crude from shale rock are used to booms and busts, but this time it feels different. In the Permian Basin, a giant oil field beneath the dusty plains of West Texas and New Mexico that’s the source of roughly one-third of U.S. oil output, production is up 17% in the past year, compared with an increase of almost 40% in the preceding 12 months, according to the U.S. Energy Information Administration. Unlike the last slowdown, five years ago, it’s not oil prices that are mainly to blame. It’s investors.
Fed up with years of broken promises and make-believe forecasts, fund managers have dumped American oil and gas stocks this year, cutting off capital to investment-hungry shale producers and preventing private companies from coming to the market in initial public offerings. That this is happening in the Permian, the world’s largest and most productive shale basin, calls into question the longevity of America’s fracking revolution, which has turned it into the world’s top oil producer.
It’s commonly believed that the boom began when wildcatters figured out how to combine two techniques—hydraulic fracturing and horizontal drilling—to unleash oceans of oil from hitherto impermeable shale rock. But the breakthrough was as much financial as technical. After the U.S. Federal Reserve slashed interest rates in response to the 2008 financial crisis, cheap money washed into America’s forgotten oil fields, supercharging production.
A decade on, the returns on those investments haven’t matched the growth in output—not even close. The industry burned through almost $200 billion in the past 10 years. Over that time, the S&P 500 Oil & Gas Exploration Index lost 32%, compared with a 172% rise in the wider market. “The industry has destroyed so much capital for so long” that many investors have fled, says Todd Heltman, senior energy analyst at Neuberger Berman Group.
Access to capital is especially vital to shale drillers because of the wells’ rapid decline rates. Fracking production falls as much as 70% in the first year, compared with as little as 5% in a conventional vertical-drilling operation, so new wells are constantly needed. The number of drill rigs in the Permian has dropped 14%, to 422, since November 2018.
The U.S. shale industry has been written off before. OPEC tried to swamp American producers in 2014 by opening up the spigots and driving down prices. That helped make the industry more resilient, as companies fine-tuned operations, trimming costs along their supply chain.
Some of the survivors of the oil price bust have not been so lucky this time. A handful of small and midsize producers have gone bankrupt, while others have merged with rivals to stay afloat. That’s creating an opportunity for Exxon Mobil Corp., Chevron Corp., and other oil majors to roll up vast tracts of land to drill for decades. They may have deeper pockets than the wildcatters, but Wall Street’s still wary of shale plays. Occidental Petroleum Corp.’s $37 billion purchase of Texas-based Anadarko Petroleum Corp. earlier this year caused the buyer’s market value to fall to its lowest since the financial crisis.
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>>> Iran Oil Tanker Hit by Missiles in Red Sea Near Saudi Arabia
Bloomberg
By Golnar Motevalli, Arsalan Shahla, and Yasna Haghdoost
October 11, 2019
https://www.bloomberg.com/news/articles/2019-10-11/iran-oil-tanker-catches-fire-after-red-sea-explosion-irna?srnd=premium
Oil prices extend gains, rising as much as 2.6% in London
NITC withdraws claim that missiles came from Saudi Arabia
Iran NTIC Now Says Missiles That Hit Tanker Not From Saudi Arabia
Iran said missiles struck one of its tankers in the Red Sea, the latest in a series of attacks on oil infrastructure in the region that have roiled energy markets.
The Islamic Republic’s tanker company initially said the attacks probably came from Saudi Arabia, but later withdrew the claim. The incident, which caused a spill and a jump of as much as 2.6% in crude prices, comes weeks after a devastating attack on major Saudi oil facilities that Riyadh blamed on Tehran.
Tensions have been rising steadily in the region since U.S. President Donald Trump unilaterally withdrew from an international nuclear deal with Iran and imposed harsh sanctions on the Islamic Republic. Although so far all sides have said they want to avoid war, there’s a growing risk to supplies from the world’s most important oil-producing region.
Iranian Oil Tanker Struck by Missiles
“The market has been entirely too complacent given that we are one security incident away from a war,” said Helima Croft, chief commodities strategist at RBC Capital Markets.
The Sabiti, a tanker capable of carrying 1 million barrels a of crude, was damaged on Friday near the Saudi port of Jeddah after being hit by suspected missiles, Iranian state media said. The explosions on the tanker occurred between 5:00 and 5:20 a.m. local time damaging two of its main oil tanks, the Islamic Republic News Agency reported.
relates to Iran Oil Tanker Hit by Missiles in Red Sea Near Saudi Arabia
The Sabiti tanker after the attack on Oct. 11.
A spokesman for the National Iranian Tanker Company, initially said in a call with Iran’s Press TV that the missiles probably came from the direction of Saudi Arabia. NITC later withdrew that claim in a statement.
The ship was hit twice within a 30-minute interval from the east of the Red Sea near its crossing route, Foreign Ministry spokesman Abbas Mousavi said on Telegram. The Saudi Ports Authority confirmed that an incident involving a tanker had occurred near the port of Jeddah overnight, but was unable to verify if the vessel was Iranian, according to a press officer.
After initially saying the spill from the tanker had been halted and the damage minimized, the Iranian oil ministry’s Shana news service said crude was again flowing into the Red Sea. No one has provided any assistance to the damaged ship, Al-Alam news channel reported citing Nasrollah Sardashti, head of NITC.
Oil Attacks
The Sabiti was fully laden with crude and heading toward the Suez Canal and the Mediterranean Sea, according to Florian Thaler, chief executive of data analytics firm OilX. On it’s previous voyages it has carried Iranian crude to the East Mediterranean he said.
According to tanker-tracking data compiled by Bloomberg, the vessel was under way using its engine and heading south at a speed of 9.6 knots as of 8:45 a.m. London time. Its destination was listed as Larak, an Iranian island in the Strait of Hormuz.
Oil prices jumped above $60 a barrel in London after the attack. Despite the growing risk to Middle Eastern supplies, crude prices have been depressed by fears of an economic slowdown due to the U.S.-China trade dispute. Brent is still lower than it was before the Sept. 14 drone and missile strikes on Saudi Arabia’s Abqaiq and Khurais oil facilities last month that briefly cut global supplies by 5%, the worst sudden disruption in history.
Dire Straits - A Timeline of Events
13th June -- Two oil tankers damaged in a suspected attack near the entrance to the Persian Gulf.
20th June -- Iran shot down a U.S. Navy drone, which it claimed was in Iranian airspace.
11th July -- A Royal Navy frigate intervened to stop three Iranian vessels impeding a BP-operated tanker from passing through the Strait of Hormuz.
14th July -- Iran seized the Panamanian flagged Riah, saying it was smuggling fuel in the Persian Gulf.
18th July -- The USS Boxer destroyed an Iranian drone that approached the ship near the Strait of Hormuz.
19th July -- Iran captured the British-flagged tanker Stena Impero in retaliation for the U.K. seizing an Iranian ship at the entrance to the Mediterranean.
14th September -- Missile and drone strikes on the Saudi oil facilitles briefly knocked out 5% of global output. The kingdom blamed Iran, but Tehran denied.
11th October -- An Iranian tanker in the Red Sea is hit by missiles and spills crude.
In an interview with CBS’s “60 Minutes” last month, Saudi Crown Prince Mohammed Bin Salman warned that conflict between his country and Iran would lead to a “total collapse of the global economy” and should be avoided. The Foreign Ministry of China, which gets a significant proportion of its oil imports from the Persian Gulf, urged restraint on Friday in order to safeguard peace and stability in the area.
The attack on the Sabiti came a day before Pakistani Prime Minister Imran Khan is scheduled to visit Tehran for talks on how to reduce tensions with Saudi Arabia, Iranian lawmaker and member of the parliamentary commission for national security, Heshmattolah Falahatpisheh, said in an interview with the semi-official Iranian Labour News Agency. Khan was one of several leaders who unsuccessfully tried to broker dialogue between Trump and Iranian President Hassan Rouhani at the United Nations General Assembly last month.
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$UURAF | Trump tells Pentagon to find better sources of rare earth magnet
https://www.reuters.com/article/us-usa-rareearths-trump/trump-tells-pentagon-to-find-better-sources-of-rare-earth-magnet-idUSKCN1UH2L4
>>> Nuclear Fusion Could Rescue the Planet From Climate Catastrophe
Nuclear fusion could be the clean energy the world needs—and private companies are now working on machines to harness it.
Bloomberg
September 28, 2019
https://www.bloomberg.com/news/features/2019-09-28/startups-take-aim-at-nuclear-fusion-energy-s-biggest-challenge
About two dozen private companies around the world are working to harness a transformative energy technology that could rescue the planet from climate catastrophe. One is using space in an old factory that’s home to a mothballed U.S. Department of Energy-funded research machine in Cambridge, Mass. Another is housed in an industrial building behind a Costco outside Vancouver. A third is down the street from a self-storage facility in the foothills of Orange County, Calif.
The companies are working on commercializing fusion.
A scale model shows the array of pistons that General Fusion plans to use to compress plasma.
Fusion’s promise is huge. It would be the most energy-dense form of power: A liter of fusion fuel is equivalent to 55,000 barrels of oil. In its most common form, that fuel would come from a practically inexhaustible source: water. In fact, 2 cubic kilometers of seawater could in theory provide energy equivalent to all the oil reserves on Earth. “It’s ubiquitous, inherently safe, zero-carbon energy—at a scale that can fuel the planet,” says Matt Miller, president of Stellar Energy Foundation Inc., a nonprofit that promotes the development of fusion power. “Now that’s worth working on.”
It was only about 100 years ago that people came to understand that fusion was the process powering the sun. Shortly thereafter, scientists began trying to re-create it. From tabletop experiments, fusion quickly developed into Big Science. Since 1953 the U.S. government has devoted more than $30 billion to fusion research, including basic science and weapons-related work, according to data from Fusion Power Associates, another nonprofit. European countries, Russia, China, and Japan have also made huge investments in pursuit of the holy grail of energy.
Since the 1950s, however, expectations that researchers were on the verge of breakthroughs have repeatedly come up short. What’s different now is that advances in technology are bringing fusion within reach.
Turning theory into practical devices is being enabled by advances in supercomputing and complex modeling, says Steven Cowley, director of the Princeton Plasma Physics Laboratory and former head of the U.K. Atomic Energy Authority. Fusion used to be defined as “the perfect way to make energy except for one thing: We don’t know how to do it,” Cowley says. “But we do.”
So what is fusion again? The idea is deceptively simple: Smash two atoms together so they fuse into a single heavier element and release energy. It’s the opposite of fission, the process used in today’s nuclear power plants and the bombs dropped on Hiroshima and Nagasaki.
In fission, a large, unstable nucleus is split into smaller elements, releasing energy. Fusion, by contrast, starts with light atoms. Take two hydrogen nuclei, for example. Ordinarily, their positive charges repel each other. But apply enough heat and pressure, and they might get close enough for the attraction of the extremely short-range but powerful nuclear force to kick in, joining them into a single helium nucleus. When that happens, the mass of the newly formed nucleus ends up slightly less than the sum of the two hydrogen nuclei. And that difference in mass gets released as energy, in accordance with Albert Einstein’s famous equation E=mc2. Simple. Stars do it. The sun does it. It’s the basic energy process of the universe.
Early efforts to harness it, though, gave fusion a reputation for hype and disappointment. After World War II, an Austrian scientist who’d worked in Germany ended up in Argentina, where he persuaded dictator Juan Perón to fund his fusion experiments. On an island in a remote Andean lake, the scientist, Ronald Richter, set up an elaborate facility. In February 1951, he detected what appeared to be heat from a thermonuclear reaction in his reactor. The next month, Perón announced at a press conference that Argentina had harnessed the atom to create unlimited energy. A subsequent investigation found that a glitch in Richter’s instruments led to his mistaken heat reading. Richter was discredited.
Long Road
Fusion’s history is studded with disappointments as well as advances
1920
British astronomer Arthur Eddington’s “The Internal Constitution of the Stars” posits that stars including the sun are powered by the fusion of hydrogen.
1938
Nuclear physicist Hans Bethe describes the fusion reactions that create the energy emitted by stars, for which he later wins the Nobel Prize.
1951
Juan Perón (far right) and scientist Ronald Richter (second from right) announce that Argentina has developed fusion?energy.
1952
The first test of a hydrogen bomb, code-named Ivy Mike, uses a fission explosion to ignite a fusion reaction in deuterium fuel. The 10-megaton blast leaves a big crater on Enewetak atoll.
1958
ZETA excitement and disappointment as U.K. researchers announce they’ve likely created a controlled fusion reaction, but later?retract.
1964
A fusion demonstration at Progressland at the World’s Fair in New York.
1969
In an example of cooperation, the U.K. brings laser equipment to the Soviet Union to measure the temperature of the T-3 tokamak, confirming 10?million C plasma.
1982
Tokamak Fusion Test Reactor, or TFTR, starts at the Princeton Plasma Physics Laboratory. It sets a record plasma temperature of 510 million C.
1985
The Soviet Union proposes international collaboration on fusion at the Geneva summit of Mikhail Gorbachev and Ronald Reagan, which leads to the start of ITER.
1989
Chemists Martin Fleischmann and Stanley Pons’s cold fusion experiment can’t be replicated.
1997
The Joint European Torus, or JET, sets a record with a fusion output of 16.1 megawatts, equivalent to about 67% of the input energy, a Q of 0.67.
2019
Construction of ITER, an international fusion demonstration project, in the south of France is 60% complete. When turned on, ITER is expected to produce 10 times the energy it consumes, a Q of 10.
Many physicists were skeptical of the initial report, but news of the apparent breakthrough spurred research in the U.S., the U.K., and the Soviet Union. At Princeton, a top-secret U.S. government project aimed at working on the H-bomb started researching fusion technology. In 1951 scientists there began developing a device called a stellarator that would use magnetic fields to confine superheated plasma. The effort, code-named Project Matterhorn, was eventually declassified and became the Princeton Plasma Physics Laboratory.
In the U.K., work on a machine called Zeta, which “pinched” fusion fuel by running a huge current through it, led to another premature announcement of the dawn of the fusion age, in 1958. It turned out that strange instabilities in the fuel were what led researchers to mistakenly think they were seeing evidence of fusion.
The Argentine news also fast-tracked work on an idea developed by Soviet physicist Andrei Sakharov, a dissident and Nobel Peace Prize winner: confining fusion fuel in a doughnut-shaped configuration with a machine called a tokamak.
Since the 1960s, when government labs and universities around the world began constructing tokamaks in earnest, more than 200 working machines have been built. A key sign of progress in the fusion field is the chart of the so-called triple product, a measure of reactor performance. Plot this number—how hot, how dense, and how well-insulated the systems are—against a timeline, and it looks a lot like Moore’s law, the famous doubling of computing power every two years. But fusion’s improvement is even faster. “Tokamaks have beat Moore’s law,” says Bob Mumgaard, chief executive officer of Commonwealth Fusion Systems, which was spun out of MIT.
So why does it matter how hot a fusion system gets? Consider the sun. Our local star has a lot of plus-size gravity to apply to the fusion process. Its interior brings the pressure of a mass equivalent to about 333,000 Earths and a temperature of about 15 million C (27 million F). That’s the kind of forge in which fusion happens.
On Earth, with so much less gravity, you need higher temperatures: 100 million C, for example. So the first step to get there is to heat a gas and turn it into a plasma, says Michl Binderbauer, CEO of TAE Technologies Inc., based in Foothill Ranch, Calif. “That happens through adding more energy, so at some point the ions and electrons that make up the atoms fall apart into a soup of charges,” he says. “That’s the state that actually most of the universe is in—what we call a plasma.”
Almost all of the visible stuff in the universe is plasma. “We’re living probably in one of the few specks of the universe where there’s no plasma in our immediate surroundings other than lightning or something,” Binderbauer explains. What’s more, in the 1950s, when instabilities and other “funky behavior” in plasma turned out to make fusion much harder than expected, Mumgaard says, it led to the development of an entire discipline, plasma physics. The field has in turn contributed advances in medicine and in manufacturing semiconductors.
Now, heating plasma to 100 million C sounds daunting and terrifying. Wouldn’t it vaporize whatever it touches? Short answer: no. The plasma is a handful of particles in a vacuum chamber, Binderbauer says. It’s millions of times less dense than air, its state is extremely fragile, and if it touches anything it instantly cools down. TAE’s Norman machine heats plasma to 35 million degrees, says Binderbauer. If, hypothetically, he could stick his hand into the vacuum shell, he says the plasma wouldn’t burn him. “My arm will absorb all of the energy,” he says. “I won’t even turn very warm.” Fusion, unlike fission, has no risk of meltdown. “You have to protect the plasma from the surrounding environment, not the other way around,” he says.
Fusion would have one other important benefit over solar, wind, and other intermittent sources of renewable energy, says Christofer Mowry, CEO of General Fusion Inc., based in Burnaby, B.C., near Vancouver: It’s “dispatchable” power. In most of the applications anticipated for fusion, the energy created in a reaction would heat water and run a conventional steam turbine generator. Plants could be safely and conveniently situated in cities and other places power is needed, Mowry says.
One obvious downside to fusion, reflected in the field’s 70 years of history and dashed hopes for imminent breakthroughs: It’s extraordinarily difficult to bring off.
In 1983 the late Lawrence Lidsky, an associate director of what was then called MIT’s Plasma Fusion Center, wrote an article titled “The Trouble With Fusion.” Fusion, he wrote, “is a textbook example of a good problem for both scientists and engineers. Many regard it as the hardest scientific and technical problem ever tackled, yet it is nonetheless yielding to our efforts.” Still, Lidsky laid out a laundry list of problems that, he contended, made it unlikely that fusion would ever be an economically viable source of power.
More than three decades later, the problems Lidsky identified remain. Chief among them is radioactivity. To be sure, the fuel used in fusion doesn’t pose quite the same dangers as fission’s uranium and nuclear waste. To understand fusion’s radioactivity challenge requires a slightly deeper dive into the science.
To begin, a variety of different light elements can be combined in a fusion reaction. However, the fuel that’s easiest to fuse is a 50-50 combination of two isotopes of hydrogen: deuterium and tritium. D-T, as it’s called, has been the main focus of the field. Deuterium is heavy hydrogen, the stuff found in seawater. Its nucleus consists of a proton plus a neutron (in contrast to plain old hydrogen’s lonely proton). Tritium is heavy, heavy hydrogen: a proton with two neutrons. It’s radioactive, with a half-life of about 12 years. It’s also extremely rare and expensive, but it would be bred in fusion reactors.
When deuterium and tritium nuclei fuse, energy gets released as an alpha particle (a helium nucleus, which is two protons and two neutrons) and a very energetic neutron. Those neutrons are neutral, unconfined by the magnetic field holding the plasma. They crash into whatever material is facing them, which in tokamaks, for example, is called the first wall. The crash transfers heat and also knocks the atoms in the wall’s material out of place, damaging it and making it radioactive.
A plasma injector at General Fusion. Such machines are designed to shoot fusion fuel into a vortex of liquid metal where it would be compressed by pistons and ignite.
Daniel Jassby, a retired researcher from the Princeton Plasma Physics Lab, says the incessant barrage of neutrons from burning D-T will create a lot of radioactive waste. Replacing weakened first-wall structures will drive up costs, he says, because of the expense of installing the new components as well as the downtime in which the system won’t be selling power. What’s more, the size of the machines means fusion reactors may produce as much as 10 times more waste than conventional fission reactors, he says. And while the levels of radiation may not be as intense as those of spent uranium fuel rods, that just means the byproducts of fusion systems are dangerous for a century instead of millennia.
The true operating costs for fusion reactors may not be low enough to cover their costs, let alone compete with existing power plants, according to Jassby. “Why would anybody want this?”
Nevertheless, a certain strain of utopian idealism has always run through the fusion endeavor. It may be what prompted the 1985 agreement between U.S. President Ronald Reagan and the Soviet Union’s Mikhail Gorbachev to cooperate on building a fusion energy project. Now known as ITER, the giant, long-delayed, 35-nation cooperative project is under construction—and about 60% complete—in the south of France.
When ITER achieves its first plasma, which is slated for 2025, it’s expected to hit a fusion milestone: It will produce more energy than it consumes. “There’s nobody knowledgeable in the space who doesn’t believe when they turn ITER on that it’s going to produce net energy out,” says General Fusion’s Mowry. ITER is expected to produce 500 megawatts while consuming 50. In the parlance of the field, it will have a Q>1. Specifically, since it’s expected to produce 10 times the energy put in, it would have a Q=10.
In the plasma physics community, there’s no question that fusion is viable. Now these startups are aiming to build a working—and profitable—fusion power plant, Mowry says. “Private fusion ventures are not going to work on fundamental plasma physics and fusion science,” he says. “They sit on top of that half a century of hard-won knowledge, and they’re all about commercialization.”
Here’s a snapshot of three such companies:
Commonwealth Fusion Systems, Cambridge, Mass.
TECHNOLOGY: Developing high-temperature superconducting magnets to confine plasma in a small?tokamak called?Sparc.
FUNDING: $115?million
INVESTORS: ENI, Breakthrough Energy Ventures*, Future Ventures, Khosla Ventures, and?others
(* Michael Bloomberg, founder and majority owner of Bloomberg?LP, which owns Bloomberg Markets, is a member of the Breakthrough Energy Coalition)
Commonwealth Fusion Systems, which was launched by professors from MIT’s Plasma Physics and Fusion Center in 2018, is looking for space. For the time being, CFS and MIT design and technical teams are working in what used to be the control room for Alcator C-Mod, an Energy Department-funded experimental tokamak on MIT’s campus. The machine, which sits in a large bay two doors away, ran a so-called high field using especially powerful magnets and set a record for plasma pressure.
CFS is seeking to make the next advance in magnetic confinement using new, commercially available high-temperature superconductors. The discovery of such materials was an advance that won the Nobel Prize in Physics in 1987.
Before high-temperature superconductors became available in the past decade, tokamak builders faced a trade-off: use a lot of power to run a high magnetic field or run a lower magnetic field in a much bigger device, like ITER, says Mumgaard of CFS. The new superconductors will enable the company to build a smaller, cheaper version of an ITER-like machine. “Two years from now, we will have that magnet done,” he says.
CFS’s subsequent step will be to build a demonstration machine called Sparc that will use the new magnet technology. Sparc will be about 12 feet tall and could fit into half a tennis court. Construction is supposed to start in 2021 and finish in 2025. A commercial version, called Arc, is expected to follow. It would be approximately twice as big, fitting into a basketball court.
CFS’s tokamak will burn D-T fuel, which means it will confront the first-wall problem. The solution, Mumgaard says, is “to build a machine so you can replace the wall very easily.” Replace it often enough, he says, and it wouldn’t get very radioactive and could be stored and then recycled. “You can choose what you put around the machine,” he says. “Right now we can go with the stuff that’s cheap and easy. And yeah, it’s activated. But in the future we can put in stuff that lasts longer.” One potential solution would be using specialized alloys that are more resistant to becoming radioactive, though the industry is still working to develop such materials.
The radioactive material from fusion reactors is drastically different from fission waste, Mumgaard adds. “It’s basically not stuff that’s biologically active,” he says, unlike the volatile gases that can escape in a fission accident. “So it’s like a completely different category. Whether or not we can explain that well to the public, you know, is one of the challenges that we have to figure out in fusion.”
Still, Mumgaard is upbeat. “Fusion is a big endeavor, and there’s a lot of excitement around it,” he says, adding that enthusiasm is coming from energy people, investors, and academics. “We’re trying to birth an industry here. And it’s a fun place to be.”
General Fusion, Burnaby, B.C.
TECHNOLOGY: Developing magnetized-target fusion machine in which plasma is injected into a cavity surrounded by swirling molten metal and then compressed by synchronized pistons to create fusion.
FUNDING: More than $100?million
INVESTORS: Bezos Expeditions, Chrysalix Venture Capital, Khazanah Nasional, and?others
General Fusion, outside Vancouver, is taking a different approach to building a reactor. Founded in 2002 by plasma physicist Michel Laberge, the company dusted off a 1970s design by the U.S. Naval Research Laboratory. Called Linus, the design included features that inspired General Fusion’s concept. “It’s basically the fusion equivalent of a diesel engine,” Mowry says. General Fusion’s machine addresses the first-wall problem by facing the plasma with swirling molten lead and lithium, which absorbs the neutrons. “We inject the plasma into a spherical cavity made out of liquid metal, and then we have basically an array of lots of pistons that are synchronized to collapse that cavity down very quickly around the plasma, heating it up until it burns—just like the analogy of a diesel engine,” he says.
Today’s high-speed electronic controls made it possible to synchronize the pistons with a precision that was impossible in the 1970s, according to Mowry. “That’s an example of what we call enabling technologies,” he says. The company is getting ready to build a scale model demonstration that it aims to complete in 2025.
“Fusion’s time is really coming now,” Mowry says. Before joining General Fusion, he worked in the energy industry for 30 years, including founding a company that designed so-called small modular reactors for fission energy. Now, he says, fusion is becoming competitive with fission. “When you look at the realistic time frames for commercializing advanced gen-four fission technologies, it’s no shorter than that time frame to commercialize fusion these days,” he says.
TAE Technologies Inc., Foothill Ranch, Calif.
TECHNOLOGY: Developing beam-driven field-reversed configuration machine, which fires two plasmas into each other in a confinement vessel so that their magnetic field holds them while heated by particle beams.
FUNDING: More than $600?million
INVESTORS: Goldman Sachs Group, Vulcan Capital, Venrock, and others
TAE Technologies, started in 1998, is the oldest company in the field. The late plasma physicist Norman Rostoker, who co-founded the company, took a long view, CEO Binderbauer says. Early on, Rostoker asked what fuel would be most likely to enable a viable fusion power plant—instead of what would be the easiest. He chose hydrogen and an isotope of boron, known as boron-11, because they produce no radiation during fusion and are readily available.
The catch? You have to cook the boron-11 fuel at temperatures of billions of degrees. So that’s the path TAE is taking. Such temperatures have already been achieved in particle physics experiments, according to Binderbauer. “When we talk about temperature, what it really is, it’s sort of how fast and with what energy are these particles zipping around and colliding with each other,” he says. Consider the Large Hadron Collider near Geneva and convert the experiments there into temperature units, Binderbauer says. “CERN actually has created trillions-of-degrees situations where an operator will control it, put these particles into these storage rings, and they run around there,” he says.
TAE’s current machine, which accelerates two plasmas into each other in a confinement vessel and heats them with particle beams, is called Norman. It operates in the neighborhood of 35 million C. The company’s next device, called Copernicus, is aiming for 100 million C.
Like other moonshots, the effort to harness fusion has been both inspiring and frustrating. The finish line may still be years away, but breakthroughs along the way have been sufficient to keep attracting scientists—and, more recently, investors.
And fusion could have an important place in the future energy mix. “The statistics will tell you in the next 25 years we’re going to double the amount of electrical demand and consumption,” Binderbauer says. “To me, finding baseload power that is decoupled from having to burn fossil fuels is very, very critical.”
The potential market is enormous, requiring an investment of $10 trillion or more in generating equipment by 2050. “You can build multiple very-high-value companies in a market like that,” he says. “And we will never even step on each other’s toes.”
Asmundsson is Go editor of Bloomberg Markets and Wade covers energy for Bloomberg News in New York.
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$HUSA $11 Target! The 1 analysts offering 12-month price forecasts for Houston American Energy Corp have a median target of 11.00, with a high estimate of 11.00 and a low estimate of 11.00. The median estimate represents a +5,265.85% increase from the last price of 0.21. https://money.cnn.com/quote/forecast/forecast.html?symb=husa
>>> Saudis Race to Restore Oil Output After Aramco Attacks
Bloomberg
By Nayla Razzouk and Javier Blas
September 15, 2019
U.S. Secretary of State Pompeo blames Iran for Saudi attack
Assault led to loss of about 5% of global oil supply
https://www.bloomberg.com/news/articles/2019-09-15/saudis-race-to-restore-oil-output-after-crippling-aramco-attack?srnd=premium
Saudi Arabia is racing to restore oil production after a brazen drone strike on a key Aramco facility slashed its output by half, or about 5% of world supply, an assault that the U.S. has blamed on Iran.
State energy producer Saudi Aramco lost about 5.7 million barrels per day of output after 10 unmanned aerial vehicles on Saturday struck the world’s biggest crude-processing facility in Abqaiq and the kingdom’s second-biggest oil field in Khurais, the company said.
Aramco would need weeks to restore full production capacity to a normal level, according to people familiar with the matter. The producer however can restore significant volume of oil production within days, they said. Aramco could consider declaring force majeure on some international shipments if the resumption of full capacity at Abqaiq takes weeks, they said.
Saudi Arabia was the world's third biggest producer of oil in August -
#1 - US ----------- 12.4 mil (bbls/day)
#2 - Russia ------- 11.3 mil
#3 - Saudi Arabia -- 9.8 mil
#4 - Canada -------- 5.4 mil
#5 - Iraq ---------- 4.8 mil
#6 - Iran ---------- 2.2 mil
The attack will likely rattle oil markets and cast a shadow on Aramco’s preparations for what could be the world’s biggest stake sale. It’s also set to escalate a showdown pitting Saudi Arabia and the U.S. against Iran, which backs proxy groups from Yemen to Iran and Lebanon.
If the disruption in production is “protracted it could be a big challenge for the oil markets,” Mele Kyari, chief executive officer of state producer Nigerian National Petroleum Corp., told Bloomberg Television on Sunday.
The attack is the biggest on Saudi Arabia’s oil infrastructure since Iraq’s Saddam Hussein fired Scud missiles into the kingdom during the first Gulf War. The damage highlights the vulnerability of the Saudi industry that supplies 10% of the world’s crude oil. The kingdom’s benchmark stock index tumbled as much as 3.1% on Sunday in Riyadh.
Saudi Oil Output Cut in Half After Drones Strike Aramco Site
Iran-backed Houthi rebels in Yemen claimed responsibility for the attacks, but U.S. Secretary of State Michael Pompeo blamed Iran directly without offering evidence for that conclusion. Iran’s Foreign Ministry described Pompeo’s remarks as “blind and fruitless accusations.”
Saudi oil facilities as well as foreign tankers in and around the Persian Gulf have been the target of several attacks over the past year. The escalation coincided with the President Donald Trump’s decision to pull the U.S. out of the 2015 nuclear agreement with Iran and re-imposed crippling economic sanctions against the Islamic Republic.
The Houthis, who are fighting Saudi-backed forces in Yemen, have claimed responsibility for most of the strikes against Aramco installations.
Aramco Repairs
“Work is underway to restore production and a progress update will be provided in around 48 hours,” said Amin Nasser, Aramco’s president and chief executive officer. Aramco is working to compensate clients for some of the shortfall from its reserves.
Aramco may offer customers crude oil grades alternative to Arab Light and Arab Extra Light because of the Abqaiq halt, according to a person familiar with the matter. The company may offer Arab Heavy and Arab Medium as replacement, the person said.
Saudi Aramco, which pumped about 9.8 million barrels a day in August, will be able to keep customers supplied for several weeks by drawing on a global storage network.
The Saudis hold millions of barrels in tanks in the kingdom itself, plus three strategic locations around the world: Rotterdam in the Netherlands, Okinawa in Japan, and Sidi Kerir on the Mediterranean coast of Egypt.
A satellite picture from a NASA near real-time imaging system published early on Sunday, more than 24 hours after the attack, showed that the huge smoke plume over Abqaiq had dissipated completely. But four additional plumes to the south-west, over the Ghawar oilfield, the world’s largest, were still clearly visible. While that field wasn’t attacked, its crude and gas is sent to Abqaiq and the smoke most likely indicated flaring. When a facility stops suddenly, excess oil and natural gas is safely burned in large flaring stacks.
Brent crude has slumped to almost $60/bbl
U.S. Reserves
For the global oil market, the 5.7 million barrels a day outage is the worst single and sudden supply disruption ever, surpassing the loss of Kuwaiti and Iraqi petroleum supply in August 1990, and the loss of Iranian oil output in 1979 during the Islamic Revolution, according to data from the U.S. Energy Department.
The U.S. Department of Energy said it’s prepared to dip into the Strategic Petroleum Oil Reserves if necessary to offset any market disruption.
Saudi Arabia, the biggest producer in the Organization of Petroleum Exporting Countries, has been leading the group in production cuts to mop up a surplus of crude in the market. So when half of Saudi Arabia’s production is knocked out, the question is how long the disruption lasts.
“The global economy can ill afford higher oil prices at a time of economic slowdown,” Ole Hansen, head of commodities strategy at Saxo Bank A/S in Copenhagen, said in an emailed response to questions. So while a surge in prices driven by lower supply “may temporarily remove the focus on slowing demand, it could, if prolonged, potentially reduce demand growth expectations even more.”
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$NIO Credit Suisse NIO Inc. with an Outperform rating, $12.60 price target
>>> Yemen drones hit Saudi oil sites, including key chokepoint
The drones attacked the world’s largest oil processing facility in Saudi Arabia and a major oilfield operated by Saudi Aramco early Saturday, sparking a huge fire at a processor crucial to global energy supplies.
Washington Post
By Jon Gambrell?
September 14, 2019
https://www.washingtonpost.com/world/middle_east/saudi-tv-channel-fire-at-aramco-facility-no-cause-given/2019/09/13/6f419234-d69e-11e9-8924-1db7dac797fb_story.html?noredirect=on
DUBAI, United Arab Emirates — Drones launched by Yemen’s Houthi rebels attacked the world’s largest oil processing facility in Saudi Arabia and another major oil field Saturday, sparking huge fires at a vulnerable chokepoint for global energy supplies.
It remained unclear hours later whether anyone was injured at the Abqaiq oil processing facility and the Khurais oil field or what affect the assault would have on oil production. Rising smoke from the fires at the sites could be seen by satellites in space.
The attack by the Iranian-backed Houthis in the war against a Saudi-led coalition comes after weeks of similar drone assaults on the kingdom’s oil infrastructure, but none of the earlier strikes appeared to have caused the same amount of damage. The attack likely will heighten tensions further across the wider Persian Gulf amid a confrontation between the U.S. and Iran over its unraveling nuclear deal with world powers.
First word of the assault came in online videos of giant fires at the Abqaiq facility, some 330 kilometers (205 miles) northeast of the Saudi capital, Riyadh. Machine-gun fire could be heard in several clips alongside the day’s first Muslim call to prayers, suggesting security forces tried to bring down the drones in the darkness just before dawn.
In daylight, Saudi state television aired a segment with its local correspondent near a police checkpoint, a thick plume of smoke visible behind him.
The fires began after the sites were “targeted by drones,” the Interior Ministry said in a statement carried by the state-run Saudi Press Agency. It said an investigation was underway.
Saudi Aramco, the state-owned oil giant, did not respond to questions from The Associated Press. The kingdom hopes soon to offer a sliver of the company in an initial public offering.
In a short address aired by the Houthi’s Al-Masirah satellite news channel, military spokesman Yahia Sarie said the rebels launched 10 drones in their coordinated attack after receiving “intelligence” support from those inside the kingdom. He warned that attacks by the rebels would only get worse if the war continues.
“The only option for the Saudi government is to stop attacking us,” Sarie said.
The rebels hold Yemen’s capital, Sanaa, and other territory in the Arab world’s poorest country. Since 2015, a Saudi-led coalition has fought to reinstate the internationally recognized Yemeni government.
The U.S. Embassy in Riyadh said it was unaware of any injuries to Americans. Saudi Aramco employs a number of U.S. citizens, some of whom live in guarded compounds in the kingdom near the site.
“These attacks against critical infrastructure endanger civilians, are unacceptable, and sooner or later will result in innocent lives being lost,” U.S. Ambassador John Abizaid, a former Army general, said.
Saudi Aramco describes its Abqaiq oil processing facility in Buqyaq as “the largest crude oil stabilization plant in the world.”
The facility processes sour crude oil into sweet crude, then transports it onto transshipment points on the Persian Gulf and the Red Sea or to refineries for local production. Estimates suggest it can process up to 7 million barrels of crude oil a day. By comparison, Saudi Arabia produced 9.65 million barrels of crude oil a day in July.
The plant has been targeted in the past by militants. Al-Qaida-claimed suicide bombers tried but failed to attack the oil complex in February 2006.
The Khurais oil field is believed to produce over 1 million barrels of crude oil a day. It has estimated reserves of over 20 billion barrels of oil, according to Aramco.
There was no immediate impact on global oil prices as markets were closed for the weekend. Benchmark Brent crude had been trading at just above $60 a barrel.
While Saudi Arabia has taken steps to protect itself and its oil infrastructure, analysts had warned that Abqaiq remained vulnerable. The Rapidan Energy Group, a Washington-based advisory group, warned in May that “a successful attack could lead to a monthslong disruption of most Saudi production and nearly all spare production.”
It called the facility, close to the eastern Saudi city of Dammam, “the most important oil facility in the world.”
Abqaiq “is a systemic vulnerability that cannot be quickly repaired, replaced or circumvented,” the firm warned.
The Washington-based Center for Strategic and International Studies separately issued its own warning just last month.
“Though the Abqaiq facility is large, the stabilization process is concentrated in specific areas . including storage tanks and processing and compressor trains — which greatly increases the likelihood of a strike successfully disrupting or destroying its operations,” the center said.
The war has become the world’s worst humanitarian crisis. The violence has pushed Yemen to the brink of famine and killed more than 90,000 people since 2015, according to the U.S.-based Armed Conflict Location & Event Data Project, or ACLED, which tracks the conflict.
Since the start of the Saudi-led war, Houthi rebels have been using drones in combat. The first appeared to be off-the-shelf, hobby-kit-style drones. Later, versions nearly identical to Iranian models turned up. Iran denies supplying the Houthis with weapons, although the U.N., the West and Gulf Arab nations say Tehran does.
The rebels have flown drones into the radar arrays of Saudi Arabia’s Patriot missile batteries, according to Conflict Armament Research, disabling them and allowing the Houthis to fire ballistic missiles into the kingdom unchallenged. The Houthis launched drone attacks targeting Saudi Arabia’s crucial East-West Pipeline in May as tensions heightened between Iran and the U.S. In August, Houthi drones struck Saudi Arabia’s Shaybah oil field, which produces some 1 million barrels of crude oil a day near its border with the United Arab Emirates.
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>>> Saudi Oil Output Cut in Half After Drones Strike Aramco Site
Bloomberg
Javier Blas and Nayla Razzouk
September 14, 2019
https://www.bloomberg.com/news/articles/2019-09-14/saudi-aramco-contain-fires-at-facilities-attacked-by-drones?srnd=premium
Drones targeted Abqaiq, where most Saudi oil is processed
Kingdom’s fields, facilities previously hit by Yemeni rebels
Saudi Arabia’s oil production was cut by half after a swarm of explosive drones struck at the heart of the kingdom’s oil industry, setting the world’s biggest oil processing plant ablaze.
Saudi Aramco has had to cut production by as much as 5 million barrels a day after the attack on the Abqaiq plant, according to a person familiar with the matter. Iran-backed Houthi rebels in Yemen, who have launched several drone attacks on Saudi targets, claimed responsibility.
The strike is the biggest attack on Saudi Arabia’s oil infrastructure in more than a decade and highlights the vulnerability of the network of fields, pipeline and ports that supply 10 percent of the world’s crude oil. An outage at Abqaiq, where crude from several of the country’s largest oil fields is processed before being shipped to export terminals, would jolt global energy markets.
“Abqaiq is the heart of the system and they just had a heart attack,” said Roger Diwan, a veteran OPEC watcher at consultant IHS Markit. “We just don’t know the severity.”
Facilities at Abqaiq and the nearby Khurais oil field were attacked at 4 a.m. local time, state-run Saudi Press Agency reported, citing an unidentified interior ministry spokesman. It didn’t give further details and no further updates have been released.
Aramco believes it will be able to restart production fairly quickly, the person said, asking not to be named before an official announcement. Senior Aramco executives are holding an emergency meeting to assess the situation, another person said.
“For the oil market if not global economy, Abqaiq is the single most valuable piece of real estate in planet earth,” Bob McNally, head of Rapid Energy Group in Washington.
Aramco, which pumped about 9.8 million barrels a day in August, will be able to keep customers supplied for several weeks by drawing on a global storage network. The Saudis hold millions of barrels in tanks in the kingdom itself, plus in three strategic locations around the world: Rotterdam in the Netherlands, Okinawa in Japan, and Sidi Kerir on the Mediterranean coast of Egypt.
A satellite picture from a NASA near real-time imaging system published early on Saturday showed a huge smoke plume extending more than 50 miles over Abqaiq. Four additional plumes to the south-west appear close to the Ghawar oilfield, the world’s largest. While that fields wasn’t attacked, its crude is sent to Abqaiq and the smoke could indicate flaring. When a facility stops suddenly, excess oil and natural gas is safely burned in large flaring stacks.?
The attacks were carried out with 10 drones and came after intelligence cooperation from people inside Saudi Arabia, rebel-run Saba news agency reported, citing Houthi spokesman Yahya Saree. “Our upcoming operations will expand and would be more painful as long as the Saudi regime continues its aggression and blockade” on Yemen, he said.
The attacks come as Aramco, officially known as Saudi Arabian Oil Co., is speeding up preparations for an initial public offering. The energy giant have selected banks for the share sale and may list as soon as November, people familiar with the matter have said.
Saudi Arabia’s oil fields and pipeline have been the target of attacks over the past year, mostly claimed by Yemeni rebels. Tensions in the Persian Gulf -- pitting Saudi Arabia and its allies, including the United Arab Emirates, against regional foe and energy giant Iran -- have highlighted the risk to global oil supply.
Yemen’s Houthi rebels have been battling a Saudi-led coalition since 2015, when mainly Gulf forces intervened to restore the rule of President Abd Rabbuh Mansur Hadi and his government after the Houthis captured the capital, Sana’a. The conflict has killed thousands of people and caused one of the world’s worst humanitarian crises.
Saudi Oil Fields Are in the Firing Line as Gulf Conflicts Rage
Khurais is the location of Saudi Arabia’s second-biggest oil field, with a production capacity of 1.45 million barrels a day. Abqaiq contains an oil-processing center, which handles about two-thirds of the country’s production. Abqaiq is home to the world’s largest oil processing facility and crude oil stabilization plant, and it has a crude oil processing capacity of more than 7 million barrels a day, according to the U.S. Energy Information Administration.
Aramco’s media relations department wasn’t immediately available for comment outside of working hours.
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Exxon Mobil Corp | XOM | 22.33% |
Chevron Corp | CVX | 21.24% |
Phillips 66 | PSX | 5.23% |
ConocoPhillips | COP | 4.52% |
Marathon Petroleum Corp | MPC | 4.20% |
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EOG Resources Inc | EOG | 4.01% |
Valero Energy Corp | VLO | 4.01% |
Kinder Morgan Inc Class P | KMI | 3.88% |
Occidental Petroleum Corp | OXY | 3.61% |
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Exxon Mobil Corp | XOM | 21.76% |
Chevron Corp | CVX | 18.11% |
ConocoPhillips | COP | 4.70% |
Phillips 66 | PSX | 4.32% |
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Marathon Petroleum Corp | MPC | 3.60% |
Valero Energy Corp | VLO | 3.37% |
EOG Resources Inc | EOG | 3.28% |
Kinder Morgan Inc Class P | KMI | 2.92% |
Occidental Petroleum Corp | OXY | 2.67% |
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National Oilwell Varco Inc | NOV | 5.56% |
Halliburton Co | HAL | 5.33% |
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Schlumberger Ltd | SLB | 20.29% |
Halliburton Co | HAL | 11.12% |
Baker Hughes Co Class A | BKR | 7.01% |
National Oilwell Varco Inc | NOV | 5.45% |
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Patterson-UTI Energy Inc | PTEN | 4.52% |
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Phillips 66 | PSX | 12.23% |
Marathon Petroleum Corp | MPC | 9.83% |
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