Oil

Recommended reading, economic debates, predictions and opinions.
JaydoubleU
Veteran Contributor
Veteran Contributor
Posts: 3103
Joined: 13 Sep 2007 22:52

Re: Oil

Post by JaydoubleU »

Not quite sure where to put this, but 2 yen makes a comment about the upcoming Paris Summit on Climate Change:
JaydoubleU wrote:
Had to scroll back to January 2nd 2014 to see where I sold Husky: 33.38. I actually made a dollar a share. But it has to join the ranks of all the failures (for me) in oil and gas producers.

Never again.
Really. And, depending on the Paris climate conference, it may be time to start very slowly getting out of the pipes.

2 yen
My sense is that the push will be towards speeding up the retirement of coal-fired electric utilities, perhaps discouraging the development of the Oil Sands, and announcing increased investment in renewables, energy efficiency, electric transport, etc.

I wonder if this Summit will do anything to global oil demand (I doubt it). I also wonder if there isn't an opportunity in Natural Gas, which is perceived as a cleaner alternative, and may be used as a replacement for coal.
2 yen
Veteran Contributor
Veteran Contributor
Posts: 4116
Joined: 09 Apr 2005 09:15

Re: Oil

Post by 2 yen »

Agreed. The issue for the smaller pipeline companies (IPL, KEY, PIF, etc) is that a percentage of their profits do come from the oil sands, so a prudent investor would be wise to stay on top of the details re how a permanent oil sands slow down could impact them. My very long term goal is to have no money in fossil fuels at all. To that end I have 15% of funds in renewables, but just can't justify more until the picture becomes more clear. I have already completely divested from oil producers. I have no idea yet how to slot ENB and TRP into this discussion, they are very large, somewhat multifaceted companies.

Thoughts?

Cheers.

2 yen

(added: IPL's website says on the first page that they transport 35% of oil sands oil and 15% of conventional oil. Keyera's is much more difficult to tease out from their reports. Pembina has a large oil sands presence working with Syncrude.)
chufinora
Contributor
Contributor
Posts: 769
Joined: 12 Oct 2009 15:03
Location: Ottawa

Re: Oil

Post by chufinora »

2 yen wrote:My very long term goal is to have no money in fossil fuels at all. To that end I have 15% of funds in renewables, but just can't justify more until the picture becomes more clear. I have already completely divested from oil producers.
I think you are right but timing is everything and I think for this you maybe 10 or even 20 years too early. As JayD mentioned it will be coal fuel that is eliminated first, I am interested to see how long that takes the world to achieve.
2 yen
Veteran Contributor
Veteran Contributor
Posts: 4116
Joined: 09 Apr 2005 09:15

Re: Oil

Post by 2 yen »

chufinora wrote:
2 yen wrote:My very long term goal is to have no money in fossil fuels at all. To that end I have 15% of funds in renewables, but just can't justify more until the picture becomes more clear. I have already completely divested from oil producers.
I think you are right but timing is everything and I think for this you maybe 10 or even 20 years too early. As JayD mentioned it will be coal fuel that is eliminated first, I am interested to see how long that takes the world to achieve.
I really hope you are right, but sometimes tipping points come much earlier than anyone expects.

2 yen
User avatar
AltaRed
Veteran Contributor
Veteran Contributor
Posts: 33398
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: Oil

Post by AltaRed »

Oil production is not disappearing for a very long time. What is more likely is an eventual halt in production growth, and perhaps some actual decline from marginal SAGD type oil sands production, and that means a halt in pipeline expansion. Valuations thus have to come down to vanilla multiples, e.g. P/E into the low double digits. They, O&G related infrastructure, will become just like staid gas/electric utilities.

I believe the better performers will be those that can continue to expand into other businesses and other geographical locations, e.g. perhaps TRP and ENB. Outfits like IPL and PPL that don't have sufficient geographical diversity and bulk may become 'also rans'. LNG is likely dead in the water since LNG is priced off crude oil and without an oil price recovery, I cannot see any West Coast LNG projects coming into fruition. Combine that with a gradual uptick in interest rates and O&G related infrastructure could underperform the broader market longer term.
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom
JaydoubleU
Veteran Contributor
Veteran Contributor
Posts: 3103
Joined: 13 Sep 2007 22:52

Re: Oil

Post by JaydoubleU »

My very long term goal is to have no money in fossil fuels at all. To that end I have 15% of funds in renewables, but just can't justify more until the picture becomes more clear. I have already completely divested from oil producers. I have no idea yet how to slot ENB and TRP into this discussion, they are very large, somewhat multifaceted companies.
Interesting. We have quite a bit in common. I have also sold off all my oil producers. Last year, I recommended divestment to a relative, not for ethical reasons, but because I feared a divestment movement would hit some oil stocks hard. She followed my advice, to her benefit. But I never foresaw the total meltdown in the energy sector, and I was a little slow myself in acting. I now have no producers, and just one pipeline---ENF. I bought the latter partly because it was Canada's largest solar power utility. The recent drop-down has made liquids transport a much bigger part of the business, and renewables relatively small. I have held. I also have positions in AQN and RNW. The former has been brilliant; the latter, meh. As you said, the picture isn't clear. Altogether, I'd say about 10-12% for renewables.

I would steer clear of the smaller pipes for now, for the reasons you mentioned, and what AltaRed has added. ENB and TRP are different stories. They are huge, diversified, and both have renewable divisions, including nuclear (TRP). So long as the changes aren't too sudden or unexpected, I imagine both could slowly move portfolios in "cleaner" directions, whatever politics and the market demand. And I don't see oil disappearing at any time within our lifetimes. I guess I would just be cautious of oil sands exposure.

Renewables is slightly off topic here, but what worries me is the cost of solar panels has fallen so much that individual ownership is now relatively cheap, and cheaper battery storage won't be long. Homes and businesses may become self-powering mini-utilities, or get off the grid altogether. This will leave traditional utilities with huge capital costs but falling demand---stranded assets? Customers who are still connected will be asked to pay higher and higher rates to cover costs, pressuring them to get off the grid, too. It all sounds very speculative and remote. But here in Japan due to the government's feed-in tariff programme to promote solar energy, panels on houses are appearing everywhere; mini-solar farms are popping up in every unfarmed field, on hillsides, even offshore http://www.kagoshima-kankou.com/for/wha ... plant.html In fact, the feed-in programme was so successful, that major utilities have had trouble integrating all the systems into their own, and I understand government has now cut back the generous subsidies and is looking to promote wind. Cars still largely run on gasoline, but hybrids are very common, and I've seen a few electric cars.

From an investment point of view, I see tremendous opportunity in the change, but for the moment it is not easy to find those good solid dividend growers among the smaller speculative start-ups. As mentioned, I bought ENF, AQN and RNW both for the renewable exposure and for dividend growth. I owned NFI for a while but sold it too soon. I also bought some GRC--Grenville Strategic Royalty--which invests in private equity, because the CEO has a lot of experience in the cleantech sector: http://www.grenvillesrc.com/about-grenv ... anagement/ Any other suggestions would be most welcome--most Canadian companies in the renewable or cleantech space are on my watchlist.
Last edited by JaydoubleU on 02 Nov 2015 19:06, edited 1 time in total.
2 yen
Veteran Contributor
Veteran Contributor
Posts: 4116
Joined: 09 Apr 2005 09:15

Re: Oil

Post by 2 yen »

JaydoubleU wrote:
My very long term goal is to have no money in fossil fuels at all. To that end I have 15% of funds in renewables, but just can't justify more until the picture becomes more clear. I have already completely divested from oil producers. I have no idea yet how to slot ENB and TRP into this discussion, they are very large, somewhat multifaceted companies.
Interesting. We have quite a bit in common. I have also sold off all my oil producers. Last year, I recommended divestment to a relative, not for ethical reasons, but because I feared a divestment movement would hit some oil stocks hard. She followed my advice, to her benefit. But I never foresaw the total meltdown in the energy sector, and I was a little slow myself in acting. I now have no producers, and just one pipeline---ENF. I bought the latter partly because it was Canada's largest solar power utility. The recent drop-down has made liquids transport a much bigger part of the business, and renewables relatively small. I have held. I also have positions in AQN and RNW. The former has been brilliant; the latter, meh. As you said, the picture isn't clear. Altogether, I'd say about 10-12% for renewables.

I would steer clear of the smaller pipes for now, for the reasons you mentioned, and what AltaRed has added. ENB and TRP are different stories. They are huge, diversified, and both have renewable divisions, including nuclear (TRP). So long as the changes aren't too sudden or unexpected, I imagine both could slowly move portfolios in "cleaner" directions, whatever politics and the market demand. And I don't see oil disappearing at any time within our lifetimes. I guess I would just be cautious of oil sands exposure.

Renewables is slightly off topic here, but what worries me is the cost of solar panels has fallen so much that individual ownership is now relatively cheap, and cheaper battery storage won't be long. Homes and businesses may become self-powering mini-utilities, or get off the grid altogether. This will leave traditional utilities with huge capital costs but falling demand---stranded assets? Customers who are still connected will be asked to pay higher and higher rates to cover costs, pressuring them to get off the grid, too. It all sounds very speculative and remote. But here in Japan due to the government's feed-in tariff programme to promote solar energy, panels on houses are appearing everywhere; mini-solar farms are popping up in every unfarmed field, on hillsides, even offshore http://www.kagoshima-kankou.com/for/wha ... plant.html In fact, the fee-in programme was so successful, that major utilities have had trouble integrating all the systems into their own, and I understand government has now cut back the generous subsidies and is looking to promote wind. Cars still largely run on gasoline, but hybrids are very common, and I've seen a few electric cars.

From an investment point of view, I see tremendous opportunity in the change, but for the moment it is not easy to find those good solid dividend growers among the smaller speculative start-ups. As mentioned, I bought ENF, AQN and RNW both for the renewable exposure and for dividend growth. I owned NFI for a while but sold it too soon. I also bought some GRC--Grenville Strategic Royalty--which invests in private equity, because the CEO has a lot of experience in the cleantech sector: http://www.grenvillesrc.com/about-grenv ... anagement/ Any other suggestions would be most welcome--most Canadian companies in the renewable or cleantech space are on my watchlist.
I like Northland Power. They are about to dramatically improve their cash flow with the North Sea wind farms and while the payout is above 100% now, I expect it to drop down below in 2017 - with a corresponding rise in share price. I can see doubling my position in Northland in the not too distant future. On a recent trip to Scandinavia, I saw some of the construction from the air and it is mighty impressive. I will hold IPL, PIF and KEY. Certainly won't add to them, but if people like Alta Red are correct, these companies will likely see me out with, at worst, low dividend growth. The brave money will go into battery making companies, but even that is still a leap of faith. One other thing that is not discussed much is the remote possibility of fossil fuels becoming clean burning through some technology the majors might develop. As I mentioned somewhere else, sometimes the unexpected comes true. Finally, I am always a little suspect of those who feel the future will repeat the past. I have no problem visualizing a completely shuttered Fort Mac. Who ever thought the cod industry would die in Newfoundland or the slow death of cable TV.

2 yen
User avatar
SkaSka
Contributor
Contributor
Posts: 727
Joined: 29 Nov 2012 01:21
Location: Raincouver

Re: Oil

Post by SkaSka »

Interesting read on Jim Grays thoughts on the current oil slump.

Found the talk about vertical technology and horizontal technology informing. He asserts that all previous oil busts and booms were based on vertical technology, whereas now we are in an era of horizontal technology (fracking, oil sands, unconventional sources) and its unprecedented.

Sounds a bit like "it's different this time" but I think he means in the short-to-mid term the recovery process will be a bit different than what the past looked like.
User avatar
Arby
Veteran Contributor
Veteran Contributor
Posts: 3125
Joined: 20 Feb 2005 19:23
Location: Ottawa, ON

Re: Oil

Post by Arby »

I enjoyed the following quote from Jim Gray:

"Q: How low will the price of oil go this time?

I don't know how low it's going to go. When I was 30 I knew, when I was 60, I wasn't so sure and now that I'm over 80, I know damned well I don't know and neither does anyone else. "
:D
User avatar
AltaRed
Veteran Contributor
Veteran Contributor
Posts: 33398
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: Oil

Post by AltaRed »

SkaSka wrote:Sounds a bit like "it's different this time" but I think he means in the short-to-mid term the recovery process will be a bit different than what the past looked like.
I used to deal with Jim 20 years ago, maybe further back than that, and he always had a perspective on the longer term. A lot of technologies* have come into their own since I started in the oil patch in the '70s. Each has improved economics and unlocked previously uneconomic resources.

This is just the next step. It is clear the combination of horizontal drilling and multi-stage fracking has unlocked a vast array of resources that could not have even been given more than a passing thought 15-20 years ago. What may make this a little different this time is its much broader application over a large number of oil and gas fields across the globe. IOW, it will have a larger impact over a longer time than many previous technologies.

* As an example, 3D seismic was one that select companies doing R&D on guarded this secretly for competitive advantage but such advantages do not last long and neither did this. It, along with rapid advances in cost effective computer processing power and imaging software blew the doors off prior capabilities in finding places (and deeper horizons) to drill with higher degrees of success.
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom
User avatar
kcowan
Veteran Contributor
Veteran Contributor
Posts: 16033
Joined: 18 Apr 2006 20:33
Location: Pacific latitude 20/49

Re: Oil

Post by kcowan »

Thanks for your insights AR!
For the fun of it...Keith
active
Contributor
Contributor
Posts: 852
Joined: 18 Feb 2005 11:02

Re: Oil

Post by active »

AR,

The downturn has created unprecedented cost cutting. By mid of 2016, I read, several players in the oil sands will have a cost of around $27/barrel.

Also a mining engineer told me that the lifetime of a horizontal and fracking drilling operation would be only about 2 years. Anything started will have to be seen through with as much production as possible, otherwise the investment is lost. As there are few new starts, if any, that supply will have to go down in the foreseeable future.

The lowest cost producers, Saudi et al., have a huge margin, but an ever larger income need giving their spending habits, so keeping the price down for a very long time is not in their interest either.

Once the prices are rising again, given the much lower cost than before in the oil sands, wouldn’t the companies’ profits explode at that time.

What am I doing wrong with this line of thinking?
User avatar
AltaRed
Veteran Contributor
Veteran Contributor
Posts: 33398
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: Oil

Post by AltaRed »

In most cases, oil supply will decline without sufficient replenishment capital but producers are now finding ways, because of lower costs, to play around the edges with a bit of capital to partially arrest soon-to-come declines. This new, now much lower cost structure will also allow these companies to show fairly sudden large profit increases IF prices shoot back up fairly quickly. The big question is IF prices shoot up quickly and if they are sustainable. Just like there was a delay in getting cost structure down in reaction to low oil prices, so too wil there be a delay in cost structure heading back up when prices improve quickly. But it might be fairly temporary (1-2 years) as cost inflation picks back up as prices improve. My view is barring a sudden change in Saudi policy, the ride back up will be painfully slow and bumpy.
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom
nisser
Veteran Contributor
Veteran Contributor
Posts: 2079
Joined: 11 Nov 2007 21:24

Re: Oil

Post by nisser »

http://seekingalpha.com/article/3753226 ... ter-widget

Nevermind the message of the article because I certainly don't agree with it. The author is obnoxiously optomistic. Good news is "great" and bad news is "good". But his charts are neat

We're sitting at an inventory of 490 million
Currently, production is fluctating between 9100 and 9200 for the past 3 months.

In December of 2014, inventory was at 375 and as you can see in the chart steadily increased until hitting a peak of 490 in March. We're now at that peak and if things are similar to last year, we expect to hit an even bigger peak in March of 2016. If you assume continued 9.1Mb/day production going foward, we're likely to hit the working storage capacity of just a bit over 500million barrels.

https://www.eia.gov/todayinenergy/detail.cfm?id=20212

Oil's probably easily going to hit $30 in the next few months, unless production actually starts going down.
User avatar
kcowan
Veteran Contributor
Veteran Contributor
Posts: 16033
Joined: 18 Apr 2006 20:33
Location: Pacific latitude 20/49

Re: Oil

Post by kcowan »

US to compete for oil export market?

And this would produce more pollution and lower world crude oil prices! Interesting world of politics.
For the fun of it...Keith
User avatar
AltaRed
Veteran Contributor
Veteran Contributor
Posts: 33398
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: Oil

Post by AltaRed »

nisser wrote:Oil's probably easily going to hit $30 in the next few months, unless production actually starts going down.
I don't disagree that it could easily be rolling around in the $30-40 range for some time. 4Q results are going to be even more brutal with writeoffs, more capex and operating cuts, and most likely production shut-ins.

Some popular names may not make it and/or be a shell of their former selves as they divest at firesale prices for cash.
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom
nisser
Veteran Contributor
Veteran Contributor
Posts: 2079
Joined: 11 Nov 2007 21:24

Re: Oil

Post by nisser »

http://seekingalpha.com/article/3761966 ... e-capacity

This article put what I was wanting to say into charts:

1. Working capacity will be reached by end of january at current build rate
2. Working capacity at Cushing will be reached by end of January
3. Shell capacity at Cushing will be reached by end of February/Beginning of March (BAD)
ig17
Veteran Contributor
Veteran Contributor
Posts: 3418
Joined: 21 Feb 2005 20:54

Re: Oil

Post by ig17 »

Jim Chanos has a warning for OPEC members: Pump oil now because it might not be worth much in 15 years.
The reason for his bearishness on the oil price is the rise of solar and the advent of the electric car.

He said:

I think what's going to happen, what is really fascinating, is that you're going to see this connection between solar and electric vehicles, and I think that's one of the more interesting things that not a lot of people are [talking about].

He added:

Imagine a world in which most of the vehicles are electric and yet they are powered off the grid by natural gas and solar. So you reduce coal emissions and you reduce burning oil. Eighty percent of all petroleum demand is transportation.
If he is anywhere close to being right, Canada is in a big trouble.

ADDED: direct link to the interview

http://www.cnbc.com/2015/12/17/jim-chan ... horts.html
User avatar
AltaRed
Veteran Contributor
Veteran Contributor
Posts: 33398
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: Oil

Post by AltaRed »

nisser wrote:This article put what I was wanting to say into charts:
Not available to those who do not register.....but can guess what it says.
ig17 wrote:If he is anywhere close to being right, Canada is in a big trouble.
Not likely to be in a good place, but the degree of trouble depends on where the oil price will settle in at and 15 years is way too ambitious anyway.

The point being 95 million barrels of oil per day is not going away any time soon. I don't know what worst case scenario might be but demand drifting down to 50 million bafrrels per day if all cars in urban areas become electric? Much of it depends on how many homes and businesses are heated by distillates as well and how much hydrocarbons (distillates and natural gas) are replaced by alternatives.

There is reason to believe no more mega oilsands projects will get built after the current suite of projects is completed in 2018. It would be hard to amortize another megaproject over 30 years thereafter. Stranded assets eventually. One might argue that one of Energy East or Trans Mountain should not be built either. There is, however, no reason why Canada cannot continue to produce in the order of 4 million barrels per day of oil. It will more likely be the Brazils and Venezuelzas of the world that will implode because too much oil revenue is siphoned off to support the social state.
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom
User avatar
ghariton
Veteran Contributor
Veteran Contributor
Posts: 15954
Joined: 18 Feb 2005 18:59
Location: Ottawa

Re: Oil

Post by ghariton »

AltaRed wrote:It will more likely be the Brazils and Venezuelzas of the world that will implode because too much oil revenue is siphoned off to support the social state.
Not to mention Russia, Iran and much of the Middle East. Imagine a scenario where Saudi Arabia and the Gulf States lose their ability to make mischief.

That said, the switch away from carbohydrates will take a long time. We will need a whole new infrastructure for transportation, and I doubt we will ever have electric airplanes. Balloons across the Atlantic? Even the simplest mode to electrify, railways, would take five years from the time a firm commitment is made. Heating would be an even worse nightmare to convert.

IMHO it is the coal producers who are in big, big trouble.

George
The juice is worth the squeeze
User avatar
AltaRed
Veteran Contributor
Veteran Contributor
Posts: 33398
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: Oil

Post by AltaRed »

Clearly coal is on the way out, at least thermal coal. Metallurgical coal... I don't know.

I agree there is way too much idealism about how fast and how deep cuts in oil & gas demand will occur. But waving wands and making hollow promises is politically correct and that is often what carries the day in the 'great group hugs'. But we do need to start somewhere.
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom
User avatar
kcowan
Veteran Contributor
Veteran Contributor
Posts: 16033
Joined: 18 Apr 2006 20:33
Location: Pacific latitude 20/49

Re: Oil

Post by kcowan »

It really make me look back at all the hysteria about Peak Oil (and that was before fracking)! But it seems to me that the only things we are looking at is alternate forms of electricity generation. So the production of all the byproducts still has no alternative?

And when will OPEC re-establish itself. It seems to be inevitable given enough time? And if any our international pipeline dreams come to pass, will we join OPEC?
For the fun of it...Keith
User avatar
Spidey
Veteran Contributor
Veteran Contributor
Posts: 4556
Joined: 11 Jan 2009 19:55
Location: Ottawa

Re: Oil

Post by Spidey »

Russia's economy, like Canada has taken a hit with the recent decline in oil prices. Coincidentally their interest in the middle-east seems to have increased. I was thinking today that it is not out of the realm of possibility that Russia "inadvertently" cause disruptions of oil flow from the region. Perhaps they have already started.

http://www.jpost.com/Middle-East/ISIS-T ... ies-438548
If life seems jolly rotten, then there's something you've forgotten -- and that's to laugh and smile and dance and sing. - Eric Idle
OnlyMyOpinion
Veteran Contributor
Veteran Contributor
Posts: 4231
Joined: 24 Jan 2014 23:17

Re: Oil

Post by OnlyMyOpinion »

Iran and Saudia Arabia - big fight in the schoolyard!
They do like their fireworks don't they.
User avatar
Zipper
Contributor
Contributor
Posts: 658
Joined: 10 Aug 2005 16:36
Location: London ON

Re: Oil

Post by Zipper »

All it would take is a spark between these two and all oil price bets are off.
Post Reply