GWPF Newsletter: 'Stranded Assets’ Are Booming

Fossil Fuels Topple Tech As Top Sector

In this newsletter:

1) ‘Stranded Assets’ Are Booming: Fossil Fuels Topple Tech As Top Sector
The Wall Street Journal, 28 June 2018 

2) Think Coal Is Dead? It Could Be About To Soar
Daily Mail, 30 June 2018

3) Coal, A Dying Industry, Just Became Australia’s Number One Export (Again)
Jo Nova, 2 July 2018
 

4) Enough U.S. Shale Gas For 100 Years Supply, Industry Execs Say
Reuters, 27 June 2018

5) The Texas Well That Started A Revolution & Changed The World Forever
Russell Gold, The Wall Street Journal, 29 June 2018

6) While Anti-Fracking Europe Declines, China To Double Shale Gas Production
Natural Gas Intel, 28 June 2018

7) And Finally: What Ever Happened To Peak Oil?
Michael Lynch, Forbes, 29 June 2018  

Full details:

1) ‘Stranded Assets’ Are Booming: Fossil Fuels Topple Tech As Top Sector
The Wall Street Journal, 28 June 2018 

Energy stocks have rallied 12% — and are poised for the biggest quarterly gain since 2011

Energy stocks are on pace to be the best-performing group in the S&P 500 this quarter after oil prices broke through $70 a barrel, a level they have struggled to reach and stay above for almost four years.

Energy companies have rallied 12%—and are poised for the biggest quarterly gain since 2011 and to be the top sector out of the 11 in the S&P 500. The broader equity gauge is on course to eke out a 2.9% gain in the second quarter.

Oil prices have jumped amid signs of falling global supply. This week’s move higher in crude comes after the Organization of the Petroleum Exporting Countries reached an agreement last Friday to increase global production by an amount below what many had expected. The decision sent oil prices surging 6.1% over four days.

Harsh rhetoric from the Trump administration on Iran sanctions also lifted prices this week, while production from Venezuela has been plummeting for months as the country sinks deeper into economic turmoil. Stockpiles in the U.S. have also drained. On Wednesday, the U.S. Energy Information Administration reported a 9.9-million-barrel decline in crude inventories last week, the biggest weekly drop since September 2016 and more than triple the amount that analysts had predicted.

West Texas Intermediate, the benchmark for U.S. crude, rose 0.9% to settle Thursday at $73.45 a barrel, the highest level since November 2014. Brent, the global benchmark, climbed 0.3% to $77.85. The energy sector’s performance has historically been linked to the price of oil.

“The pendulum has swung,” said Bill Costello, senior portfolio manager at Westwood Holdings Group. Investors went from being “not willing to touch [energy] to being bullish.”

Energy hasn’t been the S&P 500’s top sector since the second quarter of 2016, when energy companies were recovering from a two-year rout triggered by shale producers in Texas and North Dakota unleashing supply into the market. Oil prices plunged starting in 2014 from a high of over $100 a barrel to below $30 in a span of months. Meanwhile, technology companies, favored by investors in recent years, have been harder hit recently by rising trade tensions between the U.S. and China.

China is targeting crude oil in its retaliatory tariffs on U.S. imports, but the broader ramifications for energy demand are a bigger concern for investors, said Quincy Krosby, chief market strategist at Prudential Financial Inc.

Full post
 

See also GWPF paper:  Carbon Bubble or Green Babble

2) Think Coal Is Dead? It Could Be About To Soar
Daily Mail, 30 June 2018 

Although it may not be the most fashionable of assets, analysts are warming to coal. Ironically, lobbying by anti-fossil fuel activists to prevent new mines being built may have inadvertently helped to support coal prices.
 

Increasing worries about climate change and the desire for major institutions to be seen as responsible have prompted insurance giants such as Axa and ING to sell out of fossil fuel-related businesses.

Even Norway’s massive sovereign wealth fund, built on the back of the country’s oil wealth, has advised it is reducing its exposure to fossil fuels.

But according to analysts, coal investments are not going to go up in smoke just yet. Though the amount of energy being generated from renewables is increasing, and some of the City’s top investors have started ploughing their cash into clean energy, there is still demand for dirty old coal.

Analysts at investment bank Jefferies released a note to investors this month saying that ‘rumours of coal’s death are premature’.

It has raised its target price of seaborne thermal coal, burned for steam to generate electricity, as opposed to coking coal, which is used to create steel and iron, from £68 to £80 per ton for the remainder of 2018. It also lifted its long-term estimate from £49 to £63 per ton.

Christopher LaFemina, an equity analyst at the bank, said the predictions ‘may still be too low’, though they were well above other analysts’ predictions.

So what has been causing coal prices to smoulder once again? After all, oil giant BP said earlier this month that renewables were ‘by far’ the fastest-growing fuel source.

Though it may have become a dirty word in the UK, with the government putting all its energy into funding renewables, coal is still a vital commodity in developing countries where it fuels the economy.

Jason Hollands, managing director at investment manager Tilney, said: ‘In the near-term, the realities of increased demand against the backdrop of the continued global economic expansion are evident, with strong demand from India and South East Asia.

‘India in particular is struggling with supplies, which are essential for both its electricity network and steel production, and Australia looks set to be a key beneficiary of this.’

Australia was the second-largest exporter of thermal coal last year, sending 206m tons, according to Jefferies. Indonesia was the largest, exporting 387m tons.

Ironically, lobbying by anti-fossil fuel activists to prevent new mines being built may have inadvertently helped to support coal prices, Hollands said.

Full story

3) Coal, A Dying Industry, Just Became Australia’s Number One Export (Again)
Jo Nova, 2 July 2018 

Coal is a dying industry, but luckily for the Australian economy, the rest of the world is not as smart as The Australian Greens and Labor Party and they are still buying it.

Coal is set to regain its spot as the nation’s biggest export earner amid higher prices and surging demand from Asia, sparking fresh calls from the Turnbull government for Labor to end its “war on coal”.

The Department of Industry, Innovation and Science figures show total coal exports are forecast to reach $58.1 billion in 2018-19, overtaking iron ore ($57.7bn) for the first time in almost a decade.

We’ve only got 300 years of these kind of coal profits to go.

The big question, do we open up more coal mines now and rake in the dough, or try to make the weather nicer in one thousand years time? Tricky…

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4) Enough U.S. Shale Gas For 100 Years Supply, Industry Execs Say
Reuters, 27 June 2018

Natural gas production from U.S. shale fields can keep growing for decades, giving Washington a powerful diplomatic tool to counter the geopolitical influence of other energy exporters such as Russia, industry executives and government officials said at a conference here.

Already the world’s largest gas producer, the United States can expand shale gas output another 60 percent in the coming decades, according to at least one estimate. So far, liquefied natural gas (LNG) has been spared from retaliatory tariffs in U.S. President Donald Trump’s intensifying trade conflicts with China and other countries.

“We see a century of natural gas supply in U.S. shale,” Ryan Lance, chief executive of U.S. shale producer ConocoPhillips said this week at the triennial World Gas Conference in Washington. “Shale’s abundance is real and it’s not going away.”

The United States currently produces about 72 billion cubic feet (bcf) of natural gas each day, a figure that is expected to grow by 7 bcf per day this year. And within 20 years, U.S. shale gas output should grow an additional 60 percent, according to a study from IHS Markit Ltd.

While Trump’s tariffs against China, Europe, Mexico, Canada and others have cast a short-term pall over Washington’s energy ambitions, the administration has repeatedly said it is eager to expand fossil fuel supplies to global allies through supply agreements and technology sharing. Trump is also rolling back domestic regulations to encourage more oil and gas production.

The strategy, which Trump dubs “energy dominance,” is aimed at making the United States a viable alternative to rival energy producers like Russia, as Washington seeks to forge bonds with big consumers like China.

“We’re sharing our energy value with the world,” Rick Perry, the U.S. secretary of energy, said this week at the conference.

GLOBAL MARKETS UPENDED

Conoco and its U.S. peers have sharply ramped up natural gas production in the past decade, using hydraulic fracturing technology to tap shale fields in Texas, Pennsylvania and elsewhere.

The United States is also boosting export capacity. LNG facilities from Cheniere Energy Inc, Tellurian Inc and others are either operating or planned across the U.S. Gulf Coast.

“What the U.S. has done for the world with shale gas is given another form of affordable, competitive energy that can be relied upon,” said Jack Fusco, Cheniere’s CEO, said at the conference.

Cheniere, one of the largest exporters of U.S. natural gas, has shipped more than 350 LNG cargos to 28 countries around the globe, including China.

“Gas is much more of a global market than it used to be,” Dan Yergin, an energy economist and IHS Markit vice chairman, said at the conference this week.

The ramp-up in U.S. shale gas production coincides with a demand spike from power producers, with coal-fired generation increasingly anathema across the developing world. Industry executives have aggressively touted gas as a way to increase access to affordable electricity and limit greenhouse gas emissions.

Full story

5) The Texas Well That Started A Revolution & Changed The World Forever
Russell Gold, The Wall Street Journal, 29 June 2018

Two decades ago, an engineer tried a new way to get gas out of the ground. Energy markets and global politics would never be the same.
 

DISH, Texas – Twenty years ago this month, a well was drilled here that changed the world.

Nothing at the time suggested the unassuming well in this rural town north of Fort Worth would hobble OPEC, the powerful oil cartel that had governed prices of the world’s most important commodity for more than a generation. Or that it would help turn the U.S. into a global energy exporter, or shuffle the geopolitical deck.

But it did all of that – and more. The well used hydraulic fracturing to crack the incredibly tight shale rocks below. It fired the first shot in the fracking revolution–a blast soon felt in Riyadh, Tehran and Moscow.
 

“I had no idea it would cause so much change. I was just trying to keep my job,” said Nick Steinsberger on a recent visit to the well pad. He was the engineer who obtained permission to try a new approach to completing the well that had been drilling a mile and a half deep into a thick grey wedge of rock known as the Barnett Shale.

Mr. Steinsberger, now 54, called the experiment “my slick-water frack.” It was the first commercially successful use of sand, water and chemicals, pumped into the shale under high pressure, to break open the rock and unleash the natural gas trapped inside. It was the beginning of modern fracking.

“It was a good well, cost $600,000 or $700,000,” Mr. Steinsberger said, walking over the pad to the chain-link fence that surrounds the well. A sign identifies it as the S. H Griffin Estate 4.

Today, most wells drilled in the U.S. use some variation of Mr. Steinsberger’s fracking technique. It has unleashed an unimaginable wealth of natural gas, gas liquids and crude oil, turning the U.S. from an energy pauper into a muscular exporter. It also started an often acrimonious environmental debate about the potential impacts and trade offs of fracking.

“It is one of the most extraordinarily important, disruptive, technologically driven changes in the history of energy,” said Ed Morse, global head of commodity research at Citigroup. “It was revolutionary for the U.S. economy and it was revolutionary geopolitically.”

Mr. Steinsberger’s modest experiment demonstrated that the oil and gas industry had the tools to fracture the rocks where fossil fuels were slowly baked over the millennia. A huge trove of natural gas was accessible at an economical cost.

It was such a novel idea that it spread slowly at first, as doubters couldn’t believe that anyone could successfully tap the source rocks. After a few years, more companies began to copy the wells drilled by Mr. Steinsberger’s employer, Mitchell Energy , the firm founded by the late George P. Mitchell.

It started in the Barnett Shale. Then other gas-bearing shales were discovered. The Marcellus Shale in Appalachia turned out to be larger and more fecund than the Barnett.

Full story

6) While Anti-Fracking Europe Declines, China To Double Shale Gas Production
Natural Gas Intel, 28 June 2018

China National Petroleum Corp. (CNPC), the largest state-owned producer of oil and natural gas in the country, reportedly plans to nearly double natural gas production from shale sources this year and wants a five-fold increase in such production by 2020.

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CNPC said it plans to produce 5.6 billion cubic meters (bcm) (197.8 Bcf) of natural gas from unconventional sources in southwestern Sichuan province in 2018, according to a report Tuesday by Caixin Media Co. Ltd., a Beijing-based news service.

The company reportedly plans to drill more than 330 new wells targeting the Sichuan Basin in 2018, and wants to have more than 820 shale gas wells in operation by 2020, with total annual production of 15 bcm (529.7 Bcf).

Last April, analysts with Wood Mackenzie estimated that China’s unconventional natural gas production would reach 17 bcm (600.3 Bcf) by 2020.

Full story

7) And Finally: What Ever Happened To Peak Oil?
Michael Lynch, Forbes, 29 June 2018 

Very few people realize that the entire concerns about peak oil were based on misinformation or junk science.
 

A decade ago, the media was filled with stories about peak oil, numerous books were published on the subject (such as Half Gone and $20 a Gallon!), and even the Simpsons mentioned it in an episode about doomsday preppers. Now, the topic is largely forgotten and the flavor of the month is peak oil demand.  Anyone concerned about the quality of research that works its way into the public debate should be curious about how so many were so wrong for so long.  (Buy my book for the full story.)

First and foremost, realize that in the 1970s, numerous analysts and institutions made similar arguments, arguing that geological scarcity was responsible for higher prices not the two disruptions of production in 1973 and 1979.  Indeed, in the months before oil prices collapsed in 1986, the consensus was that prices were too low and had to rise to make upstream investment profitable, despite the fact that OPEC production was collapsing (down from 30 mb/d in 1980 to 15 in 1985).  You would think that this would make people more skeptical about claims that geological scarcity was responsible when the shutdown of Venezuelan production and the second Gulf War cut off Iraqi supplies sent prices higher starting in 2003.

Such was not the case.  In fact, on September 21, 2004 the Wall Street Journal published a front-page story “As Prices Soar, Doomsayers Provoke Debate on Oil’s Future,” quoting the founder of the Association for the Study of Peak oil as saying “Holy Mother!  The good ol’ moment’s arrived!”  Oddly, the article didn’t mention the alternative explanation for high prices, namely the loss of production from Venezuela and Iraq, about 1 billion barrels up to the article’s publication.

The current era of peak oil warnings started twenty years ago, when Scientific American published an article by two retired geologists called “The End of Cheap Oil,” which presented the idea that world oil production would soon peak while demand kept rising, creating economic shock waves and even ‘the end of civilization’ as one co-author said subsequently.  Since the oil price collapsed to $12 a barrel that year, most paid little heed at first, but as oil prices began to rise five years later, attention soared.

Few realize the debate began a year earlier, in the pages of the Oil & Gas Journal, where members of the opposing camps put forth their views.  Colin Campbell, who later became founder of the Association for the Study of Peak Oil (and coauthored the 1998 Scientific American article), wrote an article titled “Better Understanding Urged for Rapidly Depleting Reserves” in which he warned “there is comparatively little left to find” and “the world’s political, economic, and political stability, which relies on an abundant supply of cheap oil, is in serious jeopardy.”  His core argument was that the amount of recoverable crude oil, which he put at 1.8 trillion barrels, was smaller than most realized, because of misreporting and misinterpretation of the data.

The contrary view was put forth in the same journal in an article by M. A. Adelman and this author, noting past pessimism:  “For many years now, nearly every forecast has been: an early peak, then in 3-5 years decline in virtually every place but the Persian Gulf.”  And “The oil industry has always been in a tug-of-war between depletion and knowledge.

It takes endless effort and investment to renew and expand reserves. But resource limits are a phantom….Repeatedly, the forecasts are revised with a higher and later peak….These estimates of declining reserves and production are incurably wrong because they treat as a quantity what is really a dynamic process driven by growing knowledge.”

Since then, the peak oil advocates have repeatedly increased their estimates of recoverable resources (Campbell’s went from 1.575 to 1.9 trillion) and pushed the date of the peak further out, exactly as Adelman and Lynch argued, while trying to argue that the increase in oil supply was ‘unconventional’ oil which they were not analyzing.  Of course, they tend not to mention that their 1998 article claimed “But the industry will be hard-pressed for the time and money needed to ramp up production of unconventional oil quickly enough.”  Similarly, many argue that the growth has been from NGLs or shale, not conventional oil, but the figure below refutes that.

World Petroleum Supply THE AUTHOR; DATA FROM BP AND EIA.

The general view of the issue is that shale oil saved us from peak oil, and the issue has largely disappeared from the media, to be replaced by warnings of peak oil demand, but there are still articles about peak cobalt, peak cocoa and similar scares.  Rather the way your local news station constantly reports on some new threat to the public (germs in airplane bathroom sink water, dangers from household cleaning products, etc. ad infinitum).

Unfortunately, very few people realize that the entire concerns about peak oil were based on misinformation or junk science.  Specifically, the research was not scientific at all but statistical analysis so badly done that it wouldn’t pass a first-year college course.

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The London-based Global Warming Policy Forum is a world leading think tank on global warming policy issues. The GWPF newsletter is prepared by Director Dr Benny Peiser - for more information, please visit the website at www.thegwpf.com.