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09 April 2016

Press review 09-04-2016 - Of markets and robots

Brent continued moving sideways this week but still with moments of high volatility. Nevertheless, the benchmark closed Friday at the highest level in 2016, even if marginally. The press lingers to the slightest bit of information to explain intra-day movements, invariably making little sense. The petroleum market remains mostly dead, with a flat futures curve and no real news to report.

This market reflects the enduring of world extraction around 80 Mb/d, that remains apparently unresponsive to price movements. In fact, the extraction decline many expected (me included) in the US has not materialised. And regarding recent news, it might never fully materialise. Even with a bankruptcy wave well under way, the US petroleum industry continues extracting as much as it can, with the support of both the finance industry and the judicial system. For the US it seems price no longer matters, and traditional petroleum exporting countries are being effectively pushed out of the market.

As U.S. shale drillers suffer, even the bankrupt keep pumping oil
Swetha Gopinath and Joshua Schneyer, 01-04-2016

As oil prices nosedived by two-thirds since 2014, a belief took hold in global energy markets that for prices to recover, many U.S. shale producers would first have to falter to allow markets to rebalance.

With U.S. oil prices now trading below $40 a barrel, the corporate casualties are already mounting. More than 50 North American oil and gas producers have entered bankruptcy since early 2015, according to a Reuters review of regulatory filings and other data. While those firms account for only about 1 percent of U.S. output, based on the analysis, that count is expected to rise. Consultant Deloitte says a third of shale producers face bankruptcy risks this year.

But a Reuters analysis has found that bankruptcies are so far having little effect on U.S. oil production, and a tendency among distressed drillers to keep their oil wells gushing belies the notion that deepening financial distress will prompt a sudden output decline or oil price rebound.
The US finance industry keeps on feeding these money burning companies. Apparently, profit is not something they are interested on right now.
Houston Chronicle
Wall Street doubles Bet
Collin Ea­ton, 06-04-2016

STOCK mar­ket in­vestors are set to dou­ble the $10.5 bil­lion they’ve poured into cash-strapped U.S. oil com­pa­nies this year, be­com­ing the in­dus­try’s go-to fi­nan­cial backer as tra­di­tional lenders re­treat.

The ex­tra cash from sec­ondary stock of­fer­ings gives oil pro­duc­ers am­mu­ni­tion to sur­vive the fi­nan­cial car­nage in the oil mar­ket, and by help­ing the com­pa­nies re­pair debt-laden bal­ance sheets, they could likely af­ford to haul equip­ment back to Texas oil fields much faster once crude prices re­cover.

U.S. en­ergy ex­ec­u­tives have said the na­tion’s be­lea­guered shale in­dus­try, run­ning on fi­nan­cial fumes af­ter the pun­ish­ing com­bi­na­tion of high debt and shrink­ing rev­enue, won’t be able to re­bound as quickly as Saudi Ara­bia and its fel­low oil car­tel mem­bers fear. That’s be­cause lenders and bond-mar­ket in­vestors will be re­luc­tant to rein­vest in the in­dus­try, hav­ing burned their fin­gers on sour­ing debt piled up dur­ing the years of $100 a bar­rel oil.

The in­dus­try’s new Wall Street fi­nancier “bridges that win­dow,” Stephen Trauber, head of global en­ergy in­vestment bank­ing at Cit­i­group, said in an in­ter­view Tues­day.
The strain is now clearly on OPEC's side with most of its members facing financial and social challenges. The Angolan regime has been jailing dozens of contesters to quell increasing popular discontent; but that does not help with the country's finances. The government was forced this week to request aid from the IMF, a move that had long been anticipated. Rumours point to Azerbaijan being the next petroleum nation in line for IMF intervention.
Financial Times
Angola turns to IMF for bailout amid oil price fallout
Shawn Donnan, 06-04-2016

Angola has requested a bailout from the International Monetary Fund which could be worth more than $1.5bn, making the Opec member the latest oil-producing country to seek international help to cope with the fallout from low crude prices.

The IMF said on Wednesday that it had received a request for a three-year programme from Angola and would be discussing the terms of its assistance during next week’s spring meetings of the IMF and World Bank in Washington. Under the fund’s rules the southern African nation is eligible for a little over $500m in assistance annually unless it receives special waivers.

It also reflects the growing stresses being felt by oil producers across the developing world that have been hit hard by a collapse in crude prices and are now struggling to plug the gaps left by dwindling revenues. Countries ranging from Azerbaijan to Nigeria have been engaging in discussions with the IMF, World Bank and other multilateral institutions over how to plug holes in their budgets and stave off crises.
The foreign currency shortage is not restricted to Angola. In Nigeria it has an ever more visible effect, with a prolonged and severe shortage of road fuels. The question is for how long such a situation can drag before it unravels into serious socio-political consequences.
Financial Times
Nigeria’s dollar crunch adds to fuel crisis
Maggie Fick, 07-06-2016

Nigeria is Africa’s top oil exporter but a shortage of dollars has provoked a fuel crisis that is testing an already struggling economy and challenging the government to find a solution.

The west African nation has long suffered fuel shortages because it lacks the infrastructure to refine its crude at home. As a result, it imports almost all of its petrol and other refined products — paying in dollars.

People have been experiencing frustration at the pumps since early March because neither NNPC, the state-owned oil company, nor private competitors have the dollars needed — about $10m per day in total — to pay for imports. While fuel shortages are usually resolved in one or two weeks, the current crisis has been prolonged and could drag on.
Even Russia, that had so far endured the petroleum price rout, is showing clear signs of economic fatigue. The economic downturn seems to be exacerbated by a week welfare state and ramping social inequity (curious how Russia became so similar to the US in certain areas).
Financial Times
Russia: Putin’s balance sheet
Kathrin Hille, 07-04-2016

[...] By 2014, Russia’s per capita gross domestic product, based on purchasing power parity, had more than doubled compared with 2000. Child mortality had halved, life expectancy increased by 12 per cent and the proportion of young people enrolled in tertiary education soared from half to three-quarters.

So far, only a small part of these social gains, widely seen by Russian society as Mr Putin’s main achievements, has been undone. “Indicators such as income levels and poverty levels [suggest] we have been thrown back by six years — to where we were at the peak of the last economic crisis in 2009,” says Ms Maleva. “Wages dropped by 10 per cent last year rather than by three times, as they did in the 1990s.”

Many people, however, feel that they are taking a much larger step back: a perception fuelled by the drawn-out nature of the current crisis. Although 2015 was the first full year of economic contraction, incomes started falling the year before and continue to do so. In February, real household income decreased by 7 per cent compared with the same month a year earlier, the fastest drop since December 2014.
To the outages recently reported in Iraq and Nigeria, now add a number of other temporary interruptions to petroleum extraction in South America. It will take three to four months for these figures to appear in public databases, revealing the full extent of these outages.
Outages in Latin America to help relieve global oil supply glut
Marianna Parraga, 01-04-2016

From Peru to Brazil, a rash of unplanned outages at ports and pipelines and necessary maintenance work at oilfields is taking a bite out of global production, unexpectedly curbing a historic supply glut.

Even though the disruptions are individually small, taken collectively they are helping slow an unprecedented global build-up of surplus crude stockpiles estimated at 1.5 million barrels per day (bpd) for the first half of 2016.

While likely short-lived, they could foreshadow a larger and longer-lasting output decline from a region that, because of its dependence on oil exports, is particularly vulnerable to the damaging effects of prices under $40 a barrel.

"Latin America is among the world's most vulnerable oil regions right now," said Robert Campbell from Energy Aspects. "We are expecting an exports decline of at least 100,000 barrels per day in the second quarter and possibly as much as 200,000 bpd compared with the same period of 2015."
Mexico is a country still coming to grips to its own version of "peak oil". Now well over a decade in decline, there are still fake reserve numbers to clean from the books.
Mexico's proven oil and gas reserves fell 21 pct last year

Mexico's proven oil and gas reserves dropped 21.3 percent in 2015, the oil regulator said on Thursday, as the state-run oil company, Pemex, cut back on investment because of plunging crude prices.

Proven reserves, known as 1P, fell to 10.242 billion barrels of oil equivalent, or boe, as of Jan. 1, down from just over 13 billion the prior year, according to the National Hydrocarbons Commission, or CNH.

The new estimate for so-called 1P certified reserves was set on Jan. 1, 2016, and covered oil and gas fields believed to have a 90 percent chance of being extracted with existing technology.
Shifting now to gas, it is important to note the resumption of the consumption growth trend in Europe. Even with renewable energies displacing fossil fuels in electricity generation and the IPCC promising ever milder winters, gas consumption for heating is rampant. While gas extraction does not face the immediate constraints other fossil fuels face, its trade is far more sensitive to disruptions. This increased reliance on gas can not possibly be regarded as positive.
Gas consumption in Europe increased by 4.1% in 2015

According to preliminary estimates released by Eurogas, gas consumption in Europe increased by 4.1%, as temperatures were closer to the average (2014 was a particularly warm year). LNG imports benefited from the higher consumption (+34% in Italy).

Gas consumption for heating purposes increased noticeably in Germany (half of new-build residential construction fitted with gas-heating appliances), where gas demand rose by 4.7% (higher demand from the residential sector partly offset by a lower demand from the power sector). The economic recovery in some countries also contributed to rising gas demand, especially in the Czech Republic (+4.8%), in France (+7.8%) and in Slovakia (+5.9%). The decrease in global gas prices contributed to an increased share in power generation (+0.4%); in Greece and Italy, gas backed a rising demand for cooling (+9.1% and +7.4%, respectively).
One of the obvious issues with gas is the reliance it creates on transit countries. The Ukrainian case showed yet again this week the risks of such energy policy. Taken by a dubious elite and rampant popular delusion, Ukraine faces now a new separatist front to the east.
Fort Russ
Strategically important Transcarpathia demands autonomy from Ukraine

In the latest event in the collapse of Ukraine, Deputies of the Legislative Assembly of Transcarpathia have demanded autonomy from the Ukrainian nationalist state. MPs demanded that the President of Ukraine Petro Poroshenko, Prime Minister Arseniy Yatsenyuk, and Speaker of the Verkhovna Rada Volodymyr Groysman grant autonomy to the region. The statement was adopted at the plenary session of the local parliament.

"We demand the recognition of Transcarpathia as a special self-governing administrative territory. The necessary amendments to the Constitution of the country must be made without delay", - the document says.

Transcarpathia is the region that was last to join Ukraine. It was a part of Hungary, the Austro-Hungarian Empire, and then Czechoslovakia until 1945, when Soviet dictator Joseph Stalin incorporated it into the Soviet Ukraine after World War II. Representatives of local communities (Orthodox congress of Carpathian Ruthenia, headed by Archimandrite Kabaljuk and Professor Lintur) asked him to include it in the USSR as an independent republic. This proposal was rejected by the Soviet leadership.
Shifting to the possible technologies of the future, interesting data came up on the growth of renewable energies. While "crushing" is far from being the case, the fact is that these technologies are enduring a real test in the present market, and passing with distinction.
Wind and Solar Are Crushing Fossil Fuels
Tom Randall, 06-04-2016

While two years of crashing prices for oil, natural gas, and coal triggered dramatic downsizing in those industries, renewables have been thriving. Clean energy investment broke new records in 2015 and is now seeing twice as much global funding as fossil fuels.

One reason is that renewable energy is becoming ever cheaper to produce. Recent solar and wind auctions in Mexico and Morocco ended with winning bids from companies that promised to produce electricity at the cheapest rate, from any source, anywhere in the world, said Michael Liebreich, chairman of the advisory board for Bloomberg New Energy Finance (BNEF).

"We're in a low-cost-of-oil environment for the foreseeable future," Liebreich said during his keynote address at the BNEF Summit in New York on Tuesday. "Did that stop renewable energy investment? Not at all."

Here in Europe, another trend setting in is the growth in full electrical vehicles, now reaching the critical 1% market share figure in various member states. In the Netherlands there seems to be the will to accelerate the process. While this may came down to simple political bragging, it would be interesting to see this initiative come into law, raising a number of technological challenges, ranging from the availability of resources used in chemical batteries to the necessary hike in electricity generation.
Only electric cars should be sold in Netherlands from 2025

The Dutch parliament has taken the first step in banning petrol and diesel cars from sale in the Netherlands from 2025.

On Tuesday the lower house supported a motion from the Labour PvdA party to do all it can to ensure all new cars are sustainable from 2025, reports NOS. Despite strong opposition from the right-wing VVD, the motion passed and the cabinet must now come up with an action plan.

Earlier this month, the PvdA launched a plan to ban gas-guzzling cars from sale in the next 14 years, and it was supported by parties including the Liberal Democratic D66, green GroenLinks and religious ChristenUnie parties.
In Germany it is the postal service company thriving for electrical mobility. This sort of initiatives indicates that the economics of electric vehicles of this kind - with high usage in geographically limited areas - is on the verge of feasibility. This strategy naturally depends on the maintenance of present liquid fuels tax framework in Europe.
Renewables International
Deutsche Post wants its own electric vehicles - 100% renewable

Back in December, German logistics giant DHL took over (report in German) StreetScooter, electric vehicle startup. They began working together in 2011 to come up with a tailor-made vehicle for DHL / Deutsche Post. A prototype was presented in 2012, and around 20 vehicles went into use in 2013. At the end of 2014, the firm announced plans to make some 6,000 to 10,000 such electric vehicles annually.

This week, Deutsche Post announced that serial production of the first 2,000 vehicles would begin this year. The goal is to produce a total of 30,000. The company also says (report in German) that it has already received queries by third parties and is willing to sell the vehicles as soon as it covers its own demand. The firm also specifically says it is addressing a market not yet served by Tesla: utility vehicles.

Because the vans will be used in a fleet for deliveries, the range does not have to be as great; it is apparently 80 kilometers (report in German).
Not every one is falling for fully electrical vehicles though. The outstanding gains in recent years in various FIA sanctioned motorsport series point to alternative paths. Formula 1 and Endurance racing cars are presently the fastest in history, but with the smallest engines since the II World War. These achievemnts allude to a design where the internal combustion is merely used to charge electrical batteries on-board. As with electrical cars, the question remains on how much will such changes increase the end cost of the vehicle.
How two-cylinder engines and F1 technology could redefine road cars
Laurence Edmondson, 05-04-2016

Formula One technology and very small capacity engines should be the future for road cars, according to Mercedes' F1 engine boss Andy Cowell.

The current F1 engine regulations were designed to promote hybrid technologies and since their introduction manufacturers have improved thermal efficiency from 29 percent to more than 45 percent, meaning more than 45 percent of the potential energy in the fuel is delivered to the crankshaft. Cowell believes those efficiency gains will start to filter down to road cars in the near future, allowing family-sized cars to be powered by small capacity, two-cylinder engines.

Asked what drivetrain he would use if he was designing the next generation of Mercedes C-Class, Cowell came up with a proposal quite different to the brand's current offering of straight fours, V6s and V8s.

[...] "You need a decent battery, efficient power electronics and then it's a question of how much would the engine actually be doing? At that point is it not just a range extender? Is it not that the C-Class has a 400cc, v-twin range extender that sits there and operates at full throttle with around 54% thermal efficiency?"
It is now by and large called the Fourth Industrial Revolution. Recent progresses in computing and robotics are paving the way for the automation of a vast swath of functions that are today performed by humans. This process is intimately linked with energy consumption, something that not all energy analysts are recognising. Today, what is called a system-on-a-chip, provides the full functionality and processing power of a computer with power consumption rates well under 10 W - they became incredibly cheap to produce and operate. In reverse, automation brings about a whole new range of energy efficiency opportunities, as the article below shows.
Daimler sends autonomous truck platoon on Stuttgart to Rotterdam road trip
Scott Collie, 05-04-2016

Daimler has let three of its autonomous trucks loose on public roads, setting them the task of driving from Stuttgart to Rotterdam as a fully connected platoon. As well as demonstrating the scope of Daimler's own autonomous tech, the road trip is a part of the European Truck Platooning Challenge that aims to hasten the appearance of automated platoons on Europe's roads.

Introduced by the Netherlands during its presidency of the European Union, the European Truck Platooning Challenge aims to facilitate the progression of autonomous truck platooning due to its potential to reduce congestion, cut down on accidents caused by human error and make significant cuts to the amount of CO2 emitted by trucks on the road.

Taking part in this Challenge, the trucks undertaking the Germany to Netherlands road trip are all linked via Wi-Fi and rely on Daimler's Connected Highway Pilot system. Unlike regular trucks, which need to leave a 50-meter (164-ft) gap, autonomously controlled truck platoons can sit just 15 m (49 ft) apart. That means a convoy of autonomous trucks takes up just 80 m (262 ft) of highway space, as opposed to 150 m (492 ft) for a normal convoy of trucks under human control.

The mainstream discussion on this unfolding Fourth Industrial Revolution has focused on socio-economic consequences, and rightly so. If steered correctly, it can provide great gains in well-being and foster economic resilience. If steered wrongly, it can result in the widest social inequity gap in a century or more.
Financial Times
Work survival in the era of automation
Adam Jezard, 06-04-2016

Roy Harold Scherer Jr worked as a truck driver on the long haul to the top of his chosen profession. He later found film stardom under the name of Rock Hudson. Michael Dell, founder of US company Dell Computers, washed plates and was a waiter in Chinese and Mexican restaurants before he landed on a career in technology.

Such humdrum tasks once allowed ambitious people to earn cash en route to the top. For others, they were full-time jobs. But such low and semi-skilled jobs are increasingly in danger of being wiped out by the coming robotics age. Dish washing has long been automated and truck driving may be consigned to the rear-view mirror when driverless vehicles hit the streets.

This month’s Connected Business asks what workers will need to do to make their careers robot proof. But it is open to debate what this technological revolution will mean, especially for employers and workers in sectors requiring what are seen as a lower order of skills.
Have a good weekend.

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