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16 April 2016

Press review 16-04-2016 - White Petroleum

This was another sluggish week, with the press trying to create news where there is none. The Brent index rallied significantly Monday and Tuesday, loosing much of that ground in the remainder of the week. Still, it posted yet again the highest weekly close of 2016. The press is building huge expectations around the meeting taking place in Doha, where some of the largest petroleum exporting countries in the world are supposed to declare a "freeze" to their output. It is known beforehand that the few countries with real prospects to hike extraction will not be abridged. But the press loves the symbolism of it, that is how they make headlines.

There were also the usual news of bankruptcies among the American petroleum industry, but by and large money keeps flowing from the finance industry to bridge the gap between price and costs.

These past few days the press has also been busy producing free advertisements for the luxury electric car maker Tesla, that is now trying to reach the higher middle class in rich countries. The company is committing to increase its production ten fold to meet the hype created around its products. There might be a problem though, this promised production hike means Tesla will be soon consuming all the Lithium extracted in the world.

Can Tesla make the world flat?

Tesla And Other Tech Giants Scramble For Lithium As Prices Double
James Stafford, 12-04-2016

Demand for lithium—the hottest commodity on the planet and the only commodity to show positive price movement in 2015—is poised to continue on its upward trajectory, becoming the world’s new gasoline and earning the moniker of ‘’White Petroleum’’. And the battle for market share in and around this commodity has everyone from major tech players to trend-setting investor gurus vying for a foothold.

Driven by the rise of battery gigafactories and game-changing Powerwall and energy storage businesses, the world now finds itself at the beginning of a lithium super cycle that is all about securing new supply, much of which is poised to come from lithium superstar Argentina.

We have Tesla in the far corner, building its battery gigafactory in Nevada, for which it needs tons of lithium at a reasonable price, and just last week Tesla announced its plans for the Model 3, which has already hit over 300,000 pre-orders. To give you an idea of just how meaningful this is, Tesla produced less than 50,000 cars last year. Elon himself mentioned during the unveiling that Tesla will be gobbling up much of the world’s lithium supply with plans to produce 500,000 EVs per year. “In order to produce a half million cars per year…we would basically need to absorb the entire world’s lithium-ion production.” Remember – this is one man, one company. Tesla’s soon-to-be-completed gigafactory will produce more lithium-ion batteries than the rest of the world combined.
The past months have been prone in news of declining petroleum extraction. None of it is yet visible on "hard" statistics, that only run up to the end of 2015. This is not preventing the always optimistic IEA to foresee a short term market balance, i.e. consumption closing on extraction again.
Financial Times
Oil rebalancing ‘taking shape’ says IEA

Evidence of falling US production and and a drop in supplies outside of the Opec cartel will help the oil market “move close to balance” in the latter half of 2016, the world’s leading energy body said on Thursday.

As demand holds steady the rebalancing “is now taking shape,” said the International Energy Agency in its monthly closely watched oil market report.

Crude prices rallied to the highest level so far this year on Tuesday amid further signs of a drop in US output, writes Anjli Raval.

“The much-anticipated slide in production of light, tight, oil in the United States is gathering pace,” said the IEA which expects a fall in non-OPEC supply in 2016 of 700,000 b/d.
There were also a few data points on petroleum extraction in the US, that appears finally entering a decline. However, these gentle figures mean that many non-profitable wells are still coming online on a regular basis, once again showing the strange arangement of petroleum and finance worked out in that country.
U.S. shale output drop seen for 7th month running in May

U.S. shale oil production is expected to fall by a record amount in May in the seventh straight month of declines, a U.S. government forecast showed on Monday, as fallout from a 21-month price rout appears to be picking up steam.

Total output is seen dropping 114,000 barrels per day to 4.84 million bpd, according to the U.S. Energy Information Administration's (EIA) drilling productivity report. If correct, that would be the largest monthly decline since records were available in 2007.

Bakken production from North Dakota is expected to fall 31,000 bpd, while production from the Eagle Ford formation is seen dropping 62,000 bpd. Production from the Permian Basin in West Texas is expected to fall 4,000 bpd, according to the data.
It can be amusing to witness how ratings agencies use their power. I never voted to give this selected few so much power, but that is how democracy works in the XXI century. These agencies can still play a preponderant role in the demise of the western petroleum industry.
Chevron, Shell, and Total See Credit Ratings Slashed
Nick Cunningham, 11-04-2016

In a move that shows not even the largest oil companies are well-positioned during the oil price downturn, Moody’s Investors Service downgraded the credit ratings of three oil majors on Friday.

Moody’s cut the credit ratings of Chevron and Royal Dutch Shell by one notch, and cut the credit rating of French oil giant Total by two levels.

Both Chevron and Shell were downgraded to Aa2 from Aa1.

"The downgrade of Chevron to Aa2 reflects our expectations of negative free cash flow and rising debts levels caused by low oil prices in 2016 and 2017," Pete Speer, Moody's Senior Vice President, said in a statement. "The stable outlook is supported by the company's increasing capital spending flexibility and scope for operating cost reductions, which combined with modest rises in commodity prices should allow Chevron to substantially reduce negative free cash flow in 2017 and stabilize its debt levels and corresponding financial leverage as measured against capitalization and proved reserves."
Another small hint on the consequences of this undervalued petroleum market. For a while, Canada thought it would be the Saudi Arabia of the XXI century, but reality has sunk in. Most souls probably do not grasp the fundamental difference between the petroleum locked under the desert sands and that buried under the maple forest. In the end it is all about thermodynamics, the more entropy you have the less wealthier you are.
Oil-Sands Megaprojects are Finished on Grim Price Outlook
Rebecca Penty, 13-04-2016

Producers that envisioned multibillion-dollar expansions when oil was over $100 a barrel are now opting for bite-sized additions after a price crash shook the energy industry. While some production growth is still expected in a market rebound as companies cut costs with new technology, massive developments are on hold, according to executives from Suncor Energy Inc., Cenovus Energy Inc. and Meg Energy Corp.

“The years of large, multibillion-dollar projects are probably gone,” Alister Cowan, chief financial officer of Suncor, said Tuesday at the CAPP Scotiabank Investment Symposium in Toronto. Fort Hills, the C$13 billion ($10 billion) project being pursued by Suncor and Teck Resources Ltd., will probably be the last oil-sands mine built for many years, he said. “We’re more likely into smaller, more modular-type projects.”

Energy companies have shelved megaprojects globally as they cut spending to survive a crude slump that’s approaching two years. Oil is down more than 60 percent from its mid-2014 peak. While a rebound is expected, there’s a growing contingent of executives and analysts who believe abundant supplies globally will prevent prices from staying near their previous highs.
The following article provides valuable insight into a topic that has almost disappeared from the press. The war in Iraq seems to be definitely turning in favour of the Shiites and the Kurds. But between these two forces and the puppet government in Baghdad it is not clear whom will end up controlling the petroleum assets Daesh will be leaving behind.
The Battle Is On For Control Of Iraq’s Oil-Rich Kirkuk
Charles Kennedy, 07-04-2016

As fighting rocks northern Iraq’s oil-rich Kirkuk area, and air strikes attempt to take out Islamic State positions, the dust will likely either settle in favor of the Iraqi Kurds, who have played a key role in protecting this area from the ISIS advance and who could use Kirkuk to cement their independence ambitions, or in favor of Baghdad, which knows that the loss of Kirkuk means the loss of northern Iraq.

[...] While ISIS has terrorized northern Iraq—a swathe of territory that lies between that controlled by the Kurdistan Regional Government (KRG) and the central government in Baghdad—since June 2014, the Sunni jihadist group is only the immediate threat to this area. The real game here, once the dust settles, is between Baghdad and Erbil, the Iraqis and the Iraqi Kurds.

And as ISIS loses ground to the combined force of the Iraqi military and the Kurdish Peshmerga, this end game is getting closer to its climax.
One of the stories highlighted by the press this week was the bankruptcy of the largest coal mining company in the US. In spite of the media splash, this should not have much impact on the volumes extracted by this company. More relevant are the recent data points showing a steep decline in country-wide extracted volumes. While renewable energy has been growing visibly in the US, this decline is part of a programmed shift from coal to gas in electricity generation.
IEEFA Data Bite: A Deepening Decline
Seth Feaster, 11-04-2016

U.S. coal production so far this year is running more than 30 percent below the comparable period in 2015, reflecting an historic shift in both the coal industry and the electric power sector it serves.

And weekly production estimates from the Energy Information Administration show that the decline has accelerated recently.

Important figures on the decommissioning of the Ignalina Nuclear power complex. Decommissioning costs alone are reaching the staggering number of 0.86 €/W. Can such figure be extrapolated to the power plants in the west of Europe?
The Baltic Course
Lithuania to need another EUR 900 mln for Ignalina NPP closure

Another 900 million euros will be required starting in 2020 for the dismantling work at Lithuania's Ignalina Nuclear Power Plant (INPP), which is carrying multi-million-euro decommissioning projects, an INPP official has said, cites LETA/BNS.

[...] Kamienas said that 941 million euros had been used for the INPP closure by the start of 2016, with another 745 million euros in EU and national budget funds planned to be used by 2020.

The Ignalina plant, which was the first in the world to close Soviet-built RBMK-type reactors that are considered unsafe by the West, is to be fully decommissioned by 2038. Started in 2004, the closure process is estimated to cost 2.593 billion euros in total.
Another dive into wave power technology. This is a very good, if short, reportage that clearly shows how infant this technology still is. But the power resource in the oceans is so vast that research initiatives like this one are certain to continue.

Ending with a musical suggestion. While I tend to highlight heavy music in this space, in fact I listen to a relatively broad range of genres. Here is a more light and popular artist I have been listening to recently.

Have a good weekend.

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