Monday, July 28, 2014

XOM Flirts With New High Despite Sanctions On Russia; AAPL Comes Close To Hitting The Century Mark (Again); War On Coal Claims Another Victim, "Update" On the "Sleeping Giant" -- July 28, 2014

For Geo-Political Wonks And Investors Only

With regard to the market today, I think the most interesting story today was XOM up over a percent/over a dollar; almost hit a new high.

The other majors were down and price of crude oil was flat to down.

XOM has the most to lose with Russian sanctions, as far as I know, based on close relationship between XOM and Russian operators (in Russia). XOM has said it won't back away from its contracts/commitments to Russia (at least to the best of my knowledge).

So, XOM's price action becomes a big story on at least three levels:
  •  XOM says "no" to Obama; "yes" to Putin (not directly, of course) 
  • or XOM says "no" to Obama; "yes to its investors
  • investors think XOM is making the right financial decision; this tells us what investors think about the sanctions 
By the way, that second bullet is not trivial: XOM is an international company that just happens to have its roots and headquarters in the US. As a publicly traded company it has a fiduciary responsibility to its owners, the shareholders.

The question is this: what is this telling us that XOM says it won't back away from its commitments, and investors think XOM is doing the right thing?

[Obviously, there may be "real" / actionable reasons for XOM to have risen today, completely unrelated to geopolitical events, which is very likely, but for discussion's sake, let's assume there was no other news to explain the 1.15% jump.]

I think this tells us that:
  • investors know that sanctions may be very, very, very painful, but at the end of the day, the "only" energy in Eurasia is Russian (Libya, by the way, supplying much oil to Italy, France continues to implode) 
  • (OPEC services the world, and my hunch is that Russia plays a more dominant energy role in Europe than OPEC) 
  •  if sanctions are really, really tough on Russia, Putin holds the trump card: energy -- let Europe go three days without natural gas this winter and the point will be made 
  • Russia probably needs to pump more oil/natural gas to make up for loss revenue elsewhere, 
  • Russia needs US expertise (XOM) to pump more oil/natural gas
And then this, the real reason investors bid XOM up today:
  • they know Russia will be around for another 100 years
  • they know Putin will be around for another dozen years, plus/minus a few
  • they know President Obama has ... drum roll ... 906 days left in office, most of which will be spent golfing, or on vacation, or defending himself in court
For Investors Only

Wow, AAPL was less than 80 cents from $100/share today

The market managed to eke out a winning day.

Some of the Bakken operators are getting "cheap" enough:
  • for small mom-and-pop investors to start accumulating again,
  • or large hedge funds or Warren-Buffett-like investors to start buying en bloc
Disclaimer: this is not an investment site. Do not make any investment decisions based on anything you read here or anything you think you may have read here.  

Navajo Nation Loses Another War To The White Man


November 4, 2019: This (the original post) was a pretty good post, back in July, 2014 -- background on the Navajo coal plant in Arizona.

This is nothing new, this story by the AP, November 2, 2014. It appears there are two arguments with regard to this issue:
  • global warming
  • water
Closing this plant will have no effect whatsoever on global warming. Period. Dot. But that's what sold the decision some years ago.

Water. Not mentioned in the article except as part of history and hydroelectricity. My hunch: water was the bigger story, but closing the coal plant was sold on global warming.

Only one national political figure was mentioned in this article, President Trump, and he had nothing to do with this story, except that he is on record as supporting the coal industry.

March 24, 2016: for some reason we are starting to see a lot of stories on the Navajo power plants due to be closed by the EPA. Here is the latest, from Forbes:
Unlike prior regulatory efforts to improve air quality by reducing toxic emissions, the EPA’s Clean Power Plan (CPP) aims to cut non-toxic carbon dioxide emissions by about a third. The stated reason is to slow the increase of the Earth’s temperature by 0.018 degrees Celsius by 2100.
One place where the EPA’s 1,500-page regulatory diktat will hit particularly hard is the Navajo Nation, at 27,000 square miles, an area larger than West Virginia in northeast Arizona and adjoining slices of Utah and New Mexico. Home to 174,000 people, many of them without electricity, running water or steady work, the Navajo Nation is also host to two large coal-fired power plants and the two coal mines that feed them. These energy sector activities provide well-paying jobs as well as more than half of the Navajo Nation’s governmental income.
Even before the threat from the Clean Power Plan, the Navajo power plants have been under sustained environmental pressure. The larger of the two, the Navajo Generating Station, installed more than $700 million of air quality equipment in the past 20 years to improve winter visibility over the Grand Canyon to levels not seen since the onset of mankind’s influence over the environment, as if we actually know what visibility was over the Grand Canyon 300 years ago.
Regulators want another $1.1 billion in additional air quality upgrades with very tenuous cost-benefit ratios at best. The other power plant was recently forced to prematurely shut down 3 of 5 boilers, making the nearby coal mine operations less profitable and forcing the Navajo Nation to buy out the mine from BHP Billiton to keep the mine—and the power plant—open and preserve the jobs.
The bigger issue environmentalists have with the Navajo Generation Station is that it is responsible for pumping Colorado River water uphill from Arizona’s border with California—water that sustains 5 million people and lucrative farms in the desert. For primeval idealists, this is a mortal sin against the gods of sustainability made worse by the fact that affordable and reliable coal energy makes it all possible.
Should the EPA and environmentalists get their way and power output from the Navajo Generation Station is cut back, they propose replacing the lost power with wind. This challenge is two-fold: one, the best spot for wind turbines on the Navajo Nation overlaps an important eagle migratory path; and two, wind is notoriously erratic, making wind power uniquely unsuited to power the Central Arizona Project’s massive water works.
Four words: the eagles will lose. They don't vote.

Original Post
Ah, yes, the war on coal claims another victim -- this time the Navajo Nation. The AP is reporting:
The largest coal-fired power plant in the West will produce one-third less energy by 2020 and is on track to cease operations in 2044 under a proposal that the federal government adopted to cut haze-causing emissions of nitrogen oxide at places like the Grand Canyon.
The U.S. Environmental Protection Agency announced Monday that the owners of the Navajo Generating Station could either shut down one of the plant's 750-megawatt units or reduce power generation by an equal amount by 2020.
The owners would have until 2030 to install pollution controls that would cut nitrogen-oxide emissions by 80 percent.
EPA regional administrator Jared Blumenfeld in San Francisco said a final decision didn't come easily and required flexibility. Along with meeting energy demands in the West, the 2,250-megawatt plant powers a series of canals that deliver water to Phoenix and Tucson, fuels the economies of the Navajo and Hopi Tribes, and helps fulfill American Indian water-rights settlements with the federal government.
"This" decisions sounds wrong on so many levels, but it is what it is. 
Reducing power generation by one-third should come easily because the Los Angeles Department of Water and Power and NV Energy have announced their intention to cut ties with the coal plant by 2019. Together, they own almost one-third of the plant near Page, run by the Salt River Project, one of Arizona's largest utility companies. None of the other owners would lose any power generation as a result.
The final rule means the Navajo Nation ultimately will see less revenue from coal that feeds the power plant. But the executive director of the tribe's Environmental Protection Agency, Stephen Etsitty, said it provides a better chance of the power plant continuing operations.
Well, there's always more casino operations, and a light rail operation to the bottom of the Grand Canyon to generate income for the Navajo Nation.

My hunch is that by 2044, California will either be going back to nuclear energy (much, much more expensive to start from scratch) or will return to coal. Regardless, by 2044, I probably won't be much more than a spectator.

Meanwhile, Tucson and Phoenix better start planning for much more expensive water AND electricity.

This is a bit of background with regard to Los Angeles severing ties with coal. Unfortunately, it does not say what will replace coal (note: nuclear plants are also closing). Wind and solar are vastly inadequate (and for every 1 mW of "new" wind/solar in place, it requires another 0.5 mW of fossil fuel (or nuclear fuel) as back up. Obviously nuclear fuel is not in the cards as things stand now, so that means only one thing: natural gas. Unless California plans on burning the sequoia trees for energy. So, -- disclaimer -- this is not an investment site -- don't make any investment decisions based on what you read here or what you think you may have read here -- but it seems investors might want to follow the natural gas industry just a bit more closely with this news. 

According to wiki:
Navajo Generating Station is a 2250-megawatt-coal-fired powerplant located on the Navajo Indian Reservation, near Page, Arizona, United States. This plant provides electrical power to customers in Arizona, Nevada, and California. It also provides the power for pumping Colorado River water for the Central Arizona Project, supplying about 1.5 million acre feet (1.85 km3) of water annually to central and southern Arizona. As of 2013 permission to operate as a conventional coal-fired plant is anticipated until December 22, 2044.
My hunch is that water and energy will be the big, big stories in the latter half of the 21st century. 

If you have time, look at the list of the coal-fired power plants in the world, over at wiki. It is interactive, and you can re-sort the list to place the plants in order of decreasing size. Unless I counted wrong (which is possible), there are 197 coal plants worldwide listed. 197.

115 of them (again, I may have miscounted by one or two) are in China (not counting Taiwan).

115 in China. Of the 197 worldwide.

The US has 17.

One has to scroll through 51 coal-fired power plants before one finally gets to a coal-fired plant in the US, based on size: Plant Bowen in Georgia.

China continues to build coal-powered power plants faster than I can count, so closing the Navajo Generating Station will do nothing for CO2 emissions worldwide, assuming CO2 can freely cross international borders, but it will make some folks feel better. But, again, the plant will be closed due to the haze it causes near the Grand Canyon, not to lower global CO2 emissions.


Seriously: once one gets past all the politics, and deals with the realities, cities like Tucson and Phoenix, need to start thinking about how their water needs and energy needs as resources become tighter and tighter. Trying to replace coal with solar/wind does not add up, and nuclear being out of favor, only one thing is left: natural gas.


Speaking of natural gas, Strata-X has discovered natural gas in southeastern North Dakota, outside the "limits of the Bakken." This has previously been reported; it is not particularly new news, and much more needs to be done to determine if the source is economical. I would not have posted this because it's been posted before, from a different source, but if I don't post it, I will receive a gazillion comments and e-mails linking me to this site. Regardless, it has a nice map/graphic.


By the way, back to the Navajo Generation Station. Presidents come and go. Energy is going to get tighter and tighter. My hunch is that the next EPA administrator -- or the next one after her -- or the next one -- will end up granting a waiver to extend the deadline.  Although it's very possible, the Navajo Nation will look at converting part of that plant to burn natural gas.

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