Wednesday, December 30, 2015

Wednesday Morning Links -- December 30, 2015

Not even OPEC can fix oil glut, The Wall Street Journal. A nice little story with a nice graphic. Some data points from the article:
  • Producers in Russia, Brazil and Norway pumped more oil in 2015 than the closely watched forecasters International Energy Agency and Energy Information Administration had projected. Meanwhile, oil-field investments made years ago when prices were higher are set to begin producing, even as exploration-and-drilling projects scheduled to bear fruit in the coming decades are being delayed or canceled outright.
  • Global oil production increased by 2.28 million barrels a day, or 2.4%, in 2015. OPEC and the U.S. account for most of the growth, but the rest has come from Brazil, China, Canada, Russia and elsewhere. The EIA expects global output to grow by 250,000 barrels a day, or 0.3%, in 2016.
  • "The idea that OPEC and the other large oil producers like Russia would reduce output at these lower prices is misguided,” said John Brynjolfsson, chief investment officer of Armored Wolf, which manages money as part of a family office. “For a couple of years to come, output will exceed demand.”
  • Some money managers disagree. Bullish investors believe that non-OPEC supply could fall sharply in 2016, spurring a rebound in prices by year-end. Large producers faced pressure to cut spending even before oil prices plunged, and the pace of spending cuts accelerated in 2015. Producers delayed or canceled about 13 million barrels a day worth of oil output in the past five years, equal to about 14% of current global production, including 5 million barrels a day that would have been produced by 2020 deferred due to low prices, according to energy-focused investment bank Tudor, Pickering, Holt & Co.
  • “Demand is growing and supply is reducing,” said Tim Guinness, chief investment officer of Guinness Atkinson Asset Management Inc., which manages $300 million in energy-equity investments. Mr. Guinness said he expects to see Brent oil prices at $75 a barrel by the end of 2016. “The world was out of balance. It’s now coming back into balance.”
  • U.S. production fell from 9.6 million barrels a day in April 2015, a 43-year peak, to 9.2 million barrels a day in November, according to EIA estimates. The decline has been slower than many expected at the beginning of the year. The EIA predicts U.S. output will fall to 8.5 million barrels a day in September 2016 before increasing again.
Much, much more at the linked story.

Stating The Obvious

The Fiscal Times has another story on the failure of ObamaCare: Millie Dent says ObamaCare hasn't made health care affordable, according to another study. Some data points:
  • The study found that the median single enrollee earning between $35,310 and $47,080, or a family of four earning between $72,750 and $97,000, will spend almost 15 percent of their income next year on Obamacare insurance premiums and out-of-pocket costs in 2016, even with federal government subsidies. The percentages increase for those with worsening health and those over age 45. 
  • And 10 percent of people in the income range the Urban Institute researchers looked at, between 200 percent and 500 percent of the federal poverty level, will spend more than 21 percent of their income on health care costs.
  • The health care law created penalties for not signing up, and those fees rose this year and will climb again next year. But once the penalties flatten, if the cost of health care continues growing, more people will face financial pressure to drop out of the exchange, Buetggens says: “It’s going to be a gradual decrease in enrollment, but it’s definitely real.”
What amazes me are all the articles talking about financial headwinds for US consumers and ObamaCare is never mentioned.  But 15% of American's income will be spent on ObamaCare. Another 15% on federal income taxes, and probably another 10% on state, local (property), and sales taxes. The good news: a family of four with two cars, with annual mileage of 12,000 miles on each, at 25 mpg, gasoline at $2.00 / gallon works out to about $36/week -- the price of one meal at McDonalds for the family of four.

Into The Big Leagues

I'm probably wrong on this, but it's my impression that the Lundberg Survey rose to prominence during the OPEC embargo. Dan Lundberg founded the survey in 1950 but I don't think it became a household word until the 1970's and 1980's with the OPEC embargoes and other geopolitical events affecting the price of gasoline.

I think we are seeing the same thing with RBN Energy. I think RBN Energy started out as a free
digital newsletter back in 2011 or thereabouts. It has since become a leader in in-depth analysis of the American oil and gas industry. I'm starting to see RBN Energy quoted in more and more news stories about the oil and gas industry.

Here is just one example of many: in a Rigzone story today, RBN Energy LLC analyst Sandy Fielden was quoted from a December 27, 2015, report.

Chinese Energy Growth Forecast For 2016

Some argue that the slump in oil prices in 2015 had less to do with an increased supply of oil and more to do with the unexpected slowdown in demand for oil in China. If so, this might be good news for the oil and gas industry. China expects its energy consumption to grow in 2016. Some data points from the Reuters/Rigzone article:
  • China's apparent demand for crude oil will reach 550 million tonnes (11 million barrels per day) and apparent demand for natural gas will hit 205 billion cubic metres, Nur Bekri, head of the National Energy Administration (NEA), said, according to Xinhua.
  • Electricity consumption will rise to 5.7 trillion kilowatt-hours and coal consumption will be 3.96 billion tonnes.
  • Crude oil production is expected to rise to 220 million tonnes (4.4 million bpd), even as global prices near 11-year lows. Natural gas production, including shale gas and coal-bed methane, is expected to rise to 140 bcm, he said.
  • crude oil demand at 11 million bopd vs domestic production of 4.4 million bopd leaves a delta of about 7 million bopd
  • natural gas demand at 205 billion cubic meters vs domestic production of 140 bcm leaves a delta of about 65 bcm
I can't get my hands around "65 bcm of natural gas," so I turned to Iowa State University to provide me the conversion factor:
  • 1 billion cubic meters NG = 6.29 million barrels of oil equivalent
So, 65 x 6.29 = 408 million boe / 365 or another 1.1 million boepd delta.

So, I assume, we're looking at about 8 million boepd Chinese import demand.

For 2015:
  • China imported 330 million tonnes (6.6 million bpd) of oil and 60 bcm of natural gas. Installed energy capacity will have reached 1.47 billion kilowatts, up 7.5 percent.
  • By the way, the Chinese China will stop approving coal mining projects for three years starting in March, and aims to close more than 1,000 mines that have "lagged behind." 
  • coal consumption for 2015: 3.96 billion tonnes (tonnes with "es" on the end)
  • as a percentage of energy contribution, coal will fall to 62.2% (in 2016) from 64.4% (in 2015)
Intermittent energy will make up 13.2 percent of primary energy needs in 2016, up from 12 percent in 2015, according to the linked article. 

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