Monday, September 5, 2016

US Utility Buys Mexico's Largest Wind Farm; Lots Happening In Energy -- September 5, 2016

Note: as of January 31, 2016, these were the figures for the cost of new energy plants in the US:
  • Off-shore wind: $7.5 million /MW (intermittent; requires fossil fuel back-up)
  • Solar: $3 million / MW (intermittent; requires fossil fuel back-up)
  • On-Shore Wind: $2.5 million / MW (intermittent; requires fossil fuel back-up)
  • Natural gas: $865,000 / MW

Original Post
($375 million cash + $477 million debt) / 252 MW = $3.4 million / MW.

Lots and lot of interesting things happening in wind. I posted several links earlier with regard to North Dakota. What is happening in North Dakota can be generalized globally. Proof?

Example: Sempra's Mexican unit acquires Mexico's biggest wind farm.
Infraestructura Energetica Nova SA agreed to buy the Ventika wind energy complex in northern Mexico from units of Blackstone Group LP for $375 million, the second large-scale acquisition this year by the country’s only publicly traded energy company.
Ienova, as Sempra Energy’s Mexico unit is known, will acquire 100 percent of the Ventika I and II wind parks in Nuevo Leon state from Blackstone Energy Partners, Blackstone’s Fisterra Energy unit and minority partners.
Ienova will also assume $477 million of long-term financing obtained by Ventika, the country’s biggest wind complex with an installed capacity to generate 252 megawatts from 84 turbines.
That's wind.

At the same link more about Sempra:
The Ventika purchase follows Ienova’s $1.12 billion acquisition of Petroleos Mexicanos’s 50 percent stake in pipeline company Gasoductos de Chihuahua, which is expected to close this quarter.
In June, Ienova and TransCanada Corp. won rights to develop a $2.2 billion underwater pipeline to connects south Texas with Mexico’s Tuxpan port in the Gulf of Mexico. Sempra announced in July that the company will scale back its share buyback plans and use the additional cash to help finance the marine natural gas pipeline. Sempra plans to spend more than $3 billion in Latin America through 2020, according to a July company presentation.
Maybe it's just me, and maybe I'm biased, but it sure seems like a lot is happening in energy these days.

Saudi Arabia: Oh-Oh

I've been saying for quite some time that we should see a spike in the price of oil in 2018 based on all the CAPEX that was deferred or canceled.

Not so fast.

Reuters is reporting:
Never mind the drop in crude prices, huge spending cuts and thousands of job losses - the world's top oil and gas companies are set to produce more than ever for some time.
While top oil companies struggle with slumping revenues following a more than halving of prices since mid-2014 after years of spectacular growth, their production has persistently grown as projects sanctioned earlier in the decade come on line.

Overall production at the world's seven biggest oil and gas companies is set to rise by around 9 percent between 2015 and 2018.

With an expected recovery in prices, the increased production should boost cash flow and secure generous dividend payouts, which had forced companies to double borrowing throughout the downturn.

And despite a drop in new project approvals, companies have throughout the downturn cleared a number of mammoth undertakings such as Statoil's Johan Sverdrop oilfield off Norway and Eni's Zohr gas development off the Egyptian coast. 
Much more at the link.

Saudi could be looking at a bleak, bleak future.

Another View

Consider the source.
Oil prices have continued to languish below $50 per barrel as a glut of crude oil and gasoline persist even as global demand continues to rise.
The IEA still predicts that oil consumption will expand by another 1.4 million barrels per day in 2016, while production stagnates. That dynamic suggests that the market is converging towards some sort of balance, although the speed with which that takes place is hotly debated.
Several oil analysts believe that the near record low for spare production capacity around the world actually suggests that the oil market is a lot tighter than it seems at first glance.
Most of the world’s spare capacity is located in Saudi Arabia, the one country that has the ability to substantially ramp up or down output over the course of a few weeks.
But Saudi Arabia, in a battle for market share, ratcheted up production to a record high this summer, exceeding 10.6 million barrels per day, which dumped more supply on the market but left it with less spare capacity.
OPEC as a whole has pushed output to a record high. The IEA and the EIA both estimate that OPEC’s spare capacity has dipped to just 1.4 million barrels per day, about half of what it was a few years ago and extraordinarily low by historical standards. The last time spare capacity was this low, it was between 2004 and 2008, a period of time that saw a dramatic run up in oil prices.
But this has become a meme: 
But Saudi Arabia, in a battle for market share, ratcheted up production to a record high this summer, exceeding 10.6 million barrels per day, which dumped more supply on the market but left it with less spare capacity.
In fact:
  • at 10.6 million, this may be a record, but not my much
  • Saudi production always increases during the summer for domestic consumption
Big picture:
  • Saudi Arabia spare capacity: 1 - 2 million bopd 
  • US on-shore shale spare capacity: 1 -2 million bopd  
I'm not sure where I stand on this. I still maintain:
  • WTI pricing will be very volatile through 1Q17
  • pricing in 2Q16 will telegraph where prices are headed
  • price spike in 2018 
The price spike in 2018 will be do for non-fundamental reasons, if that makes sense. 

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