Monday, June 20, 2016

Updates

Later, 6:59 a.m. Central Time: The Bismarck Tribune is reporting that four people were injured in an explosion on a well pad where maintenance was being performed. The explosion occurred Saturday morning on a site operated by XTO Energy near Watford City. 

Original Post

 

Wow, Sunday was an incredibly busy day -- and it looks like today is going to be similarly busy. Dow futures are up 216 points, 6:56 a.m. Central Time.

Seeking Alpha contributor reports that China and OPEC dumped $200 billion in US stocks earlier this year -- wow, talk about bad timing. 

Where does one begin?

• Cavaliers win. 😊
• Dustin Johnson wins.  😊
• Los Angeles Times headline: California lawmakers unplug the state's electric car program.
• Record-setting electricity demand in the Southland over the weekend? Today? 
• A really, really nice Father's Day. 😊
• I bought some silver at the Grapevine Coin Show. 😊
• A very successful fish grill last night. 😊
• Both daughters and all three granddaughters doing well. 😊
• Oldest granddaughter certified in scuba diving. She has already mapped out her scuba diving program through the ultimate: an Arctic dive. Her dad, paraphrasing Owen Wilson in Midnight In Paris, "dial it back." 😂
• Reported everywhere: the historic drop in Bakken production. 

I may get back to some of those stories, and hopefully post some photographs, but it's all history. Time to move on.

We start the day with the possibility of a huge day on Wall Street. My hunch: the Dow may or may not open with a surge of 200+ points but by the end of the day, profit taking, cooler heads, and reality will set in; if not today, by the end of the week.

The reason for the giddiness: polls suggest that Britain will not leave the EU.

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Tesla Euphoria

We also start the day with this Wood Mackenzie analysis as reported int he WSJ: electric vehicles could slice gasoline consumption as much as 20% in two decades. It looks like MuskMelon wrote the report or did the study:

Electric cars are poised to reduce U.S. gasoline demand by 5% over the next two decades—and could cut it by as much as 20%—according to a new report being released Monday by energy consulting firm Wood Mackenzie.

The U.S., which currently uses more than nine million barrels of gasoline a day, could see that demand drop by as much as two million barrels a day if electric cars gain more than 35% market share by 2035.

That aggressive case assumes Tesla Motors Inc. and other auto makers begin to deliver lower-cost electric vehicles that can travel longer distances in relatively short order.

A more likely scenario is a 5% drop in U.S. gasoline demand as electric cars build to more than 10% of the U.S. vehicle fleet by 2035, he said.

I don't buy it but I haven't read the report and the Wood Mackenzie folks are a whole lot smarter than I. But if I read the report I would concentrate on: a) outlook of America's surging prosperity in 2035; b) India; c) the author's views on battery technology; and, d) the increase in total number of miles that will be driven worldwide.

I didn't post it but a SeekingAlpha story says Tesla has "hit a wall." Demand has flattened.

It really doesn't matter, regardless. The electricity will have to come from somewhere, and that somewhere will be coal or natural gas. See next story.

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Warren Buffett Continues To Add Shares Of PSX

Warren Buffett must have read the Wood Mackenzie report on electric vehicles (previous story). 24/7 Wall Street  is reporting that Buffett continues to buy huge amounts of shares in Phillips 66. He now owns 10% of the outstanding shares. PSX sells around $78, down from its 52-wekk high of $94.

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California Cuts Back On EV Program

Speaking of EVs, a Los Angeles Times headline over the weekend:  Los Angeles Times headline: California lawmakers unplug the state's electric car program.  Posted at the top.

A few months ago, Gabriel Lua purchased a 2013 Chevy Volt to replace his 1987 Honda Civic, which had been giving him exhaust headaches and made him worry about the health of his children, ages 3 and 5.

Even though the old Civic had failed the state's smog test three times and was costing him hundreds of dollars a month in maintenance, Lua said he couldn’t afford to replace it until he learned about a state incentive that helps low-income residents in California’s most polluted communities replace their dirty cars. The state covered more than half the new car’s price tag.

Lua’s experience is exactly what Gov. Jerry Brown and lawmakers were aiming to achieve when they decided to spend money from the state’s greenhouse gas reduction fund on subsidizing the purchase of low- and zero-emission vehicles.

But now they’re cutting off the cash, the result of a political impasse and questions over the future of the state’s climate change programs. Without the funds, California could have a harder time meeting its ambitious goals for getting cleaner vehicles on the roads and protecting public health in smog-ridden areas of the state.

The state’s largest clean-car program and additional subsidies designed for low-income residents in the San Joaquin Valley and Los Angeles have so far put 150,000 low- and zero-emission vehicles on the road in the last seven years, with demand ramping up to thousands of cars per month recently.

I think that's a fascinating story on so many levels. The California budget is in great shape; to cut this "green energy" program now hardly makes sense on the surface. Politically, it really boggles the mind.

But think about that in bold. The program allowed folks to buy brand new cars at a 50% discount. And we're not talking about low-end cars; we're talking about expensive EVs. The car dealers must have pushed this plan through California's state government. Think what this could do to auto sales in the California if the program is immediately eliminated.

But I guess at some point, even in California, at least for some programs, one runs out of "other people's money."

I think the story is fascinating. I sort of lost interest in the linked article when it got into a bit of hyperbole, so I don't know recall how the article ended. 

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Back To The Bakken

Active rigs:

	6/20/2016	06/20/2015	06/20/2014	06/20/2013	06/20/2012
Active Rigs	28	77	189	187	211

RBN Energy: the coming oversupply of Jones Act tankers and ATBs.

A big build-out of Jones Act product tankers and large ocean-going barges is well under way, just as the future demand for these vessels is coming into question. Within the next 18 months, a total of 17 Jones Act product tankers and large ocean-going articulated tug barges (ATBs) with a combined capacity of more than 4.5 million barrels (MMbbl) will be delivered, boosting the total fleet capacity of these types of vessels by 20%.

These new-vessel orders were made a few years ago in response to increased shipments of crude oil within the U.S. that, at the time, had resulted in a shortage of Jones Act product tankers and large ATBs. This in turn led to higher charter rates and the resulting increased costs of shipping crude oil and petroleum products in the coastwise trade. Now though, the decline in U.S. crude oil production has upended expectations.

Today, we begin a series on the impact of hydrocarbon market changes on the Jones Act fleet.

Section 27 of the Merchant Marine Act, 1920, commonly referred to as “the Jones Act” is a 96-year-old federal statute that requires that all merchandise transported by water between U.S. ports be carried in U.S.-flagged vessels that are constructed in the United States, owned by U.S. citizens, and crewed by U.S. citizens and/or U.S. permanent residents.

The RBN blogosphere has provided considerable coverage of the role that Jones Act vessels have played in the U.S. crude oil and petroleum products distribution system over the past few years since shale production increased domestic output.

Some great graphics at the linked article.

The capacity of new Jones Act tankers delivered (or to be delivered) in the 2012-17 period totals 6.400 MMbbl, an amount equal to 68% of the Jones Act product tanker fleet’s capacity as of January 2012. The capacity of large ATBs added to the fleet in 2012-17 equals 37% of the fleet’s capacity in January 2012, and the combined capacity of product tankers and large ATBs to be added in the same period equals 54% of the total fleet’s capacity four and a half years ago. That is some serious growth in the Jones Act product tanker and large ATB fleet.

How will the market handle the delivery of all these new Jones Act product tankers and seven large ATBs? We’ll consider that in the next edition of this blog series.

Which, by the way, brings me to this story in The Wall Street Journal, something that RBN Energy has been talking about for over a year: the newly expanded Panama Canal opens this week, June 26.

The nine-year, $5.4 billion expansion more than doubles the canal’s cargo capacity. A third lane has been added to the canal that accommodates ships large enough to carry up to 14,000 containers, compared with around 5,000 currently. This alleviates a cargo bottleneck caused by the smaller ships that was due to get worse over time.

The expansion makes the Panama Canal more competitive with the Suez Canal in Egypt, shortening the one-way journey by sea from Asia to the U.S. East Coast by roughly five days and eliminating the need for a trip around Cape Horn to get to the Atlantic.

It is expected to shift about 10% of the Asia-to-U.S. container traffic from West Coast ports to East Coast terminals by 2020. So far, 136 ships that wouldn’t have fit through the pre-expansion canal have made reservations to follow.