Business As Usual -- Solar Raises More Financing Through "Tax Equity Financing" -- July 18, 2016

Locator: 10165SRE.

Active rigs:

	7/18/2016	07/18/2015	07/18/2014	07/18/2013	07/18/2012
Active Rigs	30	73	196	189	208

RBN Energy: Caribbean crude storage market.  Think:

• Venezuela storage: requirement for light oil
• China: shore up future crude oil requirements
• US hedge funds: easy profits

From the article:

With crude storage tanks along the U.S Gulf Coast nearly full, the nine storage terminals currently operational in the Caribbean offer an advantageous close-by alternative. Right now these terminals are heavily used by Venezuela for oil blending and distribution, but there has been growing interest and investment from outside the region. China is now neck and neck with the U.S. as the world’s largest crude importer and is making a significant strategic investment in Caribbean storage to cement crude supply deals with Latin American producers.

Private equity fund ArcLight Capital and trader Freepoint Commodities together purchased a huge terminal and shuttered refinery in the U.S. Virgin Islands in January of this year (2016) and have leased most of the working storage to Chinese-owned Sinopec. Today, we examine the growing role of Caribbean crude terminals. (This blog is based on Morningstar’s recently published Caribbean Crude Storage Outlook, which provides a comprehensive analysis of this evolving market.)

Crude oil prices have dropped by about 50% since June 2014 to around $45/barrel in the face of a global supply surplus. Falling prices led to a contango market structure, which encourages crude storage because prices for future delivery are higher than today’s price.

As a result of the contango market and other supply/demand dynamics, crude inventory levels in the U.S. and overseas have risen to record levels in the past six months.

Although total U.S. commercial oil inventories have retreated by about 3% from their late April 2016 record high of 544 million barrels, they are still 33% above their five-year average for this time of year.

Crude inventory levels in the Gulf Coast region also reached record levels (286 MMbbl) this April and are still 39% above the five-year average. To accommodate increased demand for storage capacity, the Energy Information Administration reports that Gulf Coast storage capacity increased by 13 million bbls between September 2015 and May 2016.

More new-build storage capacity is on the way – including an 11-MMbbl salt-dome underground storage facility in Houston being developed by Fairway Energy Partners.

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$50 Oil For The Rest of 2016

That's what the industry is reporting. I think we will be closer to $45 than $50 through the rest of the year. This is a challenging environment for the US oil and gas industry but this is absolutely horrendous for Saudi Arabia. Outrageously, early on, there were some reports that Saudi was looking forward to $80 oil by the end of the year, but it quickly became clear that the kingdom would be lucky to see $60 oil by the end of the year, and re-set their spending plans accordingly. Fifty dollars is half of what they need ($100) and if the price of oil trades nearer $45 than $50 the rest of the year, things do not bode well for the Mideast.

Today, despite a failed coup attempt in Turkey over the weekend, oil is actually falling in price -- probably due to a) strength of the dollar following the failed coup; and, b) continued glut.

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Canada's Oil Heartland: Worst Recession on Record

From Bloomberg/Rigzone:

Alberta, the home of Canada's oil sands, is going through its worst downturn in activity on record as a prolonged period of low oil prices and the wildfires earlier this year buffet the provincial economy.

According to Toronto-Dominion Bank's economics team, the cumulative annual percentage contraction in real output projected for 2015 to 2016 exceeds even the financial crisis, as well as the last supply-side driven crash in oil prices in the mid-1980s, in magnitude.

While the recent episode seems poised to be the worst single recession on record, the two recessions in the 1980s mean that stretch "is still likely to be regarded as the most challeng­ing period in the post-war period in Alberta," says a TD team led by Deputy Chief Economist Derek Burelton.

However, TD's team notes that labor market indicators point to a more mild downturn.

"Periods of boom followed by bust are no strangers to an econ­omy that is tied to the vagaries of the global oil market," write the economists. "The current recession is expected to yield a cumulative annual decline in real GDP of around 6.5 percent, which is more than twice that of the average of past downturns."

While economic activity appeared to be picking up earlier this year, the wildfires that wreaked havoc in the region and disrupted oil operations threw a wrench in the province's nascent comeback story. The economists note that the softness in the Canadian dollar and low interest rates helped Alberta's economy escape an even worse fate.

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Sempra Gains OK To Increase LNG Exports Non-Free Trade Agreement Countries

The State of California may be "turning on "Sempra" by a) denying a short connector pipeline request; and, b) denying a modest rate increase, but Sempra presses on. From Seeking Alpha:

• Sempra Energy says the Cameron liquefied natural gas project in Louisiana has won approval from the U.S. Department of Energy to increase its export capacity to non-free trade agreement countries.
• The authorization to export an additional 1.41B cf/day of natural gas will bring Cameron LNG's export capacity to 3.53B cf/day, or 24.92M tons/year.
• SRE says construction on the first phase of the $10B Cameron LNG project is underway; the facility is expected to commence operations during 2018, with the first full year of operations in 2019.
• The Cameron LNG venture is owned by SRE, Engie, Mitsui and a Japanese joint venture, and comprises the Cameron LNG liquefied natural gas receipt terminal in Hackberry, LA, and the construction and operation of the liquefaction export facilities.

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Stayin' Alive

By raising more cash through "tax equity investing" (something the rich folks do), SolarCity Corp is stayin' alive. From Reuters:

SolarCity Corp (SCTY.O), which received a takeover bid from Elon Musk's Tesla Motors in June, said it has raised $345 million in tax equity and also increased its debt facility by $110 million to $760 million.

At US PREF we get a talking paper on "tax equity investing." It begins:

Federal clean energy policies have made tax equity a critical component in the private - sector financing of clean energy projects.

This is because federal tax credits and other tax benefits are among the government’s main incentives to help drive the adoption of domestic clean energy technologies.

Examples of such tax benefits include the 30% investment tax credit (available for solar through 2016 and for wind through 2012); the 2.2 cent production tax credit (available through 2012 for wind projects that do not elect the ITC); and accelerated depreciation (including bonus depreciation) that can be used to offset taxable income from other sources.

The paper does not appear to be updated to reflect any (?) extensions of the tax credits.

An increase in "tax credit investing" in 2016 was predicted:

The U.S. wind and solar markets in 2015 saw $11.5 billion in new tax equity deals, up from $10.1 billion in 2014, John Eber, managing director, head of energy investments for J.P.Morgan, said on January 13, 2016.

“2014 was a huge year, so any increase in 2015 over 2014 is significant,” according to one analyst. “Those are sizeable numbers for the tax equity marketplace from a historical perspective.”

Of the $11.5 billion, $6.4 billion was secured in the wind marketplace for 40 projects totaling 5,700 MW of capacity. The total for the wind marketplace was the same as in 2014. Three leading sponsors in the wind tax equity marketplace completed deals totaling about $1 billion each, accounting for 47 percent of tax equity raised in the year.

In the residential solar tax equity marketplace, about $2.6 billion was raised by three leading residential solar companies, accounting for 90 percent of the residential market. That total was up from $1.9 billion in 2014.

The tax equity market will be active in 2016.

“Looking at extensions, the full value of the [wind production tax credit] will be available for start of construction through 2016, so clients and investors will take advantage of the full value time period,” he said. “[The investment tax credit] for solar will be longer, so the solar market will be business as usual.”

Business as usual. 'Nuf said.

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Stayin' Alive Part II

 Updates

Later, 8:48 p.m. Central Time: one wonders if the federal government had mandated its own government fleets and especially the quasi-governmental agency, the US Postal Service, fleets to be 100% electric, how much better this would have been for the environment than putting 98% of the onus on the private sector. Every time I see one of those gas-guzzling (diesel?) blue-and-white postal trucks driving down the street, I wonder why they aren't EVs running on coal?

Original Post

USA Today reports that is unlikely that the US government will relax CAFE standards even though Americans are making personal choice to purchase larger gas-guzzling vehicles.

US auto manufacturers, if they get no relief, are likely to be forced to buy "credits" from battery manufacturers. If MuskMelon can hold on long enough, he looks forward to huge payday in 2022.