"We Will Ban Fracking" -- Hillary Clinton -- March 15, 2016

A picture worth a thousand words.

Link: EIA.

Retail Sales Decline Month-Over-Month; January's Retail Sales Revised Downward, But Overall Things Are Great -- Bloomberg -- March 16, 2016

Updates

March 18, 2016: reflecting on the retail sales report posted below, it was interesting to look at the Bloomberg chart when the pathetic January retail sales came out. That's a pretty dismal graph.  
 

Original Post

 

This must have been a gut-check for the Bloomberg editors. One of the mouthpieces for the Obama administration had no way of spinning this story. Not only did retail sales drop month-over-month, but retail sales in the previous month (January) were revised downward. And February, this year, had an extra shopping day -- that extra shopping day was one reason analysts said car sales were so good in February.

From BloombergBusiness:

U.S. retail sales dropped in February and the prior month’s gain was revised to a decline, calling into question the narrative that bigger gains in consumer spending would propel economic growth at the start of 2016.

The 0.1 percent decline in purchases followed a revised 0.4 percent January decrease, Commerce Department figures showed Tuesday. Sales excluding gasoline rose 0.2 percent in February, reversing the previous month’s retreat.

The decrease in purchases, which included auto dealers, department stores and furniture outlets, showed Americans were salting away money saved at the gas pump amid volatile financial markets. The disappointing reading on the biggest part of the economy comes as Federal Reserve officials meet to gauge whether growth is strong enough to eventually warrant another increase in interest rates.

We've gone through this a million times. The savings on gasoline amounts to a couple of McDonald's dinners for a family of four each month.

The bigger expense? Affecting everyone? ObamaCare.

The 800-pound gorilla is not mentioned in this article by name, but at least it is mentioned in passing:
“We’re seeing higher rents, higher healthcare expenses, so that may be offsetting a lot of the benefit of lower gasoline prices,” said Scott Brown, chief economist at Raymond James Financial Inc. in St. Petersburg, Florida. “You’re still looking at strong job growth, good wage growth, and wages should continue to pick up as the labor market tightens.”

The writers mention that payrolls (the number of people working) but it does not mention that the number of hours in the average work week has declined under this administration. The average workweek is now slightly less than 35 hours -- driven by ObamaCare which mandates that full-time employees -- defined as working 35 hours -- must be provided health care insurance by their employer. In addition, wages -- despite all the talk of raising minimum wages -- have stagnated.

This link:

• average hours/workweek: 34.4 hours
• average wages: declined by 3 cents/hour in February, 2016

Less hours/week and less money per hour = less money overall.

I wonder how this will affect GDP forecast (GDPNow)? The most recent forecast was March 9, 2016, which has been posted. I assume GDPNow will update the forecast with these retail sales being announced today.

Some Data Points From UK's North Sea -- March 15 ,2 016

Iditarod update: It looks like we have a winner? Dallas Seavey has won three of the last four Iditarods. At the moment he is in first place. He and Mitch Seavey have finished the race and are in 1st and 2nd position respectively. Dallas: 8 days, 11 hours, 20 minutes, 16 seconds. It looks like this breaks the record set last year: 8 days, 18 hours, 13 minutes, 6 seconds.

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UK's North Sea Bust

From Rigzone there's a great article on the future of UK's North Sea oil industry. It's a boring article on tax structure and one analyst's argument that the UK needs to restructure (euphemism for "lower") taxes on North Sea oil production. Be that as it may, look at some of these data points and/or comments:

• in order to reflect the maturity of the UK continental shelf (UKCS): maturity of the field
• low oil prices affecting entire economy of Scotland; does this sound familiar?
• hotel occupancy: a 15% decrease; does this sound familiar?
• housing sales: down by 14% during the previous 12 months; does this sound familiar?

But look at this. This is incredible. I cannot get my hands around big numbers, but even so, this is amazing:

• investment in the UKCS will be less than $1.4 billion this year (2016)
• compare that to a typical level of $11 billion annually over the last five years

Again, the oil industry is going to go from $11 billion annually (for the last five years) to less than $1.5 billion this year in the UK North Sea. Wow. In the US, operators have cut back from 20% to 50% but nothing like this.

Current UK taxes on the oil and gas industry:

• 50% tax on production profits
• 67.5% for older fields

And we thought it was bad in the Bakken.

Comments And Commentary On Whether The Bakken Can Ever Ramp Up Again -- March 15, 2016

Disclaimer / reminder / note: I am inappropriately exuberant about the Bakken; I see the Bakken through oily-stained glasses.

I'm curious what readers think about this article that will be in today's Wall Street Journal: many shale companies are unable to ramp up oil output. Idle equipment, limited workforce prevent shale sector from playing role of swing producer.

First of all, before getting started, it seems there are three themes in this article which makes it difficult to analyze. These are the three story lines or arguments the writers posit:

• many oil companies are in shell-shock; have little capital in which to ramp up even if/when the price of oil recovers
• the shale industry in general will have trouble ramping up because of idled equipment, limited workforce
• the shale industry may not be able to play the role as swing producer

We will dispense with the last argument first. I doubt if any roughneck really cares if US shale becomes the swing producer. It's a discussion for the ivory tower folks and for bloggers like me when looking at the big picture. Whether or not US shale is a swing producer, who cares? Not me.

I'll use the Bakken as my reference point for the rest of the article because that's what I follow most closely. 

The first argument posited: many oil companies have little capital in which to ramp up even wen the price of oil recovers. My initial thoughts:

• it's going to take a lot less money to ramp up in 2017 than it took in 2007 when the Bakken boom was just beginning; do you remember the lease rates; do you remember all the infrastructure that needed to be put in place; remember what little "we" knew about drilling the Bakken; do you remember what little "we" knew about fracking
• in 2000 when companies were looking for cash to start drilling the Bakken in Montana and in 2007 when companies were starting to drill in North Dakota, no one knew for sure how much oil, if any oil, was economically recoverable; try getting cash from a bank for oil exploration if you can't "guarantee" oil is there

Bottom line: if the price of oil recovers, the operators will find the cash from banks, investors, hedge funds.

The other argument posited by The WSJ writers: the shale industry in general will have trouble ramping up because of idled equipment, limited workforce. This is perhaps the easiest to debunk.

Again, remember, I am inappropriately exuberant about the Bakken.

In 2007 when the Bakken boom there was "no" infrastructure in place to handle the tsunami of workers flooding western North Dakota. Housing was a huge problem. Not any more.

The potential for production can only be achieved if there is adequate takeaway capacity. In 2007, there was no CBR -- none, zilch, nada. Now, there must be no less than ten CBR terminals in the Bakken. Those rails aren't going anywhere; and the tankers haven't disappeared. Rolling stock is now storing oil.

Pipelines when the Bakken boom began. A huge problem. Not any more.

Roughnecks needed for drilling? Were there any active rigs in North Dakota in 2005? A few years later there were 200 active rigs, and the rigs kept getting bigger and better. The bigger and better rigs had to be brought up from manufacturing sites out of state; now they are being stacked in the Bakken.

Will we need 200 active rigs to ramp up? Spud to TD at the beginning of the boom: 45 - 60 days. Now, 15 days. 200 active rigs to ramp up? There are upwards of a thousand DUCs that need to be fracked. At the height of the boom, about 2,500 wells were drilled each year. A thousand DUCs is not trivial.

Sand? Ceramic? Water? for fracking. Do folks remember all the problems getting sand, ceramic, water for fracking. I even received phone calls from people asking if I knew of any sources for sand. Seriously. Sand is no longer the issue it was eight years ago.

So, time for a poll: are you concerned about the ability of the Bakken to ramp up if oil goes to $100 tomorrow?

• yes, there's no way the Bakken will ever be able to ramp back up even with oil at $100
• no, the Bakken will do just fine

Another Huge Energy Story For The US -- South America Emerging As Market For US LNG -- RBN Energy -- March 15, 2016

Updates

March 20, 2016: see the Brazil story below (RBN Energy). Genscape suggests it's time for Europe to pivot west with regard to LNG imports:

According to figures from BP's Statistical Review of World Energy 2015, nearly 45 percent of the natural gas delivered to Europe via pipeline in 2014 originated in Russia and Central Asia.

Geopolitical challenges in Ukraine and Turkey, however, threaten the stability and growth potential of vital pipeline corridors in these regions. Moreover, new pipeline infrastructure linking gas-rich Iran to Europe likely is more than a decade away. Given the unfolding scenario, Europe finds itself at a crossroads in terms of ensuring reliable and sufficient natural gas supplies.

A recent Genscape white paper argues that the region's gas customers should take steps to increase imports of liquefied natural gas (LNG) from North America. Not only would "pivoting West" help European gas customers diversify their gas supplies, but also give U.S. LNG producers a long-term market for their exports, says Genscape LNG analyst Ted Michael. 

Original Post

Active rigs:

	3/15/2016	03/15/2015	03/15/2014	03/15/2013	03/15/2012
Active Rigs	31	112	190	185	205

RBN Energy: South America Emerging as Market for U.S. LNG.

Lately, it’s not just liquefied natural gas (LNG) prices that are headed south, it’s LNG cargoes too. A few days ago, the first LNG shipment from Cheniere Energy’s Sabine Pass liquefaction/export terminal was sent to Brazil, where a drought has slashed hydroelectric production and boosted the need for natural gas-fired power. Today we consider what’s driving LNG and natural gas demand in Brazil, Argentina and other countries in the southern half of the Americas, and what that may mean for U.S. LNG exporters and gas producers.

Given the impact that LNG exports are expected to have on U.S. natural gas production over the next 15 to 20 years, it’s not surprising that the recent buzz about the destination of the initial LNG shipment from Sabine Pass in southwestern Louisiana rivaled interest in Kanye West’s self-promotional feud with Taylor Swift (well, almost).

As we all know, the Kanye vs. Taylor brouhaha continues, and—more relevant to today’s blog—Chevron Transport’s 160,000 cubic meter Asia Vision LNG tanker left Sabine Pass on February 24, 2016, and is, by now approaching the Salvador da Bahia Regasification Terminal, a floating storage and regasification unit (FSRU) moored at Baía de Todos os Santos (Bay of All Saints) at Salvador, in Brazil’s state of Bahia.

Golar LNG Partners owns the FSRU, which is also known as Golar Winter; Petroleo Brasileiro—Brazil’s state-owned energy company, also known as Petrobras—charters it.

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Puppet

This story is also over at USA Today if unable to access NY Times. 

Obama reverses course on earlier decision to allow off-shore drilling along the US southeast course. The story is at The New York Times:

The Obama administration is expected to withdraw its plan to permit oil and gas drilling off the southeast Atlantic coast, yielding to an outpouring of opposition from coastal communities from Virginia to Georgia but dashing the hopes and expectations of many of those states’ top leaders.

The announcement by the Interior Department, which is seen as surprising, could come as soon as Tuesday, according to a person familiar with the decision who was not authorized to speak on the record because the plan had not been publicly disclosed.

This story is going to get a lot of folks excited, but it's a non-story for most and great news for the Bakken.

• there is a glut of global oil; we don't need a new more to come on the market
• we wouldn't see this oil for decades anyway; even if Obama had not changed his mind, there were plenty of existing headwinds to prevent drilling any time soon
• the US can simply bank this oil for future generations; Saudi Arabia should be so lucky
• there will winners and losers; for investors, don't invest in the losers 

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Hillary Puts Foot In Mouth

It's not "what she said," so much as "how she said it." How would you like if a presidential aspirant came to your community and told you he/she would destroy your livelihood. When I first heard her reported comments, I was dumbfounded. First of all, it was an old story; she did not "need to go there." 

From thestar.com.my: by-line, Frankfort, KY -- center of coal-mining country.

Facing a backlash from Appalachian Democrats, Hillary Clinton's campaign on Monday tried to reaffirm her commitment to coal communities one day after declaring on national television she was going to "to put a lot of coal miners and coal companies out of business."

Clinton's comments came during a Sunday night appearance on CNN, where she was asked a question about how her policies would benefit poor white people in southern states who generally vote Republican.

"I'm the only candidate, which has a policy about how to bring economic opportunity, using clean renewable energy as the key, into coal country. Because we're going to put a lot of coal miners and coal companies out of business," Clinton said. "We're going to make it clear that we don't want to forget those people."

They will all get 16 weeks of unemployment benefits, she could have added. 

The good folks in coal mining country only heard this:

"I'm the only candidate, which has a policy about how to bring economic opportunity, using clean renewable energy as the key, into coal country. Because we're going to put a lot of coal miners and coal companies out of business," Clinton said. 

She could have told them that if  previous misguided policies resulted in loss of jobs in coal mining, we need to do what we can to transition energy industry to natural gas.

Oh, that's right: she has also promised to ban fracking. 

There goes Indiana, Ohio, Pennsylvania, West Virginia, and Virginia.