Here We Go! The Market, Energy, And Political Page, Part 3, T+62 -- May 1, 2018

Updates

Later, 12:52 p.m. CDT: see first comment, ".... without historical parallel."

Original Post

Well, that didn't take long. All that hand-wringing about the problems and travails of the Permian. Here we go. From Mike Fitzsimmons over at SeekingAlpha:

• the Gray Oak Pipeline; Philliops 66 Partners
• pipeline could transport up to 1 million bpd from the Permian to the Gulf Coast
• meantime, WTI in Midland was recently trading about $9/bbl below Gulf Coast crude
• first open season was heavily subscribed and there will now be a second binding open season
• the pipeline will terminate at multiple Gulf Coast markets, including a marine terminal connection in Corpus Christi for the export market

Last week Phillips 66 Partners (PSXP) announced the open season for its proposed Gray Oak pipeline had received enough volume commitments to proceed with a second open season. The ultimate capacity of the pipeline is dependent on the outcome of the second open season. If fully subscribed, the pipeline's capacity could ultimately be expanded to 1 million bpd.

And it just gets better, for those connecting the dogs:

The Gray Oak Pipeline is a joint venture: 75% owned by Phillips 66 Partners and 25% by Andeavor (ANDV) which is likely to merge with Marathon Petroleum (MPC).

Enbridge has an option to acquire up to a 32.75% interest in the joint venture. If all options are exercised, which is likely considering ENB's very important Line 3 challenges in Minnesota, Phillips 66 Partners’ ownership would be 42.25% and Andeavor’s ownership would remain 25%.

It is no coincidence Marathon's offer for Andeavor came after the announcement of Gray Oak's second open season and the same day announcement by Buckeye Partners to develop a new deep water marine terminal at the mouth of Corpus Christi Bay.

The terminal will be operated by Buckeye and will initially have 3.4 million barrels of storage. Most importantly, the terminal will have two deepwater ports capable of servicing very large crude carriers, or VLCC's, for the global export market. BPL owns 50% of the terminal and be the operator. Phillips 66 Partners and Andeavor will each own a 25% stake.

So, while the US Pacific Northwest bans rail movements; the Californians ban fracking; and the New Englanders ban pipelines, Texas just keeps rolling along. 

Wow.

But the big story line: the gap between the US and the rest of the world when it comes to energy continues to widen -- at lightning speed.

Exhibit A:

The Market, Energy, And Political Page, Part 2, T+62 -- May 1, 2018; North Dakota #1 In Wheat, But Minneapolis Took The Profits

The Bakken vs Texas: The Houston Chronicle has a great op-ed regarding the Bakken -- "North Dakota struck oil, but Houston took the profits." A huge "thank you" to the reader who sent me the link. My reply:

The writer/op-ed probably captured the Bakken vs Texas exactly right. The question is whether "it" could have been any different. I really don't think so. 

And, oh, by the way, this story has not yet played out. There are still many more chapters to be written.

By the way, in the print media, the gravitas of an article is defined by a) where it is published; and, b) the length of the article. This is a very, very long op-ed.

One more thing: the reader made a great analogy regarding oil, North Dakota, and Texas: the very same thing occurred with regard to farming  -- North Dakota leads the nation in so many varieties of wheat production but Minneapolis took the profits: farming (wheat), North Dakota, and the Minneapolis milling industry.

Brilliant. And that's why I love to blog. Everyone comes up with "stuff" I never even thought of.

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Trump and Korea

Scott Adams: When Scott Adams is good, he is very, very good. When he is bad ...

Scott really, really has a great commentary today over on Twitter -- and it's very short -- a 4-minute monologue regarding "where" Trump wants the Korean-US summit to be held.

Trump has floated the idea of holding the summit on the DMZ. Scott explains why. Brilliant.

Bottom line: Scott says Trump would never float the idea of a summit on the DMZ unless the deal was already done.

• if the summit is held in Switzerland: they are still negoiating
• if the summit is held in the DMZ: they are ready to celebrate that the deal has been done

Scott says Trump is not going to show up to negotiate; he is going to a Korean summit to celebrate.

That's why it is taking so long to decide where the summit will be held: we don't know whether we are talking about negotiations or a celebration. 

Think about it, would Trump even float the idea of a summit at the DMZ if it was not all about a celebration? Wink, wink.

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Statoil: EPS of 45 cents vs 40 cents forecast; improved almost 30% from year earlier. Revenues surged and handily beat forecasts.

British Columbia. Blogging about the Trans Mountain pipeline project and the tiff between Alberta and British Columbia brought a fair amount of input/insight from one reader. It's really more than I can put on the blog -- it would open up too many discussions beyond the Bakken ... I have enough trouble as it is without getting even more distracted. Having said that, I have a better appreciation of the situation on the ground:

• "the BC culture" is very, very different from "the Alberta culture"
• Alberta: the Bakken; the Permian, west Texas,
• British Columbia: London's Chelsea or Kensington districts

• Comment: that's not going to change, and it really makes the  Trans Mountain pipeline project unlikely. 

Ford: April sales. Data here.

• Ford unit sales -4.7% to 204,651 to match the forecast from Edmunds. Retail sales were down 2.6% Y/Y during the month to 137,049 units
• passenger car sales -15% to 42,373 units
• SUV sales -4.6% to 69,940 units
• truck sales +0.9% to 92,338 units. F-Series sales +3.5% to 73,104 units
• the company ended the month with dealer stock of 579,699 units or 68 days' supply vs. 66 days' supply at the end of March

Someone made this comment at this link:

Simply masks the fact that F has written its end as a manufacturer by abandoning autos.

They'll morph into a non-manufacturer, marketing all imports and mostly Chinese made autos in 15 years or so.

After that, as Chinese nameplates angle to capture the middleman profit, F will disappear.

This is what happened to all mass market US electronics companies and will happen to all US large manufacturers in every industry.

F had to decide whether to retain engineering and manufacturing skill or turn into a financial engineering company, and they chose the latter. It's exactly the decision the country made as a whole back in the 90s, and here we are careening toward bankruptcy and a nation of musicians, social justice warriors, and paper pushers, with a mass of unemployed working class.

Fast And Furious -- US Crude Oil Production -- May 1, 2018 -- US Renewable Energy Incentives Drop Almost 60% Over Last Four Years

This is quite fascinating. A reader has put into perspective just how fast US crude oil production is growing -- look at this post from yesterday -- note that the US has set new weekly crude oil production records for the last twelve weeks out of thirteen.

The reader noted that at this pace of production growth, the US will see an increase of over 2.5 million barrels per day this year alone ... putting that into perspective, the OPEC oil production cuts of 1.2 million barrels per day have been less than half of that ...

Or another way to put that into perspective: that would be like the Dallas Cowboys winning twelve regular season games in thirteen weeks.

An interesting question to ask: had there not been a US shale oil revolution, would the price of oil have stimulated US off-shore oil production to the point that the US would now be seeing this type of production.

I don't know, and I don't know if the question can be satisfactorily answered.

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The Market, Energy, and Political Page, T+62

API US crude oil inventories: pending; 3:30 p.m. CDT today.

AAPL earnings: after market close today

US renewable energy incentives plunge: from oilprice.com --

Total renewable-related federal subsidies in the United States dropped to $6.7 billion in financial year 2016 from $15.5 billion in 2013.

Subsidies for renewable energy, including biofuels, accounted for between 42 percent and 52 percent of total federal energy subsidies in each of the years 2013 through 2016.

Tax and direct expenditures combined accounted for around 93 percent of all federal renewable-related subsidies for each of the years analyzed. In FY 2016, tax expenditures alone accounted for 80 percent of total renewable energy subsidies.

Comment: see article to see how little US incentives actually went to R&D. Incentives for renewable energy were almost 100% related to tax incentives. On the other hand, the fossil fuel sector received non-tax incentives (like university research grants).

Between fiscal years 2013 and 2016, direct federal financial interventions and subsidies in U.S. energy markets almost halved, from $29 billion in FY 2013 to $15 billion in FY 2016.

U.S. federal subsidy support for fossil fuels plunged from nearly $4 billion in 2013 to $489 million in 2016.

Road to Germany: note the renewable energy incentives story above --  total renewable-related federal subsidies in the United States dropped to $6.7 billion in financial year 2016 from $15.5 billion in 2013. That represents about a 57% drop in renewable energy incentives. The political environment suggests this is not likely to change over the next couple of years.

Now, what happened in Germany when renewable energy incentives plunged? See this post.

After the German government decided to reduce subsidies to the solar industry in 2012, the industry nose-dived. By this year, virtually every major German solar producer had gone under as new capacity declined by 90 per cent and new investment by 92 per cent. Some 80,000 workers — 70 per cent of the solar workforce — lost their jobs. Solar power’s market share is shrinking and solar panels, having outlived their usefulness, are being retired without being replaced.Wind power faces a similar fate.

Germany has some 29,000 wind turbines, almost all of which have been benefitting (sic) from a 20-year subsidy program that began in 2000.

Starting in 2020, when subsidies run out for some 5,700 wind turbines, thousands of them each year will lose government support, making the continued operation of most of them uneconomic based on current market prices.

2013: and then look at this  -- this is the most-viewed page when searching "Germany" on the blog --
Germany looking to stop wind energy initiatives sooner than later -- Bloomberg; wind energy has killed Germany's manufacturing base.

May Day! 2018

TSLA-MPC-Andeavor: from The Financial Times -- the deal challenges Tesla's electric dreams. California seen as needing steady source of petrol and diesel long into the future. 

If Elon Musk believes the adage that “as California goes, so goes the nation”, then the founder of Palo Alto-based Tesla may have cast a weather eye over the mega-deal between Marathon Petroleum and Andeavor. 

The $36bn transaction, the 11th largest in oil market history, will turn Marathon into the biggest oil processor in the US once it absorbs Andeavor’s fleet of largely West Coast-based refineries. 

But it comes at a time when Mr Musk and his contemporaries are trying to remake the Golden State as a test bed for an electric vehicle future, with the aim of relegating the internal combustion engine and its reliance on fossil fuels to an afterthought behind long-range batteries. 

California already had six EVs per 1,000 people in 2016, a ratio that will have risen since then, compared with just 0.7 in Texas.

The Marathon-Andeavor deal represents a wager against some of the loftier claims of Mr Musk’s vision with “old economy” companies still believing they have a thing or two to teach the tech stars of Silicon Valley about oil’s future.

California will continue to need a steady source of petrol and diesel long into the future with cars accounting for only a third of oil demand globally.

Freight, petrochemicals, aviation and shipping comprise the rest and will not be so easily electrified. “It’s essentially a bet, in part, that the Californian market will not electrify as easily as the politics and culture of the state might suggest,” says Alan Gelder, head of refining at energy consultancy Wood Mackenzie.

Disclaimer: this is not an investment site. Do not make any investment, financial, job, travel, or relationship decisions based on what you read here or what you think you may have read here. If this is important to you, go to the source.

Disclaimer: I make a lot of simple arithmetic errors. I often see things that do not exist; I read quickly and miss important points. Sometimes it takes me days (maybe even weeks) to see where I was wrong.

Dividends: corporations boosting dividends. Exxon raised its quarterly dividend by 7%, from 77 cents to 82 cents.

Apple: pending. Expectations that Apple will make some interesting announcements during its earnings call, probably tomorrow. Apple's earnings will be released after market close today.

Iran sanctions decision: less than two weeks for Trump's decision. Trump likes to negotiate; doesn't like to rip up documents or delay the process. John Bolton is now his SecState. Bibi releases 100,000 "verified" documents.

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Back to the Bakken

Where Frackers Are Always Welcome 

Active rigs:

$67.92↓	5/1/2018	05/01/2017	05/01/2016	05/01/2015	05/01/2014
Active Rigs	61	49	29	86	187

RBN Energy: Canadian and US Northeast (Marcellus/Utica) natural gas suppliers battle for midwest market share.

For years, the U.S. Midwest has been a perennial net exporter of natural gas to Eastern Canada. But with Marcellus/Utica and Canadian gas supplies barraging the region, that’s changing. Less Midwest gas is flowing across the border into Ontario. At the same time, Canadian gas supply that used to serve U.S. Northeast demand is being displaced to the Midwest. That’s on top of Marcellus/Utica gas that’s physically moving to the Midwest via new capacity on the Rockies Express and Rover pipelines. The result is that the Midwest’s net exports to Canada are declining and even flipping into net imports during some summer months when the market is in storage injection mode. Thus far, this reshuffling of supply has occurred at the expense of Gulf and Midcontinent gas that historically has served the Midwest. But now there’s little of that left to displace from the Midwest, even as still more supply is expected to move there. Canadian producers are banking on capturing more of the Midwest market, as are Northeast producers via expansions like Rover’s Phase II and NEXUS. In other words, there’s a fierce battle brewing for Midwest market share. Today, we look at flow dynamics and factors affecting Canadian gas flows to the U.S. Midwest.

Earlier this year, we began a series examining Canada’s gas exports to the U.S. by region. These gas flows play a key role in the U.S. natural gas supply-demand balance, but have been in flux in recent years due to increasing competition from gas-producing basins in the U.S. We started by looking at the macro fundamentals affecting the Canadian gas supply-demand balance, including growing gas production from the Montney and Duvernay shale plays in Alberta and British Columbia. While Canada’s gas demand is also rising — for gas-fired power generation and to supply steam and power for oil sands production — exports remain a necessary demand source for Canadian producers. However, the problem is that the U.S. needs less and less of that Canadian gas.

Pruitt Doubles Down -- April 30, 2018

From Oilprice.com:

The U.S. Environmental Protection Agency (EPA) has granted an oil refinery owned by billionaire Carl Icahn a waiver from the biofuel blending regulations—a waiver typically given to companies in financial hardship.

Under the Renewable Fuel Standard (RFS), oil refiners are required to blend growing amounts of renewable fuels into gasoline and diesel. Refiners that don’t have the infrastructure to blend biofuels must purchase tradeable blending credits known as Renewable Identification Numbers, or RINs.

The EPA has the authority to grant waivers from the renewable fuel standard to refineries whose oil processing capacity is below 75,000 bpd if the companies owning the refinery can prove that the credits they must buy are causing them financial hardship.

The EPA waiver for the 74,500-bpd Wynnewood, Oklahoma, refinery owned by Icahn’s CVR Energy has been granted in recent months, Reuters sources said, without specifying exactly when the waiver was given.

“This one’s going to be hard for [Scott] Pruitt to explain,” Brooke Coleman, head of the Advanced Biofuels Business Council industry group, said in an email to Reuters on Friday, referring to the EPA administrator.

Is he required to provide an explanation?

"... if the companies owning the refinery can prove that the credits they must buy are causing them financial hardship." I assume any CFO worth his/her salt could show how RINs are causing financial hardship.

It depends on the definition of "financial hardship." Bill would know.

It will be interesting to see if this gets linked on the Drudge Report tomorrow.