Analysis by the father of American Geopolitics Dr. Daniel Fine, MIT.

Posts tagged ‘Energy Markets’

Dr. Daniel Fine: Oil speculation and natural gas/LNG in New England and Russia


 

Link to the article American oil production is poised to reach upward to 11 million barrels of oil per day if the price of West Texas Crude reaches $75 a barrel.

Saudi Arabia or Saudi Aramco believes it will, and commodity speculators are following. It is similar to 2008 in June when Goldman Sachs forecast $250 per barrel as the price approached $150.

What events are running through computer modelling to trigger speculative buying? First, the effort of Saudi Arabia to sell shares in Saudi Aramco to the world – at least 5 percent.

The price of oil is the key for the price per share at an initial public offering. It must be high enough to overcome doubts about the company in terms of ultimate economic value and size of its reserves as well as potential legal action based on the 9/11 Saudi Arabian operatives in the destruction of the World Trade Centers and the death of nearly 3,000 and related family injuries.

This event can no longer deprive the United States of physical barrels resulting in shortage of supply. Prices outside of trading pits or online bids and asks are now determined by West Texas Intermediate, which reflects self-sufficiency against non-North American sourced oil. The Persian Gulf against the Permian Basin?

 Demand for oil in producer estimates, such as, Saudi Aramco or total range between 1.2 percent and less than 1.0 percent growth per year. Supply of oil from American unconventional sources is increasing, with high prices at 8 percent.

The two year low of downturn prices did not create conditions for a supply crunch. Super-giant oil fields are few and far between even at higher prices. Supply shortage talk on the social and commercial media is promoted by Saudi Arabian interest in higher oil prices to support its potential IPO share price. Offshore Norway has applied shale recovery technology from New Mexico, Texas and North Dakota and can be profitable at $35 per barrel against $80 breakeven in 2013.

Third, reaction to OPEC-Russia announcements of production reductions – oil off the world market — are not likely signals for commodity traders to buy. How much oil can OPEC members and Russia take off the market? How long can they lower production in terms of fiscal requirements?

One last event in production denial would be the imposition of sanctions against Iranian oil exports, which would follow the decision to void the nuclear weapons treaty by President Trump.  The North American market for Iranian is almost non-existent.

As before, this Energy Magazine column warns of a downturn next year. How bad? If the buzz around the Permian is that its “health” no longer depends on the price of oil has been taken seriously, the downturn will be serious.

Exxon-Mobil/XTO is preparing to enter the world market of LNG (liquid natural gas) with a plant in Louisiana.  Its natural gas feedstock would be from its Delaware Basin production (New Mexico’s Permian).

The scale and size of its LNG facility will place American production and export as a world leader next to Qatar, which is reacting to Saudi Arabian hostility by expanding investment in American oil and gas.

Turning to Europe, the opportunity of geopolitical deployment of American gas to Europe to offset Russian supply promoted by the State Departments of Bush through Obama and now of Trump has been set back.

Germany has approved the Russian natural gas pipeline under the North Sea despite efforts to isolate Russia because of the Crimea annexation.

This means ongoing European natural gas dependence on Russia without transit pipelines through the Ukraine.  And indirectly it keeps demand and prices for San Juan natural gas lower.

As long as Marcellus natural gas is semi-stranded by New England’s opposition to building pipelines for its markets, based on environmentalist politics, American natural gas is unable to replace residential reliance on heating oil imported from high-risk Venezuela.

Russian LNG appeared in Boston harbor during the worst of a New England winter as an alternative to low- cost pipeline gas from Pennsylvania. This partially keeps San Juan Basin gas at low prices.

Dr. Daniel Fine is the associate director of New Mexico Tech’s Center for Energy Policy and the State of New Mexico Natural Gas Export Coordinator. The opinions expressed are his own.

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Fine: NAFTA, natural gas and the San Juan Basin


As seen here in the Farmington Daily Times-> http://www.daily-times.com/story/money/business/2018/01/28/fine-nafta-natural-gas-and-san-juan-basin/1032781001/

The North American Free Trade Agreement is now in a final stage with the U.S. team looking over the “energy chapter,” which has been approved by Canada and Mexico. The Administration’s position, with a revisionist-protectionist core, offers President Trump a withdrawal-from-NAFTA option, at least a tactical move to shake up Canada and Mexico in the interest of American merchandise and agricultural exports.
However, not much is known from the inside on plans for natural gas exports to Mexico.  In 1992, the beginning of NAFTA, Mexico’s oil and gas industry was government owned and operated so it fell outside a free trade agreement.
Today, Mexico permits private capital to build, own and operate oil and gas exploration, production and transportation (pipelines) under its Energy Reform Law.
This admits natural gas into the NAFTA framework. Nearly $6 billion of Southwest natural gas was sold (exported) to Mexico last year.

Mexico imports 53 percent of its natural gas from the United States – with 60 percent on track. Needless to say, Mexico is dependent on American natural gas for its power generation.Texas natural gas pipeline entry points dominate the trade, while the Delaware and the San Juan basins are next as business and strategic sources.
The Mancos Shale natural gas below the Four Corners must access the expanding Mexican market in any revision of NAFTA terms. The Trump Administration’s understanding of American natural gas trade with Mexico should include regional economic integration. Energy is required for Mexican industrial growth, and Mexico has constructed the pipelines on its side border to receive and transport natural gas from the Permian and the San Juan Basin.

NAFTA revised should make natural gas exports from the U.S. Southwest a natural resource exemption from narrow foreign trade objectives. Natural gas reserves in the Southwest can be accessible to Mexican importers if pipelines to cross-border points attract American investment long-term. NAFTA changes
would create risk disincentives.

U.S. NAFTA negotiations can be aligned with the Trump-Zinke energy policy of world domination if the export “New Mexican natural gas” is designated a “win – win.”
If the Mexican market for American natural gas is lost, New Mexican natural gas would be mostly “stranded” without offset storage; and, it would push back on the Permian with an oil-only reality as the output of gas from Pennsylvania and Ohio output expands.

Unless Texas and New York media understand the history behind the oil price collapse history of 2014-2016 the industry and public will be compelled to repeat that history soon.

Oil prices are coupled into a “bubble”; or worse – speculation in a “coin” which exists as a product of computer software. Is Bitcoin speculation infecting the value of oil in commodity trading at least momentarily?
Will hedging create a trade?

With New Mexico oil production over 500,000 barrels per day (323,000 four years ago), the coming 30 days in Santa Fe (Legislative Session) should see a Democratic Party state budget expansion or plain spending offensive which would mirror 2018 primaries and general election conflict between progressives and centrists.
There is no threat from off-shore (Atlantic and Pacific Ocean) to New Mexican oil and gas development. President Trump is right to remove off-shore prohibitions, but now the market takes over. The cost of San Juan Basin natural gas is 80 percent less than exploration and production 50 miles out in North Carolina’s Atlantic Ocean.
Three or four dimensional seismic investments—yes; production—no; not as long as there is economic shale natural gas on-shore in New Mexico and the Southwest.

Daniel Fine is the associate director of New Mexico Tech’s Center for Energy Policy. The opinions expressed are his own.

Hedging threat and Venezuela Oil By Dr. Daniel Fine


The full article is here-> http://www.daily-times.com/story/money/industries/oil-gas/2017/08/27/hedging-threat-and-venezuela-oil/580510001/

“How can Saudi Arabia and OPEC behind them strike a second blow against shale oil producers in the Southwest? The first was the 2014-2017 price and market share war in which they raised production to put the higher cost Americans out of business.
This was partially abandoned at Algiers in a reversal to opt for a higher price for crude oil from $26 to the high $40 range. The marketing tool is lowering their production by 1,800,000 barrels per day.

The second blow is process.

The Saudi Arabian Oil Ministry and its state company, Saudi Aramco, negotiated in London with Glencore (world’s largest trading combined with mining), banks and hedge funds to see if they could reduce the liquidity necessary for American oil and gas shale producers to hedge forward to obtain a higher price.

Without access at only financial transactions costs to the “strip” or the forward price of oil at at least 10 percent higher than current prices “spot,” WPX and all the Permian-Delaware significant producers would not have survived the recent downturn in their current form.

If there is no difference between the price oil today and September 2018,  which is called the “contango,” this would be a problem of liquidity – no entity taking the other side against the oil and gas producer on a contract.  No cash would be bet against the oil and gas producer who sells forward one year. One side, for example, sells 70 percent of 2018 oil production at June 2018 prices in the present while the other side buys or covers, as the counterpart, the contract.

Saudi Arabia correctly followed data which demonstrated that despite the decline in the price of oil from $100 in 2014 to a low of $26 per barrel, oil producers hedged against the fall and largely survived.  Without hedging the producers would have negative cash flows and serious problems of debt to keep going.”

Deregulation and Business Opportunities in the Mexican Energy Market w/ leading experts @ La Plata County Economic Summit 2015


The Mexican government has recently completed some of the most sweeping energy reforms in the world. Hear from experts on the deregulation of the energy markets in Mexico, and how to find opportunities for your business in both the energy sector and elsewhere in the Mexican economy.
To register for the summit use this link–> https://events.bizzabo.com/200300/home
Please join us and share this with your friends!

Speakers

Sandi Moilanen
Director-International Division
Colorado Office of Economic Development and International Trade

Daniel Fine
Associate Director
New Mexico Center for Energy Policy

Elie Smilovitz
Consul for Political, Economical, and Press Affairs
General Consulate of Mexico

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