AuthorTopic: Hills Group Oil Depletion Economic and Thermodynamic Report  (Read 71059 times)

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🛢️ 3,000 Jobs in Canada’s Oil Industry Gone in a Month
« Reply #225 on: June 29, 2019, 12:55:07 AM »
Fracking wil save us!  NOT!


3,000 Jobs in Canada’s Oil Industry Gone in a Month
By Irina Slav - Jun 28, 2019, 11:00 AM CDT

Calgary: An Oil Age Boom Town

Some 3,000 people in Canada’s oil and gas industry lost their jobs between April and May this year, a new report from Petroleum Labour Market Information found as cited by The Star. According to the report, this represented a decline of a bit over 2 percent with more jobs opening in other industries, notably healthcare and education.

Unsurprisingly, it was the exploration and drilling segments of the industry that suffered the hardest blow as Canadian producers curb investment in these activities to focus on ongoing projects amid a persistent pipeline shortage that is constraining their expansion plans.

A PetroLMI official, however, said the job losses could be a temporary occurrence: the spring is a slow period for Canadian oil as the frost thaws, the ground gets muddy and unsuitable for drilling until it dries. Still, the abovementioned factors may have contributed and they could drive a longer-term job loss in the industry.

An earlier report from PetroLMI found that this year’s hiring requirements of Canada’s oil and gas industry will be 8,236 people lower than a year ago, with projected employment for the year seen at 173,348. That’s almost 12,500 people fewer to be hired by the industry because of slower activity.

This is understandable in light of spending projections for Canada’s oil and gas from PetroLMI. The agency calculated that capital spending on conventional oil and gas this year will be 28 percent lower this year than last, at US$15.28 billion (C$20 billion). Capex in the oil sands segment was seen down 5 percent to US$9.17 billion (C$12 billion).

With this year’s projected job losses in the oil and gas industry, the total lost since the 2014 crisis struck could reach 23 percent of the total five years ago. At the time, Canada’s oil and gas industry employed 226,500 people.

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🛢️ OPEC’s Future Looks Bleak As It Extends Deal
« Reply #226 on: July 02, 2019, 01:26:53 AM »
Can OPEC just roll over and die already?


OPEC’s Future Looks Bleak As It Extends Deal
By Cyril Widdershoven - Jul 01, 2019, 6:00 PM CDT

OPEC and its partners have decided to roll over the existing production cut agreement for another 9 months. After weeks of deliberations, infighting, global pressure and media hype, OPEC and Russia have confirmed the global oil market still needs support. OPEC officials stated the latter to the press, repeating Russian President Putin’s and Saudi Minister of Energy Khalid Al Falih’s former statements. Russian President Vladimir Putin said on Saturday that he had agreed with Saudi Arabia to extend existing output cuts of 1.2 million barrels per day, or 1.2% of global demand, until December 2019 or March 2020.

Fears about a possible US-China Trade War, resulting in lower global economic growth, and the continued growth of US shale output has put oil prices under pressure, especially after several unexpected inventory builds earlier this year. The geopolitical instability in the Persian Gulf, a looming military confrontation in the East Mediterranean and sanctions on Iran, Venezuela and even Russia, did nothing to quell the negative price spiral. Emotions were ruling, not facts. Oil prices, however, now seem to get some space to rally, as China and the U.S. have agreed to renegotiate a trade deal, demand still appears to be growing, and US storage volumes have shown signs of reversing. Oil bulls have regained a bit of hope, but financial analysts are still warning for a possible negative price correction, based on the still unresolved China-US situation. Strangely enough the same analysts are not incorporating possible negative repercussions from the ongoing situation in the strait of Hormuz, a looming conflict in Libya and the still relatively strong economy.

At the same time, optimism within OPEC itself is waning, as severe rifts in the cartel have occurred in preparation to this week’s OPEC Vienna meeting. Iran and Venezuela are increasingly putting their foot down, as they claim that the rest of OPEC, especially Saudi Arabia and the UAE, are taking advantage of the US sanctions. The last weeks the Kingdom, but also the UAE, have signed major deals with China, Japan and South Korea to lock-in future demand in these countries. The Iranian sanctions, even if they have not brought exports to zero as US president Trump likes to claim, have been a boon for other OPEC producers, filling in the gaps left by Tehran in Asia and Europe. Iran’s geopolitical supporter no. 1 Russia also has taken advantage of the Iranian predicament.

This situation has stirred up anger in Tehran and Caracas. In contrast to official statements made by the separate Arab OPEC countries, all have taken the opportunity to expand market share. Iran will have a hard time to regain its position. At the same time, Venezuela is confronted by the same developments, leaving the heavy-oil producer no chance to regain its former glory for a very long time.

At present, Iran does not have a lot of instruments to counter the Saudi-UAE-Russian actions. Blocked by US sanctions, no economic options are available to the Iranian regime. Still, Tehran has been able to deliver a major blow the last hours. Without leaving the cartel, Iran has openly defied the growing willingness inside of OPEC and Russia to formalize the ongoing OPEC+ cooperation.
Related: API: Trade War Already Hurts U.S. Energy Exports

In a surprise remark to the press, Iran's oil minister Bijan Zanganeh said that he will veto OPEC's long-mooted charter intended to formalize its oil market coordination with Russia and nine other non-OPEC partners. The latter means not only a blockade of Saudi-UAE dreams to incorporate Russia officially, but it also is a slap in the face of Russian president Vladimir Putin and Russia’s Energy Minister Novak. The two Russians have been eager to formalize the OPEC+ deal, supported on the Saudi side by Crown Prince Mohammed bin Salman. The formalization seems to have been one of the discussion points between Putin and MBS at the G20 in Osaka, Japan. The Iranian threat also will complicate the OPEC+ meeting, which is set for Tuesday, after the official OPEC meeting.

The Iranian move is almost a rehearsal of the 2007 Riyadh meeting, when Tehran and Caracas blew up the 2nd OPEC Heads of State Meeting. By supporting an OPEC production agreement, but blocking a formal participation of Russia, Tehran keeps its position in balance. If the Saudi-Russian cooperation would be formalized and included under the OPEC umbrella, Tehran fears to be pushed out of the power centers. Officially Iran wants to block the OPEC+ formalization due to Saudi-UAE support for US Iran sanctions, but Tehran wants to be in power when deals are made between OPEC and Russia. With a formalization of the OPEC+ situation, the Riyadh-Moscow-Abu Dhabi trilateral becomes the decision making center without interference of others.  Tehran fears a so-called unilateralism by OPEC+ (Moscow/Riyadh). Iranian Oil Minister Zanganeh reiterated that he fears that OPEC+ could mean the end of the current Middle East led oil producers group. With the incorporation of Russia the power center would clearly move to Riyadh-Moscow.

Looking back at today, a production cut agreement has been reached, and the official statements will follow after the OPEC+ meeting. Brent and WTI prices are expected to inch higher the next couple of days. An internal power struggle, as some expect, inside of OPEC, however, could blow up the current stability with a big bang. An open battle between Tehran and Riyadh, combined with increased military and proxy actions in the Persian Gulf, could be the last drop in the bucket.

Regional military actions against Iran, or more worrying Iranian proxies in Iraq, could effectively reshape the supply situation in crude markets. No reason at present suggests that oil bears can lean back. Global crude supply is more in danger than financial analysts are recognizing. The Iran situation could easily involve Iraq or trade routes at the same time.

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OPEC Formally Embraces Russia, Other Non-Members In Expanded "OPEC+"

July 2, 20195:18 PM ET
Camila Domonoske square 2017

A Saudi worker adjusts flags of participating countries before a meeting of energy ministers from OPEC and its allies in Jeddah, Saudi Arabia, on May 19. OPEC+ countries met again in Vienna on Monday and Tuesday and agreed to formalize their relationship in a "Charter of Cooperation."
Amr Nabil/AP

OPEC used to shift world oil markets with a single announcement. These days, the Saudi-led organization needs help from some key partners — most significantly Russia — to exert that kind of influence.

The expanded alliance, which also includes Kazakhstan, Mexico and other nations, is known as "OPEC+." And on Monday and Tuesday, OPEC+ made its unofficial expansion a little more official.

Member and non-member states have agreed on a "Charter of Cooperation" to formalize their relationship, pending approval from individual governments.

Khalid Al-Falih, the Saudi oil minister, called the move "historic."

The charter "has created one of history's strongest producer partnerships, spanning the entire world from east to west," he said Tuesday. "Our objectives related to market stability are now matched by the horsepower needed to deliver them."

For many decades, OPEC had that horsepower all on its own: its members controlled a majority of the world's crude supply.

But the balance of power in the global oil market has changed. A technological revolution unlocked vast quantities of previously tough-to-access crude. The U.S. unexpectedly became the world's No. 1 oil producer and a significant exporter. OPEC found itself controlling less than half the world's crude, and watched as oil prices dropped.

So Saudi Arabia looked to a country that, until just a few years ago, had never cooperated with OPEC cuts and was regarded by key OPEC members as an oil rival instead of an ally: Russia. After the U.S. and Saudi Arabia, Russia is the world's third-largest oil producer.

"There is no question that OPEC's need to reach out to other large producers like Russia was a direct result of the fact that they were losing their power and influence over the oil market because of the rise in U.S. production and U.S. exports," says Amy Myers Jaffe, the director of the program on energy security and climate change at the Council on Foreign Relations. "Russia and OPEC decided that they would have to form a partnership or they would lose their influence completely."

Fortified by Moscow and other cooperating non-members, OPEC+ once again controls most of the world's crude oil supply. In late 2016, the group agreed on production cuts that are credited with helping stabilize oil prices after their two-year slide. They've been extended repeatedly since then.

Building this partnership has not been easy. Iran, a founding member of OPEC, has always been wary of the power its regional rival Saudi Arabia wields within the group, and the new OPEC+ arrangement — which pivots on the partnership between Riyadh and Moscow — gives even more authority to the Saudis.

Meanwhile, Iran also has reason to be worried that the Saudi-Russia partnership could threaten the existing strategic military alliances between Iran and Russia, explains Jaffe.

"Iran is pretty isolated," she says. "If ... Russia feels there's some benefit to itself from having a tight relationship with Saudi Arabia, then who does Iran go to for any assistance?"

As a result, while Iran has accepted the OPEC+ production cuts, it has spoken out against formalizing the expanded coalition — that is, it accepted the functional reality of the partnership but objected to putting it down in writing. Ahead of the OPEC meeting on Monday, Iran vowed to veto the plans for the charter of cooperation.

Oil minister Bijan Zangeneh went so far as to say that "OPEC might die" as a result of domination by Saudi Arabia and Russia.

But after marathon negotiations on Monday, Iran was persuaded to sign off on the draft text of the charter, which was approved by the participating non-member states on Tuesday.

OPEC+ members welcomed the charter as a tool for strengthening producers' influence over the oil market.

However, Jaffe notes that even bolstered by the expansion, OPEC+ may not have the ability to move the price of oil as significantly as in the past. Many OPEC members are struggling with involuntary production cuts — from Venezuela's collapse to U.S. sanctions on Iran. Meanwhile, the U.S. and other non-OPEC producers can ramp up production very quickly, thanks to new drilling technologies.

And if OPEC does push succeed in pushing prices up significantly, Jaffe says, it could backfire — from an oil producer's standpoint — by pushing the world to more quickly reduce its demand for oil.

"If the price of oil were to go up today ... more and more people would be inclined to buy an electric car," she says. "There are all kinds of features today with new technology that make it actually very dangerous to OPEC's long-term interest to really jack around the price of oil."
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🛢️ Tomgram: Michael Klare, It's Always the Oil
« Reply #228 on: July 15, 2019, 03:14:51 AM »

Tomgram: Michael Klare, It's Always the Oil
Posted by Michael Klare   at 7:53am, July 11, 2019.
Follow TomDispatch on Twitter @TomDispatch.

What more did you need to know once Secretary of State Mike Pompeo insisted that a suicide bombing in Kabul, Afghanistan, claimed by the Taliban, was Iranian-inspired or plotted, one “in a series of attacks instigated by the Islamic Republic of Iran and its surrogates against American and allied interests”? In other words, behind the Sunni extremist insurgents the U.S. has been fighting in Afghanistan since October 2001 lurks the regime of the Shiite fundamentalists in Tehran that many in Washington have been eager to fight since at least the spring of 2003 (when, coincidentally enough, the Bush administration was insisting that Saddam Hussein's Iraqi regime had significant ties to al-Qaeda).

It couldn’t have made more sense once you thought about it. I don’t mean Pompeo’s claim itself, which was little short of idiotic, but what lurked behind it.  I mean the knowledge that, only a week after the 9/11 attacks, Congress had passed an authorization for the use of military force, or AUMF, that allowed the president (and any future president, as it turned out) “to use all necessary and appropriate force against those nations, organizations, or persons he determines planned, authorized, committed, or aided the terrorist attacks that occurred on September 11, 2001, or harbored such organizations or persons.”

In other words, almost 18 years later, as Pompeo knows, if you can link any country or group you're eager to go to war with to al-Qaeda, no matter how confected the connection, you can promptly claim authorization to do your damnedest to them. How convenient, then, should you be in the mood to make war on Iran, if that country just happens to be responsible for terror attacks linked to the Taliban (which once did harbor al-Qaeda and Osama bin Laden). Why, you wouldn’t even need to ask Congress for permission to pursue your war of choice. And keep in mind that, recently, Congress -- or a crew of corrupted, degraded Republican senators -- simply couldn’t muster the votes or the will to deny President Trump the power to make war on Iran without its approval.

Let me hasten to add that the supposed link to al-Qaeda isn’t the only thing the Trump administration has conjured up to ensure that it will be free to do whatever it pleases when it comes to Iran. It’s found various other inventive ways to justify future military actions there without congressional approval. Pompeo and crew have, in that sense, been clever indeed. As TomDispatch regular Michael Klare, author of the upcoming book All Hell Breaking Loose: The Pentagon’s Perspective on Climate Change, points out today, there’s only one word largely missing from their discussions of the increasingly edgy situation in the Persian Gulf, the most obvious word of all. But read him yourself if you want to understand just how, when it comes to Iran and that missing word -- to steal a phrase from the late, great Jonathan Schell -- the fate of the Earth is at stake. Tom

    The Missing Three-Letter Word in the Iran Crisis
    Oil’s Enduring Sway in U.S. Policy in the Middle East
    By Michael T. Klare

    It’s always the oil. While President Trump was hobnobbing with Saudi Crown Prince Mohammed bin Salman at the G-20 summit in Japan, brushing off a recent U.N. report about the prince’s role in the murder of Washington Post columnist Jamal Khashoggi, Secretary of State Mike Pompeo was in Asia and the Middle East, pleading with foreign leaders to support “Sentinel.” The aim of that administration plan: to protect shipping in the Strait of Hormuz and the Persian Gulf. Both Trump and Pompeo insisted that their efforts were driven by concern over Iranian misbehavior in the region and the need to ensure the safety of maritime commerce. Neither, however, mentioned one inconvenient three-letter word -- O-I-L -- that lay behind their Iranian maneuvering (as it has impelled every other American incursion in the Middle East since World War II).

    Now, it’s true that the United States no longer relies on imported petroleum for a large share of its energy needs. Thanks to the fracking revolution, the country now gets the bulk of its oil -- approximately 75% -- from domestic sources. (In 2008, that share had been closer to 35%.)  Key allies in NATO and rivals like China, however, continue to depend on Middle Eastern oil for a significant proportion of their energy needs. As it happens, the world economy -- of which the U.S. is the leading beneficiary (despite President Trump’s self-destructive trade wars) -- relies on an uninterrupted flow of oil from the Persian Gulf to keep energy prices low. By continuing to serve as the principal overseer of that flow, Washington enjoys striking geopolitical advantages that its foreign policy elites would no more abandon than they would their country’s nuclear supremacy.

    This logic was spelled out clearly by President Barack Obama in a September 2013 address to the U.N. General Assembly in which he declared that “the United States of America is prepared to use all elements of our power, including military force, to secure our core interests” in the Middle East. He then pointed out that, while the U.S. was steadily reducing its reliance on imported oil, “the world still depends on the region’s energy supply and a severe disruption could destabilize the entire global economy.” Accordingly, he concluded, “We will ensure the free flow of energy from the region to the world.”

    To some Americans, that dictum -- and its continued embrace by President Trump and Secretary of State Pompeo -- may seem anachronistic. True, Washington fought wars in the Middle East when the American economy was still deeply vulnerable to any disruption in the flow of imported oil. In 1990, this was the key reason President George H.W. Bush gave for his decision to evict Iraqi troops from Kuwait after Saddam Hussein’s invasion of that land. “Our country now imports nearly half the oil it consumes and could face a major threat to its economic independence,” he told a nationwide TV audience. But talk of oil soon disappeared from his comments about what became Washington’s first (but hardly last) Gulf War after his statement provoked widespread public outrage. (“No Blood for Oil” became a widely used protest sign then.) His son, the second President Bush, never even mentioned that three-letter word when announcing his 2003 invasion of Iraq. Yet, as Obama’s U.N. speech made clear, oil remained, and still remains, at the center of U.S. foreign policy. A quick review of global energy trends helps explain why this has continued to be so.

    The World’s Undiminished Reliance on Petroleum

    Despite all that’s been said about climate change and oil’s role in causing it -- and about the enormous progress being made in bringing solar and wind power online -- we remain trapped in a remarkably oil-dependent world. To grasp this reality, all you have to do is read the most recent edition of oil giant BP’s "Statistical Review of World Energy," published this June. In 2018, according to that report, oil still accounted for by far the largest share of world energy consumption, as it has every year for decades. All told, 33.6% of world energy consumption last year was made up of oil, 27.2% of coal (itself a global disgrace), 23.9% of natural gas, 6.8% of hydro-electricity, 4.4% of nuclear power, and a mere 4% of renewables.

    Most energy analysts believe that the global reliance on petroleum as a share of world energy use will decline in the coming decades, as more governments impose restrictions on carbon emissions and as consumers, especially in the developed world, switch from oil-powered to electric vehicles. But such declines are unlikely to prevail in every region of the globe and total oil consumption may not even decline. According to projections from the International Energy Agency (IEA) in its “New Policies Scenario” (which assumes significant but not drastic government efforts to curb carbon emissions globally), Asia, Africa, and the Middle East are likely to experience a substantially increased demand for petroleum in the years to come, which, grimly enough, means global oil consumption will continue to rise.

    Concluding that the increased demand for oil in Asia, in particular, will outweigh reduced demand elsewhere, the IEA calculated in its 2017 World Energy Outlook that oil will remain the world’s dominant source of energy in 2040, accounting for an estimated 27.5% of total global energy consumption. That will indeed be a smaller share than in 2018, but because global energy consumption as a whole is expected to grow substantially during those decades, net oil production could still rise -- from an estimated 100 million barrels a day in 2018 to about 105 million barrels in 2040.

    Of course, no one, including the IEA’s experts, can be sure how future extreme manifestations of global warming like the severe heat waves recently tormenting Europe and South Asia could change such projections. It’s possible that growing public outrage could lead to far tougher restrictions on carbon emissions between now and 2040. Unexpected developments in the field of alternative energy production could also play a role in changing those projections. In other words, oil’s continuing dominance could still be curbed in ways that are now unpredictable.

    In the meantime, from a geopolitical perspective, a profound shift is taking place in the worldwide demand for petroleum. In 2000, according to the IEA, older industrialized nations -- most of them members of the Organization for Economic Cooperation and Development (OECD) -- accounted for about two-thirds of global oil consumption; only about a third went to countries in the developing world. By 2040, the IEA’s experts believe that ratio will be reversed, with the OECD consuming about one-third of the world’s oil and non-OECD nations the rest. More dramatic yet is the growing centrality of the Asia-Pacific region to the global flow of petroleum. In 2000, that region accounted for only 28% of world consumption; in 2040, its share is expected to stand at 44%, thanks to the growth of China, India, and other Asian countries, whose newly affluent consumers are already buying cars, trucks, motorcycles, and other oil-powered products.

    Where will Asia get its oil? Among energy experts, there is little doubt on this matter. Lacking significant reserves of their own, the major Asian consumers will turn to the one place with sufficient capacity to satisfy their rising needs: the Persian Gulf. According to BP, in 2018, Japan already obtained 87% of its oil imports from the Middle East, India 64%, and China 44%. Most analysts assume these percentages will only grow in the years to come, as production in other areas declines.

    This will, in turn, lend even greater strategic importance to the Persian Gulf region, which now possesses more than 60% of the world’s untapped petroleum reserves, and to the Strait of Hormuz, the narrow passageway through which approximately one-third of the world’s seaborne oil passes daily. Bordered by Iran, Oman, and the United Arab Emirates, the Strait is perhaps the most significant -- and contested -- geostrategic location on the planet today.

    Controlling the Spigot

    When the Soviet Union invaded Afghanistan in 1979, the same year that militant Shiite fundamentalists overthrew the U.S.-backed Shah of Iran, U.S. policymakers concluded that America’s access to Gulf oil supplies was at risk and a U.S. military presence was needed to guarantee such access. As President Jimmy Carter would say in his State of the Union Address on January 23, 1980,

    “The region which is now threatened by Soviet troops in Afghanistan is of great strategic importance: It contains more than two thirds of the world's exportable oil... The Soviet effort to dominate Afghanistan has brought Soviet military forces to within 300 miles of the Indian Ocean and close to the Strait of Hormuz, a waterway through which most of the world's oil must flow... Let our position be absolutely clear: an attempt by any outside force to gain control of the Persian Gulf region will be regarded as an assault on the vital interests of the United States of America, and such an assault will be repelled by any means necessary, including military force.”

    To lend muscle to what would soon be dubbed the “Carter Doctrine,” the president created a new U.S. military organization, the Rapid Deployment Joint Task Force (RDJTF), and obtained basing facilities for it in the Gulf region. Ronald Reagan, who succeeded Carter as president in 1981, made the RDJTF into a full-scale “geographic combatant command,” dubbed Central Command, or CENTCOM, which continues to be tasked with ensuring American access to the Gulf today (as well as overseeing the country’s never-ending wars in the Greater Middle East). Reagan was the first president to activate the Carter Doctrine in 1987 when he ordered Navy warships to escort Kuwaiti tankers, “reflagged” with the stars and stripes, as they traveled through the Strait of Hormuz. From time to time, such vessels had been coming under fire from Iranian gunboats, part of an ongoing “Tanker War,” itself part of the Iran-Iraq War of those years. The Iranian attacks on those tankers were meant to punish Sunni Arab countries for backing Iraqi autocrat Saddam Hussein in that conflict.  The American response, dubbed Operation Earnest Will, offered an early model of what Secretary of State Pompeo is seeking to establish today with his Sentinel program.

    Operation Earnest Will was followed two years later by a massive implementation of the Carter Doctrine, President Bush’s 1990 decision to push Iraqi forces out of Kuwait. Although he spoke of the need to protect U.S. access to Persian Gulf oil fields, it was evident that ensuring a safe flow of oil imports wasn’t the only motive for such military involvement. Equally important then (and far more so now): the geopolitical advantage controlling the world’s major oil spigot gave Washington.

    When ordering U.S. forces into combat in the Gulf, American presidents have always insisted that they were acting in the interests of the entire West. In advocating for the “reflagging” mission of 1987, for instance, Secretary of Defense Caspar Weinberger argued (as he would later recall in his memoir Fighting for Peace), “The main thing was for us to protect the right of innocent, nonbelligerent and extremely important commerce to move freely in international open waters -- and, by our offering protection, to avoid conceding the mission to the Soviets.” Though rarely so openly acknowledged, the same principle has undergirded Washington’s strategy in the region ever since: the United States alone must be the ultimate guarantor of unimpeded oil commerce in the Persian Gulf.

    Look closely and you can find this principle lurking in every fundamental statement of U.S. policy related to that region and among the Washington elite more generally. My own personal favorite, when it comes to pithiness, is a sentence in a report on the geopolitics of energy issued in 2000 by the Center for Strategic and International Studies, a Washington-based think tank well-populated with former government officials (several of whom contributed to the report): “As the world’s only superpower, [the United States] must accept its special responsibilities for preserving access to [the] worldwide energy supply.” You can’t get much more explicit than that.

    Of course, along with this “special responsibility” comes a geopolitical advantage: by providing this service, the United States cements its status as the world’s sole superpower and places every other oil-importing nation -- and the world at large -- in a condition of dependence on its continued performance of this vital function.

    Originally, the key dependents in this strategic equation were Europe and Japan, which, in return for assured access to Middle Eastern oil, were expected to subordinate themselves to Washington. Remember, for example, how they helped pay for Bush the elder’s Iraq War (dubbed Operation Desert Storm). Today, however, many of those countries, deeply concerned with the effects of climate change, are seeking to lessen oil’s role in their national fuel mixes. As a result, in 2019, the countries potentially most at the mercy of Washington when it comes to access to Gulf oil are economically fast-expanding China and India, whose oil needs are only likely to grow. That, in turn, will further enhance the geopolitical advantage Washington enjoyed as long as it remains the principal guardian of the flow of oil from the Persian Gulf. How it may seek to exploit this advantage remains to be seen, but there is no doubt that all parties involved, including the Chinese, are well aware of this asymmetric equation, which could give the phrase “trade war” a far deeper and more ominous meaning.

    The Iranian Challenge and the Specter of War

    From Washington’s perspective, the principal challenger to America’s privileged status in the Gulf is Iran. By reason of geography, that country possesses a potentially commanding position along the northern Gulf and the Strait of Hormuz, as the Reagan administration learned in 1987-1988 when it threatened American oil dominance there. About this reality President Reagan couldn’t have been clearer. “Mark this point well: the use of the sea lanes of the Persian Gulf will not be dictated by the Iranians,” he declared in 1987 -- and Washington’s approach to the situation has never changed.

    In more recent times, in response to U.S. and Israeli threats to bomb their nuclear facilities or, as the Trump administration has done, impose economic sanctions on their country, the Iranians have threatened on numerous occasions to block the Strait of Hormuz to oil traffic, squeeze global energy supplies, and precipitate an international crisis. In 2011, for example, Iranian Vice President Mohammad Reza Rahimi warned that, should the West impose sanctions on Iranian oil, “not even one drop of oil can flow through the Strait of Hormuz.” In response, U.S. officials have vowed ever since to let no such thing happen, just as Secretary of Defense Leon Panetta did in response to Rahimi at that time. “We have made very clear,” he said, “that the United States will not tolerate blocking of the Strait of Hormuz.” That, he added, was a “red line for us.”

    It remains so today. Hence, the present ongoing crisis in the Gulf, with fierce U.S. sanctions on Iranian oil sales and threatening Iranian gestures toward the regional oil flow in response. “We will make the enemy understand that either everyone can use the Strait of Hormuz or no one,” said Mohammad Ali Jafari, commander of Iran’s elite Revolutionary Guards, in July 2018. And attacks on two oil tankers in the Gulf of Oman near the entrance to the Strait of Hormuz on June 13th could conceivably have been an expression of just that policy, if -- as claimed by the U.S. -- they were indeed carried out by members of the Revolutionary Guards. Any future attacks are only likely to spur U.S. military action against Iran in accordance with the Carter Doctrine. As Pentagon spokesperson Bill Urban put it in response to Jafari’s statement, “We stand ready to ensure the freedom of navigation and the free flow of commerce wherever international law allows.”

    As things stand today, any Iranian move in the Strait of Hormuz that can be portrayed as a threat to the “free flow of commerce” (that is, the oil trade) represents the most likely trigger for direct U.S. military action. Yes, Tehran’s pursuit of nuclear weapons and its support for radical Shiite movements throughout the Middle East will be cited as evidence of its leadership’s malevolence, but its true threat will be to American dominance of the oil lanes, a danger Washington will treat as the offense of all offenses to be overcome at any cost.

    If the United States goes to war with Iran, you are unlikely to hear the word “oil” uttered by top Trump administration officials, but make no mistake: that three-letter word lies at the root of the present crisis, not to speak of the world’s long-term fate.

    Michael T. Klare, a TomDispatch regular, is the five-college professor emeritus of peace and world security studies at Hampshire College and a senior visiting fellow at the Arms Control Association. His most recent book is The Race for What’s Left. His next book, All Hell Breaking Loose: The Pentagon’s Perspective on Climate Change (Metropolitan Books) will be published in November.
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🛢️ Job Losses Hit As Shale Slows Down
« Reply #229 on: July 24, 2019, 02:10:56 PM »

Job Losses Hit As Shale Slows Down
By Nick Cunningham - Jul 24, 2019, 11:00 AM CDT

Halliburton is cutting its workforce and shelving fracking equipment amid a slowdown in the U.S. shale industry.

The oilfield services giant said that its revenue fell 13 percent in the second quarter, and it decided to cut its North American workforce by 8 percent. The company’s share price jumped 9 percent on the news, with shareholders apparently heartened by the cost-trimming measures.

Halliburton “is emphasizing a return on capital approach, and has stacked additional equipment in 2Q where returns were not justified, and expects activity down in [North America] in 3Q,” Morgan Stanley wrote in a note.

In an earnings call with analysts and shareholders on Monday, Halliburton CEO Jeff Miller laid out a few strategies in response to the weak shale market. The company has slashed capex by 20 percent as demand for its services has slowed. “We have sufficient size and scale in this market and see no reason to invest in growth when it comes at the expense of returns,” Miller said.

Also, Halliburton is “removing several layers of management.” Finally, the company has “stacked” – or removed – unused equipment “throughout the quarter and will continue to do so where we do not see acceptable returns,” Miller said. “The pressure pumping market remains oversupplied and we're not afraid to reduce our fleet size, as it contributes to righting the supply and demand imbalance.”

On the call, analysts seemed to approve of the measures. “Kudos for being proactive on stacking equipment in this market versus fighting for share,” Angie Sedita of Goldman Sachs said to Halliburton CEO Jeff Miller.

Last week, Schlumberger, the world’s largest oilfield services company, also relayed its experience with the slowing shale market. “North America land remains a challenging environment,” Olivier Le Peuch, Chief Operating Officer and soon-to-be CEO of Schlumberger, said in an earnings call on July 19. “Indeed, the E&P operator focus on cash flow has capped activity, and continued efficiency improvements have also reduced the number of active rigs and frac fleets, so far without major impact on oil production.”

For the oilfield services companies, it wasn’t all bad news. Drilling activity was up in other parts of the world, compensating for the decline in U.S. shale. The rather downbeat comments about U.S. shale stood in sharp contrast to how Schlumberger saw the international market, which the company says is in the midst of “broad-based activity growth.” Schlumberger’s Le Peuch noted that “as offshore momentum builds, shallow-water rig activity grew by 14%” in the second quarter, and whether in Latin America, Europe, Africa or Central Asia, the oilfield services giant saw strong growth.

In other words, the oilfield services company had a dramatically different experience in the shale patch compared to elsewhere. “At the close of the first half of 2019, international revenue has increased 8% year-over-year, while North America land revenue has declined 12% year-over-year,” Le Peuch said.

Outgoing Schlumberger CEO Paal Kibsgaard expanded on these themes in the conference call with analysts and shareholders. He said that U.S. shale is one of the few sources of supply growth, but “the consolidation among North American E&P companies is further strengthening the shift away from growth focus towards financial discipline.”

Globally, Kibsgaard said that sources of new supply will “start to fade in 2020,” thereby tightening up the market. In the meantime, “the cash flow focus amongst the E&P operators confirms our expectations of a 10% decline in North America land investments in 2019,” he said.

“This means the welcome return of a familiar opportunity set for Schlumberger,” Kibsgaard said. “For the first time since 2012 and 2013, we see high and single-digit growth in the international markets, signaling the start of an overdue and much needed multi-year international growth cycle.”

It’s a role reversal from just a few years ago, when capital flowed into Texas and North Dakota when drilling was growing at a torrid pace. At the time, global drilling activity outside of North America was depressed.

Meanwhile, a few other indicators also point to stress in the shale industry. The backlog of drilled but uncompleted wells (DUCs) has declined for the fourth straight month in June, which analysts view as a sign that drillers are resorting to a strategy of completing their already-drilled inventor as a way growing production while keeping a lid on costs. “They have already sunk their cash into the drilling portion,” Elisabeth Murphy, an analyst at ESAI Energy LLC., told Bloomberg last week. “Now it’s just a matter of completing rather than drilling new wells.”

However, new satellite data from data firm Kayrros finds that the number of DUCs is likely vastly smaller than public data suggests. Even more damning is that the number of wells completed last year might have been much higher than previously thought, which suggests that the industry needs more wells than expected to produce as much as they are.

Kayrros said that according to satellite data, “more than 1,100 wells were completed in the Permian basin but not reported through state commissions or FracFocus, a public repository for information on the chemicals used during fracking,” Kayrros said in a statement. “Kayrros measurements reveal that public data fail to capture the full scale of fracking. The macroeconomic implications of this underreporting are far-reaching.”

Because it takes many more wells to produce the current volume of oil, “the average well is both less productive and higher-cost than reflected in public data,” Kayrros said.

Andrew Gould, former Chairman of BG and Chairman CEO of Schlumberger and Kayrros advisory board chairman, put it bluntly: “With far more wells contributing to Permian and US oil production than accounted for, current shale oil production is substantially more water- and sand-intensive than is commonly believed,” he said in a press release.

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🛢️ Natural Gas Glut Is Crushing US Drillers
« Reply #230 on: July 30, 2019, 12:00:13 AM »

Natural Gas Glut Is Crushing US Drillers
By Nick Cunningham - Jul 28, 2019, 6:00 PM CDT

The outlook for natural gas producers is not great. They are getting clobbered by low prices today, amid a glut. But the medium- and long-term looks even worse, with renewable energy increasingly taking market share.

The gas industry has drilled itself into this predicament. Gas production continues to ratchet higher, rapidly replenishing inventories, which had plunged to a 15-year low heading into this past winter season. Inventories are still below the five-year average, but have climbed quickly in recent months.

(Click to enlarge)

If the natural gas industry had hoped that a stunning heat wave sweeping over a large swathe of the East Coast would rescue prices, they are surely now disappointed. Natural gas prices continue to fall, despite the heat, and there is little prospect of a rebound. On Friday, spot natural gas prices fell by another 3 percent, dipping below $2.20/MMBtu.

Record production from the Marcellus is one of the main reasons. But oil drillers are also to blame. The frenzied pace of drilling in the Permian – which, to be sure, has been slowing as of late – has produced a wave of natural gas so large that the industry is flaring enormous volumes of gas because of the lack of pipelines. Texas regulators seem unwilling to regulate the rate of flaring over fear of hurting the industry, so the flaring continues. 
Related: Is This The Last Bottleneck For Nord Stream 2?

Still, record levels of associated gas production from the Permian are dragging down prices. New midstream capacity later this year from the Gulf Coast Express pipeline will bring more gas to market, adding to supply woes. More pipelines are in the offing for 2020 and 2021.

Even the increasing volumes of gas exported overseas is not enough to tighten up the market. “We expect the current oversupply to persist as production growth, mainly associated gas from oil basins, matches LNG export growth over the next year,” Bank of America Merrill Lynch wrote in a note.

While some of this is not new news, the surprising thing is that the outlook does not seem to improve the further out one looks. There is little reason to expect things to turn around. Gas production is still rising and inventories will be well-stocked next winter. “[T]oo much gas past peak winter keeps pressure on next summer and allows us to maintain our $2.6/MMbtu price projection for the 2020 strip,” Bank of America said.
Related: Why Oil Tankers In The Middle East Shouldn’t Hire Mercenaries

Even more shocking still is that the investment bank said that the market becomes more depressed as we move into 2021. “Our lofty 4.5 tcf inventory outlook for 2021 is quite bleak and drives our 2021 average price forecast of $2.4/MMbtu, which is $0.15/MMbtu below the current curve,” the bank said.

Beyond that, the queue of new LNG projects dries up, taking away a growing source of demand. The glut of LNG capacity over the last few years lead to a dearth of FIDs in new export facilities. As the list of projects currently under construction finishes up, there are few projects coming in behind them. “The real problem, in our opinion, is not the LNG export capacity growth over the next year, but is instead the lack of LNG capacity additions in 2021-2023,” Bank of America said. “During the lull in US LNG export growth, the US will likely have to rely on some combination of other sources of demand and a slowdown in production growth.”

But here is where it gets really tricky for the gas industry. Even amid the current down market, demand has also been growing quite a bit. Cheap gas has opened up new markets in petrochemicals, electric power and exports. But by the mid-2020s, renewable energy really starts to begin eating into the gas industry’s market share. To date, natural gas in the electric power sector has grown briskly, seizing market share from the mortally wounded coal industry. But in the 2020s, gas will have a tougher time, as it begins to fall prey to clean energy.

The writing is already on the wall. NextEra Energy Resources signed a deal in recent days that may offer a glimpse into the future. The deal with Oklahoma-based Western Farmers Electric Cooperative calls for a renewables combo – 250 megawatts of wind, 250 MW of solar, and 200 MW of battery storage. Integrated together, the project addresses intermittency concerns. The kicker? It’s cheaper than natural gas. “It’s actually cheaper, economically, than a gas peaker plant of similar size, particularly with the tax credits that are available right now,” Phillip Schaeffer, the principal resource planning engineer at Western Farmers, told Greentech Media. “Prices have fallen significantly over the last several years.”

As the deal shows, this is not an abstract far-off threat for gas. Gas is losing out to renewables today. “[R]enewable energy could provide headwinds for power sector natural gas demand,” Bank of America said. “Wind and solar projects, even without subsidies, are now competitive with new build natural gas generation, which is a depressing statistic for potential longer term natural gas bulls.”

“The lull in LNG demand growth that begins in 2021 and renewable headwinds are too much for the natural gas market to overcome,” Bank of America concluded. Natural gas companies are ultimately going to have to hit the brakes on new drilling, the bank said.

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🛢️ Will Shale Rise From The Dead?
« Reply #231 on: August 13, 2019, 01:34:51 AM »


By Kurt Cobb - Aug 12, 2019, 12:00 PM CDT

Will Shale Rise From The Dead?

A flurry of coverage about the gloom and outright calamity in the shale oil business appeared last week. Low prices continue to dog the industry. But so does lack of investor interest in financing loss-making operations for yet another season. Plunging stock prices portend more bankruptcies if circumstances don't change.

I received considerable pushback last January when I asked whether U.S. shale oil had entered a death spiral. The almost constant refrain of the cheerleaders for the shale oil industry has been that increasing production demonstrates there is something wrong with my analysis and that of others who have been skeptical of the industry's claims.

We skeptics have certainly been wrong about how long the boom could go on. We could not fathom why investors kept funneling capital into businesses that were consistently consuming it with no hope of ever providing a long-term return.

I can remember when Alan Greenspan, the former U.S. Federal Reserve Bank chair, opined in December 1996 about "irrational exuberance" in the U.S. stock market. His speech turned out to be only an inflection point for the technology sector boom. The tech-heavy NASDAQ stock exchange rose 288 percent between the day Greenspan spoke and the index's peak in March 2000.

In the subsequent bust the bankruptcy courts were littered with companies that had never made dime.

So far this summer season we have heard two unthinkable utterances come from shale oil industry executives. The first linked above was that the industry has destroyed 80 percent of the capital entrusted to it since 2008. This came from a CEO no longer in the industry.

The second, however, came from one of the largest players in the Permian Basin, the hotbed of shale oil activity. Pioneer Natural Resources CEO Scott Sheffield said that the industry is running out of so-called Tier-1 acreage. That's oil-speak for "sweet spots." Those are the circumscribed areas in shale deposits within which extraction costs are low enough to justify drilling.

Outside the sweet spots there is oil, but it is much more costly to extract. The industry at one time likened shale oil production to a manufacturing operation, claiming the one could drill practically anywhere in a shale deposit and get oil out profitably. No one is making such claims credibly any more.
Related: Germany’s Big Bet On Hydrogen

Now, just two years ago the same Scott Sheffield mentioned above compared the Permian Basin to Saudi Arabia. To be fair to Mr. Sheffield, his job is to attract investors so he can drill more wells. So, I fault mostly the investors for not looking carefully at the economics of shale oil which have been free cash flow negative for the industry as a whole for almost a decade.

Some have called shale oil a Ponzi scheme. In a Ponzi scheme the books of the Ponzi operator are kept hidden from the investors so as to make sure they don't catch on that money from new investors is being used to pay exorbitant returns to old ones. In the case of shale oil, the financials were published quarterly by the publicly traded companies for all to see. And, the wealth extracted by company managements could be calculated practically to the penny.

So, why didn't investors understand what they were looking at? One possible explanation comes from an oil company executive who explained to me way back in 2009 that oil and gas companies often promote themselves as so-called "asset plays" to investors. They drill a lot of very marginal prospects to get reserves on their books and then tout the growth in their reserves. But much of those reserves will never be exploited at a profit. They are essentially a mirage.

Resource investing is tricky and most investors, even sophisticated ones, can be fooled by the hype. It's very difficult to know whether something a company calls a reserve is actually a reserve—even more so since 2008 when the Securities and Exchange Commission allowed companies to use "proprietary methods" to determine reserves that are not subject to disclosure.

It's true that the amount of oil in any one formation can be huge. But that is of no practical consequence if you can't get the oil out at a profit and do that consistently.
Related: The Revival Of A $53 Billion Megaproject

To illustrate, there is enough gold dissolved in the world's oceans to make all those who are reading this piece millionaires. But the gold remains far too costly to extract.

It seems now that investors are finally realizing that the promise of most of these "asset plays" is never going to be realized.  Even a cheerleading trade publication last week ran a piece entitled "Is the US Shale Boom Winding Down?"

We skeptics said shale oil would not work on the so-called "manufacturing model" asserted by industry. It turned out we skeptics were right. The industry actually focused on "sweet spots" that allowed lower-cost extraction.

We skeptics said that a large portion of the sweet spots would probably be exploited within a decade or so depending on the pace of drilling and the price oil. Now one of the industry's most prominent CEOs is lamenting in public about the paucity of sweet spots remaining.

We skeptics said that investors would at some point realize that shale oil was a long-term money loser. A former industry CEO did the math and calculated the damage as minus 80 percent for investors in the industry as a whole since 2008. Lately, investors seem to be reacting to facts rather than the hype.

Will shale oil rise again from the dead as it did after the 2014-2016 price decline? That will happen only if two things occur: 1) The oil price rises significantly and 2) investors have a serious bout of amnesia.

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🛢️ ‘Rogue’ Oil Trader Loses $320 Million In Massive Trading Bust
« Reply #232 on: September 22, 2019, 06:30:51 AM »
He'll be taking flying from balcony lessons soon.


‘Rogue’ Oil Trader Loses $320 Million In Massive Trading Bust
By ZeroHedge - Sep 21, 2019, 2:00 PM CDT

A Singapore-based subsidiary of Japanese trading giant Mitsubishi recently booked a $320 million loss after several unauthorized derivatives trades went sour, the company revealed in a Friday press release. The bank blamed the losses on a 'rogue trader' who allegedly manipulated the subsidiary's risk-management system, allowing him to place massive derivatives bets on the price of oil and disguise them as hedges similar to what JPMorgan did with the whole London Whale debacle.

Though the bank didn't release the trader's name, according to the press release, he was fired earlier this week. The bank has since reported his actions to the local police.


The trader had been taking unauthorized derivatives positions since January, but he suffered heavy losses over the summer as oil prices fell. He reportedly occupied a relatively senior position, and was in charge of all transactions involving China for the subsidiary.

The bank launched an investigation into the traders' positions while he was out of office in the middle of August. It soon discovered the unauthorized positions, and decided to unwind them immediately (the bank probably could have minimized losses if it had waited until Monday to unwind those positions, when prices spiked nearly 20% intraday).

Because the trader had manipulated the subsidiary's risk-management system, he was able to make it look like the derivative trades were associated with customer orders.
Related: Oil Prices Up As Iran Prepares For "All Out War"

As the FT points out, Mitsubishi made a $5 billion net profit last year, so the trading loss is more of an embarrassment than a threat to the bank's survival. But according to Bloomberg, the oil market has a long history of massive trading busts.

Bad Bets

The incident is a reminder of the damage that a rogue trader can cause to a large financial institution, according to the FT. The Mitsubishi rogue trader will join a growing 'rogues gallery' that includes Société Générale's Jérôme Kerviel, JPM's "London Whale" (a.k.a. Bruno Iksil), and Barings' Nick Leeson.

* * *

Read Mitsubishi's announcement below:

Losses from Overseas Subsidiary’s Crude Oil Trading

This is to inform you that Mitsubishi Corporation (hereinafter “MC") can confirm that one of its subsidiaries based in Singapore has realized a previously unidentified loss from derivatives trading. Investigations are currently ongoing to determine all of the details, but what is known so far is outlined below.

MC recognizes the seriousness of this matter and shall be redoubling efforts throughout the entire MC Group to ensure that it does not happen again.

1. Situation at Present

Petro-Diamond Singapore (Pte) Ltd. (hereinafter “PDS"), a subsidiary of MC that engages in the trade of crude oil and petroleum products, has confirmed that it expects to book a loss of approximately 320 million USD from its trade of crude oil derivatives.

Although PDS has already closed the position in question and determined how much was lost on the underlying derivatives, we are now examining the total amount of losses.

2. Facts Determined Thus Far

An employee who was hired locally by PDS to handle its crude oil trade with China (hereinafter “the employee”) was discovered to have been repeatedly engaging in unauthorized derivatives transactions and disguising them to look like hedge transactions since January of this year. Because the employee was manipulating data in PDS’s risk-management system, the derivatives transactions appeared to be associated with actual transactions with PDS’s customers. Since July, the price of crude oil has been dropping, resulting in large losses from derivatives trading. PDS began investigating the employee’s transactions during his absence from work in the middle of August, and that is when the unauthorized transactions were discovered.

3. MC's and PDS’s Response

After recognizing that the transactions being investigated could result in a loss for PDS, MC and PDS immediately consulted with an outside lawyer and established an investigation team, including local outside experts, to gain an overall picture of the situation and identify the causes.

- PDS quickly closed the derivatives position in question and determined the losses caused by the transactions which were not associated with any crude oil transactions with PDS’s customers. PDS also has since prevented the commencement of any similar transactions.
Related: U.S. Oil Rig Count Takes Sharp Turn Downward

- MC conducted internal investigation at PDS, which included inspections of PDS’s contracts, rules, risk-management system and internal controls. Based on its findings, MC has reconfirmed that PDS has sufficient internal controls in place, including a middle office responsible for risk management. MC also confirmed PDS already tightened its governance to ensure that any similar improprieties can be detected at a much earlier stage.

- MC also performed investigations at its other MC group companies and MC’s in-house business departments engaged in derivatives trading to determine whether or not any similar improprieties have been taking place. These investigations confirmed that there are no such problems or risks at present.

- PDS terminated the employment of the employee on September 18. In order to take a strong action in response to the violation of internal rules and laws committed by the employee, which has caused PDS this significant loss, PDS lodged a police complaint against the employee on September 19.

4. Impact on MC’s FY2019 Forecast

How the losses will impact MC’s forecast for FY2019 is under investigation and shall be announced if and when a performance review is necessary.

Further details with respect to the ongoing investigations shall be made accordingly.

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Re: 🛢️ Will Shale Rise From The Dead?
« Reply #233 on: September 22, 2019, 01:25:07 PM »


Quote from: Kurt Cobb
By Kurt Cobb - Aug 12, 2019, 12:00 PM CDT

Will shale oil rise again from the dead as it did after the 2014-2016 price decline? That will happen only if two things occur: 1) The oil price rises significantly and 2) investors have a serious bout of amnesia.

By Kurt Cobb via

US production wasn't dead before 2014, or during the 2014-2016 time period. I wonder what Kurt means this time? His list of things that the detractors claimed in advance seems a bit cherry picked, and avoids the thing he really doesn't want to talk about at all...otherwise known as Saudi America. There has certainly been a cost....and most certainly a benefit. How can you even measure the value of what the US was able to do to global oil markets, the savings to the consumer, and all through private enterprise rather than the gubbermint getting involving and screwed it up?

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🛢️ Climate change: Did we just witness the beginning of the end of Big Oil?
« Reply #234 on: September 23, 2019, 12:31:48 AM »

Climate change: Did we just witness the beginning of the end of Big Oil?
Published Sun, Sep 22 2019 9:00 AM EDT
Eric Rosenbaum  @erprose

EA: Exxon Mobil gas pumps in Florida ahead of Hurricane Dorian
Out of service fuel pumps are covered in plastic wrap and tarps at an Exxon Mobile gas station.
Bloomberg | Bloomberg | Getty Images
Key Points

    The energy sector is notorious for booms and busts, but oil and gas stocks’ weighting in the S&P 500 has not been this low since as far back as 1979.
    Investors have lost faith in oil companies, but it is not yet clear whether that is a permanent change caused by fear of increasing advances made by renewable-energy sources like wind, solar and electric batteries, or a temporary reluctance to invest caused by low oil prices.

Is the oil barrel half empty or half full? In the past week you had your pick of answers to choose from, and they were bookended nicely from the week’s beginning to its end.

The missile and drone attack on the largest Saudi Arabian oil-refining operation, which resulted in the largest single-day gain for crude oil ever on Monday, reminded a world that had gone a long time without a geopolitical shock how central the role of oil remains.

By Thursday, though, Amazon CEO Jeff Bezos — a man whose every latest decision is equated with doom for whoever is on the other side of the competition — announced his company would reach a goal of carbon neutrality by 2040, a decade ahead of the Paris Agreement goal. Bezos said 10,000 electric-delivery vehicles will be on the roads in just three years (2022) and 80% of Amazon will be operating on renewable energy by as early as 2024. By 2030 all of Amazon and 100,000 delivery trucks will be 100% powered by renewable energy. On the same day, Google announced it was investing $2 billion in new renewable-energy projects, a record corporate purchase.

One day later millions around the world took to the streets — including Amazon and Google employees — in a climate strike ahead of UN Climate Week. “The plain truth is that capitalism needs to evolve if humanity is going to survive,” Patagonia CEO Rose Marcario wrote on LinkedIn.

You could add the fact that Duke Energy — the largest utility in the U.S., which for years had resisted renewables — announced this week that it would reach an interim target of 50% carbon emission reductions by 2030, 100% by 2050. Or that Daimler, credited with inventing the modern gasoline engine, announced it will cease all research and development related to internal combustion in favor of electrification.

And that was just one week.

For more on iconic global companies and executives embracing change and transforming for the future, join us live on Sept. 24 in Chicago at CNBC Evolve, a summit for business decision makers seeking to innovate.

But none of this week’s events mean as much to the energy market as two recent milestones in the S&P 500. These stock market technicals did not make as much noise but speak volumes about crude oil.

Exxon Mobil dropped out of the S&P 500′s top 10 stocks for the first time in nine decades, and the energy sector weighting in the S&P 500 hit a low of roughly 4%. Yes, oil and gas is a boom-and-bust sector and its valuation can be volatile, but the sector has not had a weighting this low based on S&P 500 data in four decades.

That poses a question that no one can answer with conviction, but it won’t be going away: Are we beginning to see signs of the end of Big Oil as an investment stalwart, regardless of what’s still sitting in the underground reserves around the world?
Some investors are losing confidence

Sam Margolin, managing director and senior analyst at Wolfe Research covering energy sector stocks, said with some investors the oil industry has become its own hurdle, and the general fear about where the world is heading supersedes the need to be certain about a peak oil timeline.

“To the extent anyone says, ‘I can’t look at the sector because I have no long-term confidence in oil as an energy source,’ what is interesting about those comments is that the time frame is not relevant. Someone will say, ‘Oil will be used in 10 years but I don’t know about 20 or 50.’ It is just at some point in the future it will be out of the mix, and that’s a hurdle to overcome, and there are investors like that. It’s not universal, and there are just as many people on the other side who say the next shortage will come sooner than anyone expects.”

One way to discount any correlation between the sector’s S&P 500 decline and general investor souring on energy is to focus on how big the technology industry has become. As the weighting of the biggest U.S. tech companies have grown and consumed more of the total market return, other weightings decline.

Over the past five-year period, 30% of the S&P 500 return was generated by the five biggest technology stocks — Alphabet, Facebook, Apple, Microsoft and Amazon.

“The rest of the market has been getting bigger and leaving energy companies behind,” Margolin said. “The market cap of Exxon Mobil is not lower than it was 20 years ago. It is just that the rest of the market has tripled.”

The stock market weighting is not the only place where this shift from energy to tech is evident. In 1982, when the Forbes 400 list was first published, 89 of the 400 richest Americans had made their fortunes in oil. By 2018, 59 of the Forbes 400 had made their fortunes in technology, including six of the top 10, Bezos among them.

But oil has been down before, just never by this much in the S&P 500.

“This is not the first time oil prices have been in the $50–$60 range, and yet the energy weighting is significantly less than it had been in the past,” said Stewart Glickman, energy analyst at CFRA. When oil was trading between $50 and $60 during 2005 and 2006, the world was a different place. “Now alternative energy is a threat. It is still not a threat that renewables in a really significant way are taking over for fossil fuels,” he said, noting that the intermittent generation of solar and wind and scaling of energy-storage solutions remain challenges. “But people are worried,” Glickman said. “They’ve lost the growth investors even if they still have dividend investors.”

“I don’t dismiss it as much as other people might,” said Nick Colas, co-founder of DataTrek Research who worked in energy research earlier in his career on Wall Street. “I remember the first oil shock [of the 1970s] vividly. People who were 50-plus retail investors with capital to invest would be shocked to see where oil is in the S&P as a sector now. It is just not as interesting a place to invest. ... Venture capital money isn’t going into carbon-based energy.”

“Stocks that have really worked are the ones where there is consensus,” Margolin said. “Everyone knows online transaction counts are going higher, or streaming subscribers going higher. There is no consensus on a positive direction for oil.”
Index funds play a role

More money also has been going into passive index funds. For the first time in August, U.S. index mutual fund assets matched the total assets under management in actively managed mutual funds. The adoption of environmental, social and governance screens by many passive fund managers is beginning to contribute to lower weightings for fossil-fuel companies.

“Oil and gas does not screen well, so as passive grows that is another headwind,” Margolin said. “Passive has no flexibility with respect to ESG. You could go into the office of a human portfolio manager and convince them that Exxon is working to lower their carbon footprint. You can explain that to a human, but not a robot.”

In fact, investors no longer need to accept any weighting to energy stocks. The amount of money invested in U.S.-based fossil-fuel free funds — investments constructed to hold no stocks in the fossil fuel business — has reached $100 billion, according to shareholder advocacy group As You Sow. “You’re hands are no longer tied,” said Andrew Behar, CEO of As You Sow.

“It’s obviously out of favor, and there is influence from ESG investors no matter what oil prices are doing,” Glickman said.

Some energy analysts say technology’s dominance will only grow as a long-term, and direct, threat.

“Investors are worried that oil demand will peak and the sector is not ready for it. Same as in European electricity, coal, autos and GE. The fear is that this is not just another cycle but a structural shift,” said Kingsmill Bond, CFA and energy strategist at Carbon Tracker, a nonprofit that researches the impact of climate change on the financial markets. “The oil sector is just another example of an incumbency disrupted by superior technology. Markets have seen this many times and it does not play out well for the incumbents.”

Colas said while he remains unconvinced, analysts calling this the “Peak Oil” moment — Carbon Tracker’s Bond is among them — have the upper hand for now. “From an investment standpoint, it seems prescient now that prices just won’t lift.”

After the attack on the Saudi oil infrastructure crude ended the week up near-6%; the energy stock sector within the S&P 500 was up 0.99%, according to CNBC data.
Natural gas under attack by wind and solar

The next market where the disruptive potential is highest may be natural-gas fired power generation. If the past decade was about natural gas displacing coal in the utility sector, the next decade will be a competition between natural gas and renewables including wind and solar, say analysts.

“We are just now shifting our focus to the competition between natural gas and renewable energy,” said Travis Miller, utilities analyst at Morningstar. “Renewables were the sideshow as natural gas competed with coal, but we see natural gas and renewables increasingly competing with each other. Increasingly, there are a number of cases where it is more advantageous for customers and utilities to invest in solar and wind versus natural gas. Rewind to a decade ago and all the utilities were talking about natural gas.”

The CEO of the Northern Indiana Public Service Company said recently, “The surprise was how dramatically the renewables and storage proposals beat natural gas. I couldn’t have predicted this five years ago.”

Exxon Mobil and its oil peers are heavily invested in natural gas projects around the world. While that means big bets on the liquified natural gas market won’t be influenced by a faster shift in U.S. power generation, the cost equation is going to change globally.

“The concern is going straight from coal to renewables,” Margolin said. “It looks unlikely because of the scale of renewable investment required, but we are going into a period of time when we know eventually the world will be off oil; we don’t know if the same can be said of natural gas.”

Royal Dutch Shell is the biggest global player in the liquified natural gas market and it expects gas demand to double by 2035 from current levels, which would imply a big supply shortfall and much more investment needed to meet that demand. “The vast majority is for power generation,” said energy research firm Wood Mackenzie analyst Luke Parker.

A recent report from the Rocky Mountain Institute argues that the investments being made today in gas-fired power plants and pipelines will quickly become a money loser. Utilities and investors have announced plans for over $70 billion in new gas-fired power plant construction through 2025, but its research suggests that 90% of the proposed capacity is more costly than equivalent clean energy portfolio options for utilities.

Battery storage costs — key to making intermittent sources of power like solar more reliable as a primary part of the grid — are also expected to fall drastically. From 2010-2018 lithium-ion battery costs declined by 85% and they are forecast to decline by another 50% by 2030, according to Bloomberg New Energy Finance, with major implications for the utility and electric vehicle market.

Announcements like Amazon’s purchase of 100,000 electric delivery vans are good for every player in the battery market, said former Ford CEO Mark Fields on CNBC, as the increase in battery production will drive down pricing more broadly.
Amazon to meet Paris climate goals 10 years ahead of schedule

Before Duke Energy’s commitment this week there was Xcel Energy in Minnesota, the first U.S. utility to say it was on the path to 100% renewable power generation. It had been one of the heaviest coal generators in the U.S., but also sits in a geographic footprint which maps with high wind potential, Miller said. “They have completely transitioned from coal to natural gas and now, in last two years, to an entire focus on renewables.”

A critical part of this shift for utility companies is getting all the stakeholders on board, he said, and the Xcel example shows that is happening, with regulatory support and customer support to invest substantially in renewables.

“We think solar will be the story of next decade,” Miller said. “The big winners will be investing heavily in renewables now. Companies that come to the table in a decade are going to be losers. They will be stuck with stranded assets.”

Natural gas will continue to be a huge part of the U.S. grid, up from one-third of generation not to as much as 40% in the next five years, but Miller said “it is looking more like bridge fuel rather than the primary fuel we thought it would be a decade ago. Everyone foresaw challenges coal faced. I don’t think people saw the speed at which renewables would become such a primary source of investment in the generation business.”
Big Oil’s energy transformation?

The oil and gas management teams at companies like BP and Shell are talking a lot more about energy transformation. A recent analysis of presentations and investor calls done by Wood Mackenzie’s Parker found an “exponential increase” in use of terms like “energy transition.”

“Energy transition terminology has gone from zero or near to zero five years ago to one of dominant themes of messaging to investors, and that speaks volumes about how investors have moved, and how companies are having to move themselves,” Parker said. But he added “actions speak louder than words” and the low-carbon investments relative to the traditional oil and gas investments on the balance sheet of these companies are “still a fraction.”

Shell is planning to spend $2 billion to $3 billion annually on renewable energy out of a total budget of $30 billion per year through 2025. On average, oil and gas companies are spending 1% of their budget on renewables.

There’s a simple reason why: they still make a lot more money from fossil-fuel extraction, including in the U.S. shale plays.

“There is no renewable investment that will compete with returns from the Permian Basin,” Parker said.

“With major oil and gas cos like Exxon and Chevron, the reason they keep reinvesting in oil and gas at this rate over renewables is not a philosophical thing,” said Margolin. “They invest because this is where they see the financial case and if ever there is a clear signal the return profile was better in renewables, they would go there.” He added, “The difference between them and a Kodak or a coal company is that they have much better resources, and $40 billion in cash flow annually with which they can pivot between projects. ... I see where are people tempted to make the analogy to other disrupted industries, but these others don’t have the financial might of Exxon.”

Shell’s investment will be a good test case of whether the oil and gas majors can generate comparable returns on investment from renewables. “Stable cash flows of offshore wind may be exactly what investors looking for in a super major to mitigate the type of risk we saw last weekend,” Parker said.

A record-setting auction for offshore wind power projects in the U.K. this past week priced them at lower rates than current coal and natural gas generation prices in the U.K.

“Shell has the scope to make competitive returns in this area and they would not be investing if they did not think so, but at the same time, clearly the amount they are talking about energy transition and renewables versus the actual focus of the here and now is disproportionate,” Parker said.

The $2 to $3 billion Shell plans to spend on renewable investments per year compares to $125 billion in dividends and share buybacks Shell plans to deliver to investors between 2021 and 2025.

That’s not a surprise: analysts say as the commodity case for energy stocks has failed to compel investors, the oil and gas companies need to find other ways to attract their money. On its last earnings call with analysts, Exxon Mobil conceded under questioning that it had been holding meetings with investors asking about their interest in a buyback of its shares.
Lack of discipline has damaged oil industry

With geopolitical tensions rising after the attack on Saudi oil operations and the U.S. government contemplating its next move against Iran, which the U.S. and Saudi Arabia claim was behind the attack, the 6% rise in oil in the past week could turn into an extended risk premium in oil.

Energy is cyclical, but time is not on the side of fossil fuels in the long run, and that means with each cycle during which it underperforms, the clock is ticking in a way it does not for other sectors. “It’s been a chronically bad performer for several years,” Glickman said.

The loss of confidence among many investors stems from the most recent overspending period when oil prices were higher. From 2011 to 2014, crude oil traded above $85 a barrel. By 2015, it was in the low $40s.

“Investors were burned,” Colas said. “100% of complaints go back to 2011 and 2012. They lost all credibility. The lack of faith is not quite as bad as WeWork or Uber, but it will take oil going back to $85 and the drillers not going crazy for belief to come back. Any cyclical company that went through a near-death experience has to show the market they are more disciplined.”

Glickman said the companies have “found religion” since prices bottomed in 2016 in the $30s. “They made substantial changes.”

That has translated into stronger cash flow and earnings acceleration, but it has not translated into the one market indicator of renewed investor conviction: higher stock multiples.

“The industry has a pretty checkered history when prices get better. Lack of trust,” Glickman said. “Exploration and production companies are making more money and integrated oil and gas companies are generating good cash flows, but the changes have not manifest into demand for the stocks yet. All the stocks are languishing.”

It may take a significant rise in oil prices to dispel the belief of energy experts who are inclined to judge the current period as being one more cyclical trough.

“If oil rises significantly and the stocks have not performed then clearly there is a question about long-term sustainability of the industry. But I don’t think you can ask that question today,” Margolin said. “We are dealing with a short duration of history here.”

It is also a period of time during which U.S. production growth has disrupted the global market balance. “This has been viewed as something that was possible only for the last four of five years. ... We have no track record of sustaining this level of supply growth at any price,” he said.
Peak Oil

Calling peak oil has been a fool’s errand for over a century. When the first U.S. oil bonanza began in Titusville, Pennsylvania, in the late 1850s many in the press were confident that it would be the beginning, and the end, of the U.S. oil boom.

But the conversation has changed.

“Peak oil used to be a conversation about supply running out, but now it is about demand peaking,” Parker said.

“In the future, exploration is largely redundant — at least for the purposes of adding resource — even in a modest demand growth scenario,” Wood Mackenzie analysts wrote in a recent report. “The world does not have a supply problem. The world is awash with oil and the Majors know it.”

The report went on: “The fundamental question is this: will industry forecasts for sustained oil demand growth ‘prevail’ over scientific warnings of the consequences of that growth? At this point, we simply cannot know. But one thing is for certain — neither companies nor investors can afford to bet the farm on either outcome.”

Carbon Tracker’s Bond sees in the planned Saudi Aramco IPO, whose timing has been thrown into question by last week’s attack, the ultimate tell that Peak Oil is here. “The largest oil IPO in history. At a time when there are fears of peak oil demand,” he said. “I don’t think I need to elaborate.”

Though, roughly 160 years after Titusville, if anyone can stretch out the oil era to its most-delayed possible end, it is Saudi Arabia.

“The Saudis, along with the Russian and U.S. tight oil, these are the lowest-cost barrels in the world and they will still be producing. Canadian oil sands or frontier deepwater, or U.K. North Sea where there are high operating costs, go first. That’s where barrels first stay in the ground,” Parker said.

And that already has started to happen. Exxon Mobil and other major oil companies including ConocoPhillips have had to write down existing reserves in Canadian tar sands, which the companies say is done for regulatory accounting purposes and can be reversed if prices rise, but others argue the debooking of assets should be viewed as a long-term read-through on demand.

An August report from BNP Paribas forecasts that oil will have to go as law as $10 to be competitive with renewables in the electric car era. While the U.S. oil boom in the shale is such a recent phenomenon that analysts still struggle to understand exactly how much money these companies can make in various price scenarios, and have trouble placing too much faith in cost estimates offered by management, Saudi drilling is the lowest-cost in the world.

That makes Parker certain of at least one thing when it comes to Saudi Arabia and arguments over peak oil demand. “They will be going to the end.”
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Climate change: Did we just witness the beginning of the end of Big Oil?
Published Sun, Sep 22 2019 9:00 AM EDT
Eric Rosenbaum  @erprose

The short answer, of course,

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Climate change: Did we just witness the beginning of the end of Big Oil?
Published Sun, Sep 22 2019 9:00 AM EDT
Eric Rosenbaum  @erprose

The short answer, of course,

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🛢️ Oil Markets Are One Outage Away From Crisis
« Reply #237 on: September 23, 2019, 08:46:45 AM »

Oil Markets Are One Outage Away From Crisis
By Nick Cunningham - Sep 22, 2019, 6:00 PM CDT

The supply disruptions in the oil market may not be over, despite volatility and prices easing in the days after the Abqaiq attack.

The repairs at the Abqaiq processing facility are on an extremely tight timetable. According to Bloomberg, Saudi Aramco had about 50 million barrels in storage within the country prior to the attack, plus around 80 million barrels at ports around the world (although not all of that is usable).

Aramco is determined to keep export levels from falling, choosing to draw down inventories to keep shipments unaffected. It is also opting to slash refining throughput by about 1 million barrels per day (mb/d), which will cut into product exports but will free up crude. One other strategy is to start up production at some offshore fields.

But Aramco vowed to make repairs and bring Abqaiq processing back to pre-attack levels by the end of September, which, at this point, is less than two weeks away. If repairs take longer, then there will be increased scrutiny on Saudi inventories, and any interruptions to buyers would have global impacts. “They probably have about one month of inventories,” Amrita Sen of Energy Aspects told Bloomberg.

It may take a few weeks before more is known. “A lot of October arrival barrels were already on the water so the hole is going to show up toward late October,” a European oil trader told Reuters. “There has been a mad scramble on the paper markets but the physical scramble will come later.”

There is also a growing skepticism that Saudi Arabia will be forthcoming about the true extent of the damage and its ability to turn things around. The “actual longer-term impact of the attacks on the Saudi oil infrastructure is still difficult to judge because the country is likely to play down any potential problems given the importance of its customer relations and the upcoming IPO of Saudi Aramco,” Commerzbank wrote in a note on Friday.
Related: Wealthy Saudis Are Being Bullied Into Buying Aramco

If Aramco loses its perception as a reliable supplier it would have severe implications for its valuation when the company goes public. Meanwhile, the FT reports that the Saudi government is bullying wealthy facilities into buying into the IPO to ensure its success. Riyadh is clearly concerned about the perception of Aramco in the wake of the Abqaiq attack. 

Also, news surfaced that Saudi Arabia might need to import oil to cover its obligations for customers, which raised questions about Aramco’s ability to keep exports level. Of course, there are going to be some quality issues with the type of oil sitting in storage and what was lost due to the Abqaiq outage, and it’s not uncommon for exporters to also import. But if one of the world’s largest oil producers and exporters is suddenly scrambling to import oil, that raises some red flags.

If they are indeed asking Iraq for oil, that “would suggest that the damage to the Saudi infrastructure is in fact greater and more lasting than the country is willing to admit,” Commerzbank said. For its part, Aramco denied having asked Iraq’s state-owned oil marketing company for oil.

Meanwhile, a raft of other supply outages could also disrupt the oil market, compounding the outage at Abqaiq. A little more than a week ago, Nigeria’s Bonny Light suffered yet another force majeure after disruptions at the Nembe Creek Trunk Line, which has been repeatedly targeted in the past few years.
Related: Is Libya Facing A New Oil Crisis?

Also, Reuters reports that Venezuela might see more supply disruptions as buyers steer clear of the country. With storage systems filling up, upstream output might need to be further curtailed. “Storage is almost at top capacity. We are just days ahead of being forced to shut production at some eastern oilfields,” a PDVSA executive said to Reuters. The Petropiar oil blending facility, in which Chevron is a co-operator, suspended operations. That cut production in half at an oil filed that feeds the facility, according to Reuters.

In Libya, battles over control of the National Oil Corporation are escalating. A subsidiary in the eastern part of the country is breaking away and could seek to export oil on its own. A tug-of-war over the legal authority to export oil has led to sudden disruptions in the past.

Then, of course, there is the possibility of a military strike by the U.S. or Saudi Arabia on Iran. It would likely be utterly catastrophic for all involved as it would dramatically increase the odds of an all-out war. Iranian officials have said as much. In a regional war, it’s hard to imagine a scenario in which a much greater volume of oil production capacity is not knocked offline.

By Nick Cunningham of
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Climate change: Did we just witness the beginning of the end of Big Oil?
Published Sun, Sep 22 2019 9:00 AM EDT
Eric Rosenbaum  @erprose

The short answer, of course,


Seems more reasonable.

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🛢️ The $47 Trillion Death Sentence For Oil & Gas
« Reply #239 on: September 25, 2019, 12:00:32 AM »

The $47 Trillion Death Sentence For Oil & Gas
By Cyril Widdershoven - Sep 23, 2019, 5:00 PM CDT

The future of hydrocarbons is becoming bleak if plans presented by international banks, representing around $47 trillion in value, will be fully implemented.

Around 130 international banks, all present at the UN climate change summit in New York, have committed themselves to decrease their support and investments in the oil and gas sector the coming years. The banking groups have signed the so-called Principles for Responsible Banking, which entails a promise by financial institutions to fully support the implementation of the Paris Agreement, by decreasing hydrocarbon investments while promoting renewables. This statement is going to be a major earthquake for oil and gas companies, threatening upstream and downstream operations worldwide, forcing oil & gas producers to either reduce their impact on the environment or to seek new sources of investment. It is already becoming more difficult for oil and gas companies to find new financing, and on top of this, a large group of institutional investors, representing a value of $11 trillion, are already actively divesting their oil and gas assets.

International banks, such as Deutsche Bank, ABNAmro, Citigroup, Barclays, and ING, are joining the framework. Under the title of action against global warming, the largest financial institutions now seem to be headbutting oil and gas operators. The impact of activist shareholders and NGOs is sending shockwaves through the sector. If the framework is successfully implemented, the hydrocarbon sector shouldn’t fear unrest in the Middle East, but rather their current financiers.

The first sector to take a hit are most likely coal miners, but other sectors are expected to follow. Still, no indicators are showing that the respective banks are actively seeking to ditch their stakes in the hydrocarbon sectors. If this were to materialize, it would fully undermine the future of oil and gas.
Related: Are Oil Traders Already Looking Beyond The Saudi Oil Crisis?

The UN commitment by the banks could also backfire. Removing financial support to the hydrocarbon sectors worldwide will put supply under severe pressure. Continuous (re-) financing is needed by oil and gas companies not only to keep current production volumes at the same level but also to increase production to meet global demand growth. Until now, renewable energy output, even if it is showing exponential growth figures, is not at all able even meet yearly demand growth worldwide. Conventional energy sources including coal and nuclear, are still needed to supply the ever-growing need for energy. Economic growth outside of the OECD regions is the real reason for this soaring demand, and the ongoing renewables drive in the West is not having an effect on this at all.

A quick transition to renewable energy is unlikely in non-OECD countries, as oil, gas and coal, will remain the main sources of energy in the next couple of decades. Removing financial support for hydrocarbon companies will put a major bomb under the future of emerging economies. At this moment, hydrocarbons are the main source of energy in most countries around the globe. To prevent a collapse of the global economy, steady financing will be needed, even more than before. Some figures are even showing that in the coming years, more than $11 trillion in energy investment is needed.
Related: Is Aramco Lying About Its Damaged Oil Infrastructure?

Without even looking at the Paris Climate Agreement, the current pressure building up on hydrocarbons, and the unilateral decision by banks shown now at the UN, also threatens OECD countries. Energy consumers are not only going to reap the rewards of the energy transition, but will also feel the negative financial aspects of a possible hydrocarbon sector meltdown. For most people, pensions are a thing of the future, but when looking at banks and institutions, people should understand that the ongoing destruction of oil and gas value is not only resulting in stranded assets but could also harm their own pension fund. Oil and gas has been a major cornerstone of most pension funds, as the sector has, for decades, yielded healthy returns. Divesting from fossil fuels could result in a situation that causes more negative effects than many currently anticipate. Activism is threatening value destruction for all, not only the environment.

Lastly, global security is another issue, as indicated by reports of the IEA and others. Destabilization in oil producing countries could occur as soon as oil revenues start falling. For the West, the main negative outcome would be if conventional energy producers, squeezed by big banks, will look at non-Western parties to become involved. To have an overwhelming majority of future energy supply being paid and owned by non-OECD countries, such as China, Russia or SWFs is not a great outlook at all.

By Cyril Widdershoven for
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