The “Why Now?” For KML’s May 31 Deadline Reminds Why LNG Canada’s FID Is Likely In The Summer And Not In Nov Or Dec

The investor and Cdn oil and gas sector focus today is all on “what?” Kinder Morgan Canada (“KML”) is saying on the Trans Mountain expansion.  The “what?” being KML is setting a May 31 deadline to get clarity on being able to complete construction without an ongoing battle and delays and changes from BC that effectively frustrate the execution of the federally approved project.  However, it also means the “why now?” is being overlooked.  KML highlighted that the timing of May 31 was driven by the seasonal restriction on construction activities for its pipeline through BC and its terminal expansion on the BC coast.  KML said “what calls for that decision, that announcement at this time is we can’t move the seasons in Canada. there are certain seasons when you can do certain things”.  The “why now?” is a good reminder of why we believe we are likely to see a game changer this summer for the Cdn oil and gas sector – a LNG Canada FID.   LNG will also have seasonal construction considerations, and this is why we have consistently said that any FID in 2018 for LNG Canada would be in the summer and not year end. KML’s “why now?” comments reinforce this seasonal aspect of decision making for LNG Canada.  Continue reading “The “Why Now?” For KML’s May 31 Deadline Reminds Why LNG Canada’s FID Is Likely In The Summer And Not In Nov Or Dec”

Capital Starting To Redeploy To The U.S. Six Weeks After The Federal Liberal Feb 27 Budget

No one should be surprised to see the start of US companies selling Cdn assets to redeploy the cash into US operations.  On Monday, NextEra announced the US$582.3 million sale of its Cdn wind and solar assets to CPP Investment Board, a sale driven by NextEra’s desire to redeploy capital to the US  to take advantage of US tax reform bringing lower corporate taxes and significantly better write off rates for capital expenditures.   Why now?  Prior to the federal Liberal Feb 27 budget, companies had two months to analyze the advantages of US tax reform.  With no changes in the Feb 27 budget and no indication if any changes would be forthcoming, companies can’t wait any longer to take action on capital allocation.  Capital allocation is one of the most important board decisions, and these decisions are now being done on the basis of improved economic returns for US capital opportunities vs unchanged economic returns for Cdn capital opportunities.  Its why we expect to see more of these sales and also for capital spending being shifted to the US over Canada.  US tax reform advantages will impact capital allocation decisions in all sectors, but not necessarily as much as might be expected in the Cdn oil and gas sector.   The top Cdn oil and gas plays have economics as good if not better than the top US plays and therefore relative capital allocation shouldn’t suffer.  In fact, this was proven this week with ConocoPhillips stepping up to expand its liquids rich Montney land position.  And well funded Cdn companies will be able to buy more quality Cdn assets that wouldn’t be available prior to US tax reform.  Unfortunately, most investors will not look thru to see that these top Cdn oil and gas plays (and the top Cdn oil and gas companies) have as good or better economics than the top US plays even after US tax reform.  Rather, they see the narrative of improving US fiscal regime and lack of response from Canada and move more capital to US opportunities keeping the top Cdn oil and gas companies trading at low multiples. Continue reading “Capital Starting To Redeploy To The U.S. Six Weeks After The Federal Liberal Feb 27 Budget”

Shell Canada President Talks Execution Plan For Natural Gas Supply For Phase 1 of LNG Canada

Shell may not be specifically confirming they are going FID on LNG Canada, but its hard not to believe they are going to do so when you hear Shell Canada’s President talk about his execution plan for the gas supply for Phase 1 of LNG Canada.  Tonight, the Globe and Mail posted a good story based on an interview with Shell Canada President Michael Crothers, wherein he outlines the gas supply sources for Phase 1 of LNG Canada.  Shell and the LNG Canada joint venture partners have to work thru the natural gas supply plan as part of the FID analysis package.  That work has to be done for the FID analysis.  However, we don’t believe an experienced CEO like Crothers would be publicly outlining Shell’s gas supply plan for an LNG project that was unlikely to go FID.  If LNG Canada was still a coin flip or less, we would have expected Crothers to believe it premature to publicly outline their gas supply plan. Rather, we believe Crothers comments fit into the Shell disclosure for the past five months, which we believe continues to point to FID for LNG Canada and our expected tiing being later this summer. Continue reading “Shell Canada President Talks Execution Plan For Natural Gas Supply For Phase 1 of LNG Canada”

Good News For LNG FID Projects, Dutch Cabinet Says “Gas production from the Groningen field will be completely terminated”

More good news yesterday for LNG developers looking to FID in 2018 with the Dutch cabinet detailing its plans to shut down Groningen gas production to zero.  It seems like the 3.4 earthquake on Jan 8 was the straw that broke the camel’s back and led to the Dutch cabinet’s plan to take Groningen natural gas production to zero.   In Feb, a technical committee recommended to the cabinet that Groningen gas production be reduced from 2.07 bcf/d to 1.16 bcf/d.  The cabinet went further and yesterday issued its release “Cabinet: end of gas production in Groningen” that sees Groningen production reduced to the recommended 1.16 bcf/d in Oct 2021, but no later than Oct 2022.  However, the cabinet went further, saying “Gas production from the Groningen field will be completely terminated”.  We estimate Groningen will be down 1.68 bcf/d by 2022/23.  This is an elimination of gas supply, not a delay.  The timing is a big positive to LNG supply developers.   China’s game changing priority on its fight against pollution is, by itself, moving the LNG supply gap closer to 2020.   This is positive for LNG projects, such as Shell’s LNG Canada, looking to go FID in 2018. Continue reading “Good News For LNG FID Projects, Dutch Cabinet Says “Gas production from the Groningen field will be completely terminated””

Good News For LNG FID Projects, Qatar’s 3 Bcf/d LNG Expansion Now Targets Yr-End 2023 And Not As Early As July 2022

LNG developers looking to FID in 2018 will see an increasing LNG supply gap for 2022 and 2023 with Qatar Petroleum Corporation’s announcement that its expansion to add 3 bcf/d of LNG capacity is now targeting year-end 2023 and not as early as July 2022.   Last July (July 4, 2017), QPC announced that its 3 bcf/d expansion would be completed within 5-7 years ie. July 2022-July 2024.  Today’s  announced year-end 2023 timing represents an 18 month delay to that potential early completion date of July 2022 and now closer to the late completion date of July 2024.  LNG supply was balanced in 2017 but there are continued large LNG supply additions in 2018 and 2019.  The key for LNG buyers is what fills their increasing demand once the 2018 and 2019 supply wave is absorbed.  Qatar’s 3 bcf/d expansion was the largest LNG supply project in the July 2022-July 2024 period. This 18 month delay creates the expectation of a bigger LNG supply gap in 2022 and 2023, and should help push more LNG buyers to try to lock up supply.  It is certainly a positive for LNG developers and creates a higher likelihood for some of these LNG projects, like Shell’s LNG Canada, to go FID over the summer. Continue reading “Good News For LNG FID Projects, Qatar’s 3 Bcf/d LNG Expansion Now Targets Yr-End 2023 And Not As Early As July 2022”

Russia Energy Minister Novak Points To A Gradual Withdraw Or Exit From Cuts Potentially Starting As Soon As Q3/18

WTI is trading down $0.18 to $62.16 as of 840am MDT, but we would have expected WTI to be a little lower this morning following the Bloomberg TV interview with Russia energy minister Alexander Novak.  On one hand, it makes sense as the headline from the Bloomberg posted story (and what everyone sees) and the video clip was titled “Russia Affirms Commitment To Oil Deal”.  The headline fits to the consensus expectations for the cuts to continue at least to the end of 2018 with an increasing acceptance of Saudi Arabia’s guiding the market to expect continued cooperation into 2019.   We wouldn’t have given it a second thought if we hadn’t listened to the short two minute video clip.  Novak is saying that its hard to predict market balancing, but “we believe it might start to happen starting with the third or fourth quarter” and “as soon as the ultimate goal is achieved, which is the balancing of the market, we will start considering gradual withdraw or exit from this deal.”   We didn’t expect oil to crash this morning but thought it would be a little lower as Novak points to the potential start to a gradual withdraw starting in Q3/18.  This gradual start is especially so given last week’s IEA’s Oil Market Report that noted the surplus oil stocks were down to 53 million barrels above the 5-yr average as of Jan 31.  Listening to the video clip is also a good reminder to do more than read headlines. Continue reading “Russia Energy Minister Novak Points To A Gradual Withdraw Or Exit From Cuts Potentially Starting As Soon As Q3/18”

LNG Canada Reiterates It Wants To Be In Construction in 2018, Feels More Like An Expectation

There were some great tweets yesterday from Business in Vancouver’s Nelson Bennett on quotes from LNG Canada CEO Andy Calitz.   Bennett tweeted [LINK]Andy Calitz, CEO for LNG Canada, tells #GLOBEforum plan is to start construction on Kitimat project 2018, FID documents being prepared”, and even more significantly “Direct quote: “At the time (2016) we said we wanted to be in construction in 2018. My answer remains unchanged.”   Continue reading “LNG Canada Reiterates It Wants To Be In Construction in 2018, Feels More Like An Expectation”

If EOR In Eagle Ford/Other Shales Works, US Oil Can Keep Growing Post 2020 Even If Wells Don’t Keep Getting Better Every Year

It should be a big focus week on US shale oil growth potential with the convergence of global oil leaders, including OPEC, in Houston for CERAWeek.  US shale surprising to the upside in 2017 was the supply shock to oil markets and forced OPEC to continue cuts in 2018.  The key question for oil markets is how long can the US players keep getting bigger and better wells as the cause and effect formula is that bigger and better wells leads to stronger than expected oil production.   The IEA just issued its Oil 2018 (5 yr forecast for oil) estimates US oil supply is +2.7 mmb/d and oil/NGLs +3.7 mmb/d from 2017 thru 2023, but the IEA forecast includes US oil growth essentially stopping after 2021.   We expect that global oil markets are going to leave Houston with a view that US oil growth will continue to be very strong at least in 2018 and 2019 with a clear impression that US shale oil wells will be bigger and better in 2018.   The key assumption for lower YoY US oil growth post 2020 is that wells don’t get keep getting bigger and better.  It is why we believe there may be a more important, question that is being overlooked by everyone and likely to not get headlines this week – can EOR be successful in more than the Eagle Ford shale oil?  Because if so, this can be a game changer for US shale and set up a view that the US can keep growing post 2020 and not that it stops growing as soon as the wells don’t keep getting bigger and better every year. Continue reading “If EOR In Eagle Ford/Other Shales Works, US Oil Can Keep Growing Post 2020 Even If Wells Don’t Keep Getting Better Every Year”

Shell Called Tight LNG Markets >7 Mths Ago, Will They Keep Hinting And Pointing To LNG Canada FID Being Likely In 2018?

Shell’s LNG Outlook webcast is Monday Feb 26 and we expect to hear another continued bullish view on LNG markets –there was no LNG supply glut in 2017, it’s a rather tight LNG market and the LNG supply/demand gap is emerging in the early 2020’s.  Shell could easily title the presentation “we told you so” because they have been clearly saying so for at least several months.  The difference is that others have seen the H2/17 data support Shell’s call, are now sharing this view, and are looking to see what new LNG supply projects can be advanced to fill this near term gap,  Its not just a supply gap that is changing.  There are big changes to contract terms, duration, pricing and destinations, and these changes increasingly drive large LNG buyers to global LNG supply leaders with the diversified LNG businesses to deliver LNG supply as required.  Shell’s bullish LNG view on Monday will bring focus to what’s the next LNG supply project.   Shell has been giving clear hints that its LNG Canada project is likely the next FID on its list.  We don’t think a LNG Canada FID comes before the summer. But unless Shell makes a big change in direction on LNG Canada, we expect the hints on Monday to continue to point to LNG Canada as the next likely FID, and likely in 2018. Continue reading “Shell Called Tight LNG Markets >7 Mths Ago, Will They Keep Hinting And Pointing To LNG Canada FID Being Likely In 2018?”

Bad News For OPEC: EIA Sees US Oil Production +0.97 Mmb/d YoY In 2018 Using WTI $55.33/b

Its hard to believe there is bad news for OPEC with Brent trading this morning at $69.60 (830am MST), but there is bad news or at least a wake call for OPEC with the EIA increasing its US oil production growth forecast to 0.97 mmb/d YoY in 2018, up from its Dec forecast of 0.78 mmb/d YoY growth in 2018.  And this wake up call will be even louder next month as the EIA will likely increase its 2018 US oil growth again as the Jan 2018 forecast is based on WTI $55.33/b.   The last thing OPEC wants is to see greater than expected oil supply growth, especially in Q4/18 when the OPEC cuts are scheduled to end.  Its why we expect to see OPEC increasingly talk down oil markets by reminding that the cuts continue to show rebalancing is on track, but that rebalancing is still later in 2018.  OPEC’s challenge has switched from getting Brent to $60 to trying to make sure high oil prices don’t lead to oil supply surprising to the upside just as OPEC wants to end it cuts. This is especially so if the cuts end at Dec 31, 2018 as oil demand is always seasonally lower in Q1 than in the summer seasons.  Look for more OPEC comments like this morning’s comments from the UAE oil minister that oil rebalancing is not there yet. Continue reading “Bad News For OPEC: EIA Sees US Oil Production +0.97 Mmb/d YoY In 2018 Using WTI $55.33/b”