WTI Should Be Going Back Above $70 No Matter How Much OPEC Increases Oil Supply This Weekend

There is no question that an OPEC deal or no deal is the driving force for oil prices over the coming days.  WTI has moved up off the bottom today but is trading down ~$0.50 to $64.85 as of 8am MDT on the reports out of Vienna that the mood is changing and that there is momentum for a mid point type deal to be reached to increase OPEC/non-OPEC oil supply in H2/18.  Prior to yesterday, the “NO” side (Iran, Iraq and Venezuela) had markets fearing no deal.  But the momentum shifted yesterday with the softening of the Iran stance that countries should be able to produce to quota and then Iraq trying to mediate to find a mid point.  This morning, that opening evolved into an expectation that there will be a supply increase and that the number for OPEC debate is 1 mmb/d ie. some sort of mid point. There doesn’t seem to be the momentum for 1.5 mm b/d or a return to Oct 2016 levels, or chatter, as of yet, to a potential Sept review with an underlying expectation of a further oil supply increase.  But as we look to the coming months, we believe the fundamentals are going to push WTI back above $70 and pointing higher no matter how much OPEC increases oil supply this weekend.  The normal seasonal demand increase in oil should accommodate a return of OPEC barrels.  Plus there is the likelihood that effective supply adds will be less than an announced deal if the supply increases are shared in proportion to the original cuts.  And then we have the wildcards of Venezuela and Iran which could push WTI well above $70.   Continue reading “WTI Should Be Going Back Above $70 No Matter How Much OPEC Increases Oil Supply This Weekend”

Morneau/Trans Mountain Overshadowed Pembina Pointing To FID on Jordan Cove LNG In 2018 Or Following Final Approvals

It was bad timing for Pembina’s analyst day to start at 8:30am EDT on May 29 given it was just before the Morneau Trans Mountain statement.   Mgmt was well aware of this and started off by saying “Yes, we might have an evacuation if Trans Mountain or Kinder Morgan announces whatever they’re going to do”.   It meant that Pembina’s comments were completely overshadowed as investors and sell side analysts were forced to deal with the implications of that Morneau announcement.  Its too bad because mgmt. made some key comments (not on the slides) on LNG and Jordan Cove.   We listened to the webcast and believe mgmt. is signaling FID on Jordan Cove is coming in 2018. Pembina sees a perfect timing for Jordan Cove LNG right now (they were too early before) to take advantage of a LNG supply gap opening up in 2023, are working with pipeline companies about the natural gas supply to Jordan Cove, are in active discussions with Chinese offtakers, and also state a “final investment decision expected following receipt of regulatory and environmental approvals”.  We get a similar impression as we did with Shell’s comments six months ago – it just sounds like Pembina is pointing to or signaling a FID on Jordan Cove LNG in 2018, or as soon as they get the final approvals. Continue reading “Morneau/Trans Mountain Overshadowed Pembina Pointing To FID on Jordan Cove LNG In 2018 Or Following Final Approvals”

LNG Canada FID Is Looking Soon, Nikkei Asian Review Reports The Major $14b Orders To Design And Build Have Been Awarded

Its really hard to not believe a LNG Canada FID is coming in 2018 and coming a lot sooner than most expect as we continue to see events and comments pointing to a FID in 2018.  This week’s event looks to be the most significant to date – reports that JGC and Fluor have apparently won the key contract for LNG Canada, the $14 billion design and build contract. This is much more significant than the April 9 Horizon North announcement of its conditional award to build temporary work accomodations for 1,175 beds in NE BC for an undisclosed customer.  If true, this means that LNG Canada has picked its project construction team.  We don’t see why this would be announced now if the FID wasn’t coming until late 2018.  It is consistent with our long stated views that a LNG Canada FID was coming in 2018 and likely this summer either in the Shell Q2 reporting in late July or in mid Sept. Readers know that LNG markets and LNG Canada FID have been one of our key game changing themes for the Cdn oil and gas sector since our Sept 20, 2017 blogs on LNG markets, Shell’s bullish views, and how China’s fight against pollution was a game changer for LNG markets.  The signs all point to LNG Canada FID soon, which should make for an interesting Shell Q1/18 earnings call on Thurs Apr 25. Continue reading “LNG Canada FID Is Looking Soon, Nikkei Asian Review Reports The Major $14b Orders To Design And Build Have Been Awarded”

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”