Which way? Energy

Discussion in 'Commodity Futures' started by themickey, Aug 6, 2021.

  1. themickey


    Markets https://www.bloomberg.com/news/arti...eap-natural-gas-ends-as-prices-surge-by-1-000
    The Era of Cheap Natural Gas Ends as Prices Surge by 1,000%
    By Anna Shiryaevskaya , Stephen Stapczynski , and Ann Koh
    6 August 2021
    • High prices seen sticking as demand jumps amid weak supplies
    • Energy transition’s focus on gas to impact global economy

    The era of cheap natural gas is over, giving way to an age of far more costly energy that will create ripple effects across the global economy.

    Natural gas, used to generate electricity and heat homes, was abundant and cheap during much of the last decade amid a boom in supply from the U.S. to Australia. That came crashing to a halt this year as demand drastically outpaced new supply. European gas rates reached a record this week, while deliveries of the liquefied fuel to Asia are near an all-time high for this time of year.

    With few other options, the world is expected to depend more on cleaner-burning gas as a replacement to coal to help achieve near-term green goals. But as producers curb investments into new supply amid calls from climate-conscious investors and governments, it is becoming apparent that expensive energy is here to stay.

    “No matter how you look at it, gas will be the transition fuel for decades to come as major economies are committed to reach carbon emission targets,” said Chris Weafer, chief executive officer of Moscow-based Macro-Advisory Ltd. “The price of gas is more likely to stay elevated over the medium-term and to rise over the longer-term.”

    By 2024, demand is forecast to jump 7% from pre-Covid-19 levels, according to the International Energy Agency. Looking further out, the appetite for liquefied natural gas is expected to grow by 3.4% a year through 2035, outpacing other fossil fuels, according to an analysis by McKinsey & Co.

    Surging natural gas prices means it will be costlier to power factories or produce petrochemicals, rattling every corner of the global economy and fueling inflation fears. For consumers, it will bring higher monthly energy and gas utility bills. It will cost more to power a washing machine, take a hot shower and cook dinner.

    It’s especially bad news for poorer nations like Pakistan and Bangladesh that reworked entire energy policies on the premise that the fuel’s price would be lower for longer.

    European natural gas rates have surged more than 1,000% from a record low in May 2020 due to the pandemic, while Asian LNG rates have jumped about six-fold in the last year. Even prices in the U.S., where the shale revolution has significantly boosted production of the fuel, have rallied to the highest level for this time of year in a decade.

    While there are several one-off factors that have pushed gas prices higher, such as supply disruptions, the global economic rebound and a lull in new LNG export plants, there is a growing consensus that the world is facing a structural shift, driven by the energy transition.

    A decade ago, the IEA declared that the world may be entering a “golden age” of natural gas demand growth due to historic expansion of low-cost supply. Indeed, between 2009 and 2020, global gas consumption surged by 30% as utilities and industries took advantage of booming output.

    Countries championed gas as a way to quickly reduce their carbon footprint. The shift to natural gas can be done relatively quickly with limited deployment of capital, while having a significant impact on lowering emissions, according to James Taverner, an analyst at IHS Markit. Natural gas is the cleanest burning fossil fuel, and emits almost 50% less CO2 than coal. Meanwhile, non-fossil-fuel alternatives such as wind and solar are at a relatively early stage in the energy transition.

    Demand isn’t showing any signs of slowing down.

    Utilities in Europe are switching to the cleaner-burning gas due to sky-high carbon prices, South and Southeast Asian governments are planning dozens of new gas-fired plants to meet greater electricity needs, and China is poised to depend more on gas than ever as it seeks to peak coal consumption.

    Even as prices are poised to be higher over the next decade, they won’t be high enough to drastically reduce demand for the fuel, according to Gavin Thompson, Asia-Pacific vice chairman at Wood Mackenzie Ltd. “In emerging economies, with policy support, we don’t see demand destruction,” he said.

    Ordinarily, robust demand would encourage a rush of investment in fresh export facilities. But a big factor in higher gas prices is a lack of fresh capital to increase supply. Growing anti-gas sentiment and heightened scrutiny of dirty methane emissions has stalled projects and forced energy majors to rethink plans. The IEA, which heralded natural gas as a bridge fuel to a low carbon future, drew widespread attention earlier this year when it said investments in new upstream fields need to stop if the world wants to hit net-zero emissions by 2050.

    Without new investment, LNG consumption in Asia -- the engine for future gas demand growth -- will outstrip supply by 160 millions tons in 2035, according to WoodMac’s Thompson. For comparison, Asia imported about 250 million tons of LNG last year.

    Already, there are signs around the world that supplies will fall short:

    • Beyond a massive expansion in Qatar, few new LNG export projects have been cleared since the start of 2020.
    • End-users have been less willing to take equity stakes in upstream projects or sign long-term supply deals due to uncertainty surrounding government-led efforts to reduce emissions.
    • U.S. shale drillers aren’t immediately responding with additional production, as they’re under pressure from investors to curb spending and avoid creating another glut, while key pipeline projects struggle to move forward.
    Mark Gyetvay, the deputy chief executive officer of Russian LNG exporter Novatek PJSC, warns that the green movement could disrupt the delivery of adequate and affordable supply to consumers.

    “The lack of capital investments in future natural gas projects does not lead us to an energy transition, but instead leads us down an inevitable path toward an energy crisis,” said Gyetvay.

    — With assistance by Sergio Chapa
    TraDaToR and fan27 like this.
  2. fan27


    Was looking at Natural Gas today. Might just have to hop on for a ride.
  3. if only they mentioned this when it was cheap...
  4. themickey


    I'm holding a Canadian gas producer penny stock, listed on ASX.
    If it moves up 2/10 of a cent ($0.002) I'm at breakeven. :)
    TraDaToR likes this.
  5. Overnight


    Of COURSE NG demand is going to increase over time. Because all the tree-huggers out there keep buying up these EVs, and where does the power to charge the EVs come from, Boris?!? Yes, it comes from the plug! And where does the power in the plug come from? NG! Fucking DUH!
  6. themickey


    Oil spill: BHP cleans up its act as climate pressure mounts
    By Nick Toscano
    August 21, 2021 https://www.smh.com.au/business/com...-climate-pressure-mounts-20210820-p58kj6.html

    Mike Henry saw a bright future for oil at BHP. At least he did 15 months ago.

    “We like the commodity,” the mining giant’s chief executive said in May 2020. “It is on strategy, and it remains core to BHP.”

    But in the volatile resources sector, 15 months is a long time. Long enough for ironclad forecasts to be thrown into doubt.

    When will the world’s thirst for oil peak and start to decline? As coronavirus slows travel and cars electrify, the answer could be sooner than many once thought. But more importantly, the global push to arrest climate change has become markedly more urgent. And for firms that remain in the business of drilling for fossil fuels, investors are dialling up the heat.

    BHP chief Mike Henry says the merger of oil and gas assets with Woodside will allow BHP to focus on what he likes to call “future facing” commodities such as potash, nickel and copper as well as relying on its staple, iron ore.Credit:Bloomberg

    At 4.45pm last Tuesday, just after the stock market had closed, Australia’s biggest company unveiled one of the most significant shifts in its history: After 50-plus years, BHP was exiting oil and gas entirely.

    It was a blockbuster deal. Following months of talks and intense speculation, BHP has agreed to sell its whole petroleum division — spanning Australia, the Americas and North Africa — to Perth-based Woodside in exchange for shares to distribute among its investors.

    Shareholders in Woodside would own 52 per cent of the merged entity, the companies said. BHP shareholders would own 48 per cent.

    For BHP, which counted petroleum as a core commodity behind iron ore and copper, the move is a radical portfolio shake-up. It also signifies a major acceleration of Henry’s big-picture plan to reposition BHP for a fast-changing corporate world in which environmental, social and governance (ESG) credentials are more important than ever.

    “Ultimately this is a call on where ESG pressures are headed,” says Adrian Prendergast, an analyst at Morgans. BHP has concluded it is “better off jettisoning petroleum, he says, to clean up its portfolio and preserve its cost of capital.

    The story of BHP and petroleum goes back decades. It begins in the narrow sea between Victoria and Tasmania, in the 1960s when BHP was mainly a miner and a steelmaker. BHP and ExxonMobil drilled Australia’s first offshore wells in Bass Strait. In 1965, they struck gas at the Barracouta field. In 1967, they landed Australia’s first major oil field discovery: Kingfish. It remains the country’s biggest ever oil field to date.

    BHP drilled Australia’s first offshore wells in Bass Strait.

    In the years that came next, their joint venture would build the Bass Strait fields into a world-class oil and gas development, with Gippsland’s Longford gas plant, dozens of offshore platforms and 600 kilometres of underwater pipelines.

    BHP’s petroleum interests today span far-flung corners of the globe: assets in Western Australia, the US Gulf of Mexico, Trinidad and Tobago, Algeria. Last year, it brought in $2.3 billion in underlying earnings, about 6 per cent of the group’s total.

    Henry has repeatedly declared he sees a solid outlook for petroleum, for at least the next decade, likely more.

    “Let’s frame this,” he said, back in May last year. “Even low-case forecasts are for the world to consume another trillion barrels of oil over the next 30 years … and that’s relative to 900 billion over the past 30 years.”

    Finding a better home
    Explaining the rationale now to exit, Henry insists the solid fundamentals behind the assets’ mid-term outlook remain unchanged. Rather, he says, the motivation is that Woodside will be a better home for them, and would unlock value for shareholders through synergies of up to $US400 million a year.

    As well, it will free up capital within BHP to increase its spending on parts of the business that it is more eager to expand — such as commodities standing to benefit from accelerating global efforts to decarbonise, electrify transport and feed a fast-growing global population.

    “This is no grand statement about oil and gas,” Henry says, “it’s all about driving greater value for shareholders.”

    Still, he also acknowledges the benefit of giving shareholders the choice to “manage their own decisions” as to whether they want to retain or remove their exposure to those fossil fuels.

    For signs that investor attitudes to oil and gas are rapidly shifting, you don’t have to look far. Big Oil’s climate reckoning has arrived in force this year. And the shock is being felt around the world.

    At ExxonMobil, an activist hedge fund has ousted three directors deemed out of step with necessary climate action. Shell has been ordered by a Dutch court to commit to a vastly stronger decarbonisation plan by 2030. The International Energy Agency issued a landmark report in May containing a stark warning the world must avoid funding any new oil and gas fields to achieve the Paris Agreement’s goal of limiting temperature increases to 1.5 degrees.

    Investors and analysts are left with little doubt as to BHP’s motivations.

    “Petroleum simply no longer fits within BHP’s portfolio or future-facing strategy,” says Saul Kavonic, an analyst at Credit Suisse.

    “After having waited too long to divest thermal coal, and now having to resort to selling for cents on the dollar, BHP should know it’s better to exit petroleum sooner rather than later.”

    At the start of 2020, when Canadian-born Mike Henry was elevated to the role of BHP’s CEO, he began mapping out his strategy to lead the Melbourne-based miner into the future: exiting thermal coal, boosting “future-facing” commodities copper and nickel – two ingredients in electric batteries – and assessing a foray into potash.

    On the question of where petroleum would fit in Henry’s forward-looking vision for BHP’s, the answer was not so obvious. Shareholders were providing BHP’s leadership “mixed feedback” about oil and gas. It was becoming an area of concern.

    In August 2020, Henry sought to sell out of Bass Strait, but that proved difficult amid the crash in commodity prices and concerns about clean-up liabilities for the rapidly ageing assets deterring would-be buyers.

    One option said to be on the table was a demerger of the entire division. The other was doing a deal with Woodside.

    There has always been compelling logic to combining Woodside with BHP’s petroleum division, which are partners in two projects, including the $16 billion Scarborough LNG development in WA which they hope to green-light later this year.

    This time around, tie-up talks kicked off in April.

    “In oil and gas industry circles, a BHP Petroleum-Woodside tie-up has been on the deal dream list going back three decades,” Kavonic says.

    “It’s taken a pandemic, ESG rhetoric signalling terminal industry decline, a looming major project final investment decision and refreshed management to finally see it arrive.”

    While some investors query the rationale behind BHP ditching its entire petroleum division — especially its high-returning, cash-generative Gulf of Mexico assets — many are viewing it favourably through the lens of ESG.

    Vincent Cook, portfolio manager at Clime Investment Management, says the fund likes the focus on future-facing commodities “given the increasing importance of environmental considerations”.

    “The agreed exit from petroleum ... is a big step in this direction,” he says.

    Some, however, dispute the merits of divesting fossil fuels as opposed to gradually managing them down responsibly.

    “Disposing of fossil fuel assets and making them someone else’s issue is not the solution,” ex-Glencore CEO Ivan Glasenberg said earlier this year. “It won’t reduce absolute emissions.”

    Regnan, the responsible investment arm of investor Pendal Group, says the BHP-Woodside deal fails to address the system-level climate risks for institutional investors whose globally diversified portfolios are exposed to the impacts of global warming.

    “Swapping assets between companies typically does nothing to address these system-level risks,” Regnan’s Alison George says.

    Risky oil and cleaning bills
    For Woodside, the BHP deal would be genuinely transformational. It will double its production levels, propelling it into the top-12 oil and gas producers globally, with assets around the world and new growth avenues.

    First, though, the deal needs the approval of the majority of Woodside’s shareholders. “It may be difficult to get a vote across the line, with Woodside shareholders likely to question the value of the merger,” says Jamie Hannah at fund manager VanEck Australia.

    A key area of concern includes the fact BHP’s assets are predominantly oil. On the spectrum of fossil fuels, oil is considered more at risk from decarbonisation than LNG, Woodside’s primary commodity, which may have a longer future as a potential “transition fuel” for countries to wean off coal.

    Another worry is the estimated billions of dollars of clean-up liabilities Woodside will have to foot when it decommissions the ageing operations in Bass Strait.

    Baptism of fire: Woodside CEO Meg O’Neill has been explaining the company’s big buy to investors. Credit Peter de Kruijff

    Meg O’Neill, this week named as Woodside’s permanent CEO, is confident the tie-up is “the right thing to do for our shareholders”.

    “This deal has been talked about and rumoured by analysts and investors for many decades,” she says, “and there are natural reasons why that’s the case.”

    One hour after the deal’s announcement on Tuesday, Henry dialled into a conference call to discuss the sweeping changes. The first thing he was asked was a question on the minds of many: do you remain committed to metallurgical coal, the only commodity now standing in the way of a fossil-free BHP?

    Henry reiterated BHP’s positive outlook on the resource, and said its position remained the same.

    Widespread adoption of cleaner steel-making processes using hydrogen instead of coal still remains a long way off, Henry said. Meanwhile, as the green energy transition will call for huge amounts of steel to make green infrastructure like wind turbines, high-quality hard coking coal will be key to steel mills ensuring carbon-efficient operations.

    “And BHP owns the world’s best resources of high-quality hard coking coal,” he declared.

    Some are unconvinced: if ESG headwinds don’t favour gas, they won’t favour coal either. “BHP may deny it,” Credit Suisse says, “but they also denied desire to exit petroleum not too long ago.”

    Much can change in 15 months.
    Last edited: Aug 20, 2021
  7. themickey


    Woodside Petroleum, 20 years
  8. themickey


    BHP 20 years
  9. themickey


    Large move on natural gas futures today, 7.57%.

    Bastion_01 likes this.
  10. EIA is a hell of a drug.
    #10     Aug 26, 2021