Geopolitics and Energy Mash Up

Surprisingly, the geopolitics in play in my last post are not much different than today’s. The Q&A below offers some insights into Putin’s moves on the world stage. With low oil prices still lingering and whipsawing around, the green side of energy has seemingly decoupled from oil’s tethers. In offering a balanced lineup of subject matter —from global security and shale gas to edgy academic research and energy market plays, the following new works are highlighted:

  • A Q&A with Ambassador Pinkering on global hot spots. See the 11/06/15 entry.
  • New findings that shale gas wells are not over-drilled.
  • Re-freshed content and design of the Cox School faculty research site. (The profile about crowd-sourced investment research is interesting.)
  • A look at Toyota’s claim about conventional gas engines going by the wayside in 2050, and how various scenarios could present themselves.
  • Finally, a couple of firm’s reporting in the third quarter offer clues as to how various sides of the oil and gas business are faring: Halliburton here and Pioneer here. In a depressed pricing environment, firms are focused on strengths like never before.

Looking Back to See Ahead

To catch up with recent writings, I’m posting two items that capture noteworthy trends in oil markets:

1) “U.S. Shale Gale: A Whale Of A Tale, And Permian Walkabout,” that speaks to U.S. producers’ activities in light of the new normal in pricing;  and

2) “Cartels, Sci-Tech And Breaking Bad: Oil Markets’ New Normal?” offering more scenarios possible in oil markets than answers.

The upcoming OPEC meeting may offer little new information, as the strategy to pursue market share, particularly for the Saudis and Gulf states, continues to manifest. Geopolitics in the Middle East are in a perilous status quo.

While often writing about oil markets and U.S. shale resources, the advances in renewables, infrastructure developments (including U.S. midstream), and other energy and resource developments are being studied and considered. A recent article about global infrastructure firm Fluor captures some of the diversity in energy that overlays the global map. An excerpt follows since this article will be inaccessible in a couple of days:

Natural gas demand is expected to grow by 30% between 2014 and 2025 and production will increase by almost 40%, notes an IHS study. This demand is driven by power generation and industrial users. With low natural gas prices and ample NGL supply, the American Chemistry Council expects investment of $135 billion in 211 projects; this estimate was upped from a February 2014 estimate of $100 billion and 148 distinct investments.[i]

Fluor is also involved in the highly technical work of nuclear power plants, including their decommissioning. Recently, the company acquired 98% ownership of a nascent nuclear technology called NuScale. Majority-owned by Fluor, NuScale Power, LLC is developing a new kind of nuclear plant considered a safer, scalable version of pressurized water reactor technology, designed with natural safety features.

A big bet, Fluor believes NuScale could revolutionize the nuclear power industry and offer a $400 billion-dollar market.[7] In two decades, the business could be ‘huge,’ especially with their exclusive rights to build the smaller-scale, modular units. These 50-megawatt (MW) units can be stacked, like six packs, creating a 300 MW plant or more scaled-up plant based on the need. A recent Wall Street Journal article mentioned how the West, and particularly the U.S., is being usurped by China and Russia in nuclear build expertise. However Fluor may capitalize on the trend regardless of who leads the effort given their global footprint and ability to scale nuclear energy in diverse and new ways.

Oil Market Snapshots

Today, the Seeking Alpha article, “Oil Market Karma Reversed?” offers a look at the fundamentals driving, or that should be driving, the oil market. Of course, volatility is an aspect of the oil market across decades. The reversal part of the title relates to an earlier article from December, 2013 that relayed the effects being noticed from U.S. shale oil production, namely that U.S. production was moderating some of the price volatility given global supply outages that would normally have driven prices up. An October 2013 article discusses fundamentals and the Permian Basin, and chronicles how shale basins were producing.

Given the fundamentals, markets have been potentially over-reacting in their heavy blows to oil and gas producers and midstream firms.