US Shale Spending Is Under Fire Again

Friday, June 7, 2019

1. U.S. shale nonetheless burning money

– A cross-section of 29 U.S. shale corporations reported greater than $2.5 billion in damaging money circulation within the first quarter of 2019, which was worse than the fourth quarter of 2018, in accordance with a brand new report from the Sightline Institute and the Institute for Power Economics and Monetary Evaluation (IEEFA).

– For example, Hess (NYSE: HES) posted $433 million in damaging money circulation, whereas EOG (NYSE: EOG) reported $393 million in damaging money circulation. Cabot Oil & Gasoline (NYSE: COG) and EQT (NYSE: EQT) – two Marcellus shale fuel producers – posted $390 million and $500 million in optimistic money circulation.

– The report additionally discovered that between 2010 and 2019, the businesses posted $184 billion in damaging money circulation.

– “Frackers’ persistent incapability to supply optimistic money flows needs to be of grave concern to buyers,” the report’s authors wrote. “Till fracking corporations can show that they’ll produce money in addition to hydrocarbons, cautious buyers could be clever to view the fracking sector as a speculative enterprise with a weak outlook and an unproven enterprise mannequin.”

– The current decline within the oil market might damage these figures much more if costs fail to rebound.

2. Permian fuel flaring breaks information

– Gasoline flaring within the Permian basin surged to a document excessive within the first quarter at a median of 661 million cubic ft per day (MMcfd), in accordance with Rystad Power.

– The surge in oil and fuel output has run right into a wall of mounted pipeline capability. Reasonably than throttle again on oil drilling, related fuel manufacturing – and flaring – continues to soar.

– “We anticipate that basin-wide flaring will keep above 650 MMcfd earlier than the Gulf Coast Categorical pipeline comes on-line within the second half of 2019,” says Artem Abramov, Head of Shale Analysis at Rystad Power.

– The amount of fuel burned off or vented into the environment is greater than twice as massive as the most important fuel producing challenge within the Gulf of Mexico. Shell’s Mars-Ursa offshore complicated produces 260 to 270 MMCfd per day.

Three. Financial considerations mounting

– Oil costs fell sharply over the previous two weeks, dipping right into a bear market. The overarching concern is a weakening economic system, made worse by the ballooning commerce conflict.

– Manufacturing exercise, measured in PMIs, has been heading south because the begin of the 12 months.

– Within the Eurozone and Japan, PMIs have fallen under 50, signaling a contraction.

– Within the U.S., and certainly around the globe, manufacturing exercise is in peril of an outright contraction.

– “The decline in International Manufacturing PMIs that began across the first spherical of US tariffs reveals no indicators of abating within the midst of the continued a number of open commerce wars, one other issue that would additional depress oil markets in 2H19,” Financial institution of America Merrill Lynch wrote in a notice to shoppers.

four. China’s distillate demand weakening

– Weaker manufacturing exercise, as talked about above, is one issue driving demand down. Distillate demand is especially weak this 12 months in China.

– Distillate demand is a number one indicator of financial well being, as it’s used closely in cyclical industries akin to manufacturing.

– China’s “implied demand progress averaged – 180okay b/d in 2018, however this has dropped to – 400okay b/d in the course of the first 4 months of 2019,” Financial institution of America Merrill Lynch mentioned. “Fallout from the US-China commerce conflict might hold Chinese language demand progress depressed over the approaching months.”

– Diesel demand is weak throughout the OECD, but additionally in Turkey, Russia and India.

5. Lithium miners seeking to transfer up worth chain

– Virtually three-quarters of worldwide lithium manufacturing comes from Australia and Chile. However the refining, electrochemical manufacturing, cell manufacturing and battery meeting occurs elsewhere.

– For example, China accounts for greater than 80 p.c of lithium refining, whereas Japan accounts for half of battery meeting.

– Australia and Chile are hoping to draw these value-added industries in order that they aren’t only a supply of uncooked materials. By 2025, the marketplace for uncooked lithium might be price $20 billion, however the marketplace for battery cells might prime $424 billion, in accordance with Bloomberg.

Albemarle Corp. (NYSE: ALB) broke floor earlier this 12 months on a $690 million lithium processing facility in Australia, which would be the largest of its type on the earth. A unit of Samsung and Posco are planning a facility to construct the chemical elements utilized in batteries.

– Breaking out of the entice of solely being a supply of uncooked supplies is tough within the commodity enterprise, however Chile and Australia have the benefit of controlling a excessive focus of lithium manufacturing.

6. Buyers flock to gold

– The biggest gold ETF, SPDR Gold Shares, rose by probably the most in three years on Monday, benefitting from fears of the united statesChina commerce conflict.

– The SPDR ETF rose by 2.2 p.c, as buyers flocked to security. Gold costs jumped above $1,330 on Thursday, hitting a Three-month excessive and near the best value in a 12 months.

– Serving to gold is the dovish stance from the U.S. Federal Reserve. The Fed chairman Jerome Powell hinted at a fee lower later this 12 months, a transfer that will assist gold.

– “Gold is as soon as once more attempting to reclaim its function as a protected haven amid rising commerce tensions and consequent dangers to progress,” Joni Teves, a strategist at UBS Group AG, mentioned in a notice on Monday. The value “appears like it’s getting snug above $1,300, with aspirations of testing this 12 months’s highs.”

7. Power storage hits new excessive in U.S.

– Installations of vitality storage capability shot up by greater than 230 p.c within the first quarter of 2019, in comparison with a 12 months earlier.

– Over 148 megawatt-hours got here on-line within the first quarter, a rise of 110 p.c from the 12 months earlier than, and up six p.c from the record-setting fourth quarter of 2018. The figures don’t embrace front-of-the-meter storage.

– California has led the sector thus far, however Wooden Mackenzie sees progress surging elsewhere.

– “Primarily based on exercise this quarter, we’re maintaining a tally of New York state,” mentioned Wooden Mackenzie Energy & Renewables senior vitality storage analyst Brett Simon. “When the New York bridge incentive opened on the finish of April 2019, the primary block of the retail incentive was absolutely subscribed in a little bit over per week, exhibiting how a lot pent up storage demand there was in New York.”

– WoodMac sees annual vitality storage deployment of over four.Three GW by 2024.

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