Monday Madness: Funny Renewable Math

Posted: August 16, 2023

In this episode Tavis talks OPEC’s global control, the heat in Hormuz, and how to wrongly justify renewables.

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Alrighty everyone, welcome back! This is Tavis Kilian with RARE PETRO bringing you another episode of Monday Madness on August 14th, 2023. Have you seen Oppenheimer yet? If not, I suggest giving it a whirl. It is not often that I feel a movie accurately explores and represents the morale developments and dilemmas of a historical figure, but I gotta say I think this movie did it well. Let me also plop a disclaimer in here to fully admit I went in with rather limited knowledge of the father of the atom bomb. Either way, it was a great film that got goosebumps from me many times, made me feel emotional in reference to historical events, and I walked out of that theater with only one critique: It was too damn loud. But that is all I have for Tavis’ simplified movie reviews. 2 thumbs up, give it a watch, but I know that is not what you are here for. You came here for the biggest news and most revealing statistics within the world of energy. Let’s get to it.

This has been a decent past week for commodity prices. Last week the price opened at about $82.40 and dipped early morning Tuesday down to $80, but it didn’t linger. No, it bounced all the way back up to $82.40, and even continued past to make a full recovery. Wednesday and Thursday spent time between $83 and $84, but lost strength settling around the high $82 range by Friday. Already we’ve seen some strange volatility as we’ve experienced 3 separate valleys down to $82 and it looks like we are on our 3rd peak to settle out around $83. Still a bit early in the morning to see where exactly this stuff falls, but at the moment we are exactly where we were one week ago today, but that is good news! While we have seen some steady increases, I’ll take a sideways trading pattern over decreasing, especially at 80 bucks. Let’s hope next week we are snug up against $85. Brent has the same price action, but the spread has shrunk a bit and is now at $3.70 which is lower than we have seen in a while. This is good news for American exporting, so let’s hope we see it shrink just a bit more. Natural gas is starting to get a little sultry… starting to show a little leg. On Wednesday it jumped from $2.80 to $3 and sat there. Sadly, all good things must come to an end, but it is still holding at $2.80. We have the gentlest upward trending slope from February to present which makes me feel very good about the winter. Perhaps greater demand will accelerate that trend, but it all depends on how well companies are able to secure resources for the winter. Overall, things are looking decent in this department, and I think we should move on before my big fat mouth jinxes everything. 

Next up, the rig count. The count fell down 5 more bringing the US total to 654, which is 109 fewer rigs than we had this time last year. Basin stats are abysmal as they have been for 4 months now, but we got one rig back in the Ardmore Woodford bringing its total to one! Other than that, the Eagle Ford is down 1, while the Permian fell 2 along with the Marcellus. Not a ton of changes on a state level as Oklahoma is obviously the only state up 1. Otherwise Louisiana, Pennsylvania, and Texas, were all down 2. The Gulf had been doing well recently, but lost one in the most recent count. This week we saw most of the rigs that were laid down were making horizontal hole and looking for gas, though one vertical rig did go up which is kinda rare anymore. Not really sure what to say anymore. At this point anymore talk is just beating a dead horse, and with each strike we lose another 5 or six rigs. In fact, that is the 5th week in a row of a decline meaning that 14 out of the past 15 weeks have been negative rig counts. The change in those 15 weeks is a -101 rig decline. Keep in mind that the year over year total is a 109 week decline meaning 15 weeks have dominated 52 weeks of change. Not a great statistic. Either way, E&P companies will clearly be waiting until prices are much better before we start drilling anymore.

Our last statistic is the inventory report. Check out the written version “Thirsty Thursday” on www.rarepetro.com. 2 weeks ago we had the absolutely stupendous drawdown that set a decades long record. The most recent report is a little bit less than desirable as we built 5.85 million barrels. Strange considering the build the EIA predicted was one tenth the size. The API exhibited a similar behavior, but at a smaller scale. They predicted a quarter million barrel drawdown, but ended up reporting a 4 million barrel build. I’m not totally upset yet as it would take a little more than 3 of those builds to wipe out the biblical drawdown we saw back in the report before last. Let’s just keep our fingers crossed and hope something good happens in the following report. The EIA did release crude data, but left us high and dry in the arena of distillates, propane, and fuel. The least I can do is get into some of the fuel pricing data as we can probably make some sound predictions based on which way that has been moving. On average gas is only a couple cents more expensive than it was last week, so that is a big slowdown from what we have seen in recent weeks. Diesel on the other hand is only getting way more expensive as it is now 13 cents more expensive than it was a week ago. Month over month diesel is almost a half a dollar more expensive than it was. The unluckiest drivers are located in California as they are averaging $5.15 cents per gallon. Those in Mississippi are likely still complaining, but they have it best at $3.32 per gallon. Based on these numbers I imagine gasoline supply is likely only going downward, but maybe at a pace that is decelerating. Like I said, the EIA is lacking some data so make sure you keep your eyes peeled for fresh data on RARE PETRO’s weekly Thirsty Thursday report on www.rarepetro.com. I’ll let you guess when it comes out.

That is all we’ve got for our weekly stats, so next up we will get into the news stories. We’ve now got some results of the OPEC+ production cuts. The whole OPEC group is now producing just 50.7 million barrels per day which is about a 1.2 million barrel per day decrease from last month. This is the lowest level in nearly 2 years only outperformed by COVID. Since the year began, the OPEC group is down 2 million barrels per day. People outside of the OPEC group have increased their combined production by nearly 1.6. I know I am throwing a lot of numbers out, but just know that OPEC has successfully decreased the world supply in 2023. Of course, Saudi Arabia is almost single handedly responsible for all of this decline as they have cut 968,000 barrels alone. Alright, I think we should move it along before I drown everyone in data, but I just wanted to provide a quick update and highlight just how much power OPEC truly has. Remember, that power only grows if cooperation grows with Russia and China. 

We’ve talked about it just a little bit, but Iran is getting even feistier in the sea. Now the US and UK are warning ships to be cautious as they travel the Strait of Hormuz. “The International Maritime Security Construct is notifying regional mariners of appropriate precautions to minimise the risk of seizure based on current regional tensions, which we seek to de-escalate,” Commander Timothy Hawkins, spokesman for the Bahrain-based U.S. Fifth Fleet, said this weekend. UK Maritime Trade Operations (UKMTO), part of the navy, said “All vessels transiting are advised to exercise caution and report suspicious activity to UKMTO.” These warnings are not unwarranted as Iran has been on a hot streak of harassment. Let’s hope for the sake of innocent people in the middle that nothing gets too violent.

Lastly, the UK government may be skewing some data. Last week the UK Department of Energy published a joint paper with the Net Zero organization. The report, titled “Electricity Costs 2023” suggests renewable energy plants would have a lower cost over their lifetime when compared to conventional gas fired plants. After releasing the paper and their data, some people began double checking the math. They discovered that the “carbon price assumption” was three times higher than the current carbon price assumption in the UK. Now, before I go on, I might need to explain carbon pricing. It is a concept that attempts to wrap in the future cost of the carbon impact any activity or product might have. For example, the damage to crops due to climate change, the increased health care costs from heat waves and droughts, along with the loss of property from sea rise. I’m going to keep this show objective as I can and just leave you with the definition. The paper tried to justify its math by saying, “For fossil fuel plants, the total carbon price up until 2030/31 includes illustrative estimates for the UK ETS price. Carbon prices are significantly higher than assumed in the previous 2020 report, which has resulted in an increase in LCOE for fossil fuel plants.” After being shown the proof of their inflated assumptions, they responded “illustrative assumptions and not government projections” and that the analyst estimates were “based on crude and simplified assumptions.” Not exactly sure what party they are shirking the blame on, but too bad for them. Either way, the government also announced a $35.5 million increase in government backing for renewables. This brings the total Contracts for Difference budget to $288 million. I imagine that the report was used to justify the decision, but I would rather just see a project be erected without subsidies so we can get to the bottom of this… and lucky for us BP will be constructing 2 subsidy free offshore wind farms in the Irish Sea, so we just might get some answers.
But ladies and gentlemen that is all I have for today’s episode. This has been a fun one and – surprise – actually released on Monday. If you enjoyed it, go ahead and subscribe to this podcast. If you are more of a self described intellect, go ahead and check out www.rarepetro.com where we push a ton of content. As a matter of fact, we have a periodical being released on the 15th that explores something our Canadian audience may be especially interested in, so be on the lookout in our “Periodicals” section of the website. Plenty of time to learn, and we would like to have you along for the ride. This has been Tavis Kilian with RARE PETRO, and until we see you next time, take care everybody!

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