Join your host Tavis for a heavy episode of energy policy!
Alrighty everyone, welcome back! This is Tavis Kilian with RARE PETRO bringing you another spicy episode of Monday Madness. Today is May 24, 2021. Bought a car on craigslist, and now that I have it registered in my name and know it was not stolen, I took some time to change the oil, transmission fluid, and other things. The cabin was a bit smelly, so I decided to check the cabin air filter, and oh. My. God. If you haven’t changed your cabin air filter out in a couple of years, I recommend you check it out soon. There was a gnarly mountain of dust, foliage, and bugs on mine. Now that I changed it, the air blows much a little harder, a little colder, and a little less smelly. But hey, this isn’t Monday Mechanics, and I know you didn’t come to hear hot tips and tricks about servicing your vehicle. You came here for the hottest news and statistics surrounding oil and gas, and we will start with WTI pricing.
Pricing had a peculiar week as oil traded just under or just over $65 through Tuesday. From there it had a fall from grace before seemingly bottoming out at almost $62 flat on Wednesday. From there it had a short little recovery before again faltering on Thursday and Friday, breaking that $62 floor. Thankfully, the price did its best to pull itself out from the gutter the rest of Friday to the mid $63 range. Weekend trading seemed to huddle there, and I can’t tell you much about the price today, because it is still too early for trading. Gotta pick up my old man from the airport. As far as this week goes, keep an eye out. There could be pressure to cause it to skyrocket, or it could be incredibly tame and hover at this range. I’d hate to have to eat my words should it fall later today, but I’ve gotta be wrong every once in a while, right? Still, an okay week for that oil price. Not strong, but could have been worse.
Next up of course, is the rig count which fared much better than pricing. This past week revealed a humble 2 rig build. Nothing extravagant, but again, movement upward like we have seen for virtually all of 2021. That brings the US total to 455 rigs, which is up 137 on the year! Huge improvement from 2020, and that should only grow to be a little bigger in the upcoming months. As far as major basins go, the Permian saw no change, which we observed just a few weeks ago, so activity could be leveling off. The dominant basin this week was actually the Cana-woodford in Oklahoma who put up 2 rigs. Our biggest losers were the Eagle Ford and Haynsevile who each lost one rig. As far as decreases go, losing one ain’t half bad. From a state perspective, Oklahoma broke away with 4 additional rigs raising their total 18% from 22 to 26. As for the type of rig, directional and vertical remain unchanged at 28 and 15 respectively, while horizontal tacked 2 onto the total bringing it to 412. Big win for Oklahoma, so let’s see if they can keep the momentum in coming weeks.
Last statistic to cover is our domestic inventories. The API and EIA peered deep into their crystal balls and predicted a 1.6 million barrel build of crude oil. Things have been steady lately, so if they were right, it wouldn’t be too big of an issue. Unfortunately they were not right. The API reported a build of just over 600,000 barrels, which was below the estimate. The EIA was also below their estimate, but still reported a build of more than double the API at 1.3 million barrels. It is never fun to see a build, but this is a pretty small one, so we’ll just have to see what happens next week. As for the more processed materials, I’d like to kick it off with gasoline. Last week I reported a small gasoline build despite the so-called “shortage” on the east coast. This week there was a 2 million barrel draw. While that might sound significant at first, know that it accounts for less than 1% of total inventories. So, over the week and a half we saw the colonial pipeline shut down, gas inventories declined slightly, and I really think it is a result of panic buying. Remember, when someone says there is a shortage of something, it is usually a result of consumers in fear. Not to say that there can’t be a bottleneck in the supply chain, but our gas inventories went mostly untouched. The total days of supply between last week and this week is virtually unchanged. Distillate inventories continue to decline as expected this time of year. It is tracking healthily in the middle of its 5 year range. Propane continues on a seasonal decline, but hovers a little closer to the bottom of the 5 year historical range.
But that is all I’ve got for the statistics. Today will be a little unique for the news story section as I will be focusing pretty heavily on energy policy. I do have some strong opinions towards this stuff, but I will be backing any claims with data so this podcast doesn’t turn into my own little venting session. Our first story revolves around the Nord Stream 2, or a Russian Pipeline that is set to run all the way to Germany through the Baltic Sea. Biden has expressed his opposition for the pipeline in the past, usually on the grounds of the environment. Others, including the Trump administration and Baltic State Governments, have opposed it for a far more menacing reason: it gives a phenomenal amount of geopolitical leverage to Russia. Yuriy Vitrenko, the new CEO of Ukraine’s state-owned energy company, Naftogaz, said Nord Stream 2 is Russia’s “most malign and dangerous geopolitical project” and that Ukraine would ask Washington to fully apply its laws and impose sanctions to stop the pipeline. Unfortunately, the Biden administration has lifted the US’s existing sanctions on the project. Secretary of State, Antony Blinken, waived all existing sanctions on the project, despite state department reports highlighting Russia’s sanctionable activity. It seems that the goal is to appease German interests in order to rebuild a relationship that was damaged from the Trump administration. “Today’s actions demonstrate the administration’s commitment to energy security in Europe, consistent with the President’s pledge to rebuild relationships with our allies and partners in Europe,” Blinken said in a release, issued as he met with Russian Foreign Minister Sergei Lavrov in Iceland for an Arctic Council conference. Members of congress have been quick to voice their opposition to the decision as it is still possible to reinstate the sanctions before the pipeline is finished later this year. Now, dear listener, what I don’t understand is why the Keystone XL pipeline was shut down when it could have improved relationships with Canada and addressed energy security issues in North America. That is the reasoning behind this decision, yes? Also, the Keystone XL was not going to act as geopolitical leverage in the way that Russia could potentially use the Nord Stream 2. Say Russia wants something from the Baltic states that are serviced by the gas line. What is to stop them from saying, “Oh boy, supply is limited so this winter is going to be EXTRA harsh for you. Sorry!” I know it sounds like a crazy conspiracy theory, but in 2015 Russia was fined by the EU for price gouging Eastern European markets and extinguishing competition. They also had to reimburse a Polish gas company $1.5 billion dollars for overcharging them for imported gas. This was all under the rule of Putin. I tell you, there are no tin hats here. Still, I am confused why the Keystone XL was shut down. Like I said, it would have appeased Canada, and there is no way they could have leveraged it against us. Start charging more on contracts? Let’s purchase less contracts, and produce our own energy because we have the reserves to be energy independent. Very strange all around, and it must be a long term play, or a strategic move before the Biden-Putin summit. Let’s hope that millions of Eastern Europeans are not harmed by the decision.
Next up on Tavis’ list of energy policy complaints, we’ve got a report from the IEA outlining their roadmap for net zero by 2050. Disclaimer, this report is 224 pages long, and I have not read all of it. Loads of people from dozens of countries worked on this report and presented a lot of valuable insight, but I will be focusing specifically on page 20 of this report, and I suggest you check it out as well. Page 20 is a figure that highlights the key milestones necessary for achieving a net zero world by 2050 for every 5 years from 2025 to 2050. They also highlighted goals specific to the end of this year. Let’s take a look shall we? The first goal relating to electricity and heat states, “No new unabated coal plants approved for development.” If you’ve been listening to this podcast for a little bit, I’m sure you know why this plan is flawed. According to Yale Environment 360: “A total of 247 gigawatts of coal power is now in planning or development, nearly six times Germany’s entire coal-fired capacity. China has also proposed additional new coal plants that, if built, would generate 73.5 gigawatts of power, more than five times the 13.9 gigawatts proposed in the rest of the world combined. Last year, Chinese provinces granted construction approval to 47 gigawatts of coal power projects, more than three times the capacity permitted in 2019.” Unfortunately, the world just isn’t coming together in the way some would hope. It sure seems like everyone else in the Paris agreement is offsetting China’s footprint. The other goal for the end of the year was stopping the approval or development of new oil and gas fields. I doubt this goal will be finished either as many companies continue to search off the coast of Africa for new plays, and I think Shell just made a discovery off the Gulf of Mexico that had over 600 feet of net pay. That leaves us as 0 for 2 on goals for this year alone. What other goals do we have? By 2040 the report says we need net zero emissions from electricity globally. In less than 20 years, we want to have parts of Latin America, South America, Africa, and remote destinations fully powered by renewable energy? Perhaps remote destinations could accomplish this, but so much power for cooking and heating still comes from coal and natural gas, and leapfrogging directly to renewable energy systems will require loads of investing, mining, and education to make it possible. Call me a pessimist, but it really seems like the conversation for a net zero future by 2050 only includes currently developed nations. The rest of the world will want to live with the luxuries we have, so this is why I’ve always maintained the stance that we should work to introduce natural gas based power in countries lacking energy security. I feel that will have a much greater impact on emissions overall. I could spend all day playing devil’s advocate against this document by saying we currently lack enough material for the batteries to have 60% of global car sales electric by 2030, or that harvesting materials for universal energy access by the same time will likely have a far more negative impact on total emissions, but I don’t think that would be doing anyone any favors. If anything, those of us in industry have to do our best to educate the public and policy makers on energy. Sure, renewables are great, but as a supplemental source. Why can’t we make use of solar, hydro, natural gas, and nuclear power with a few coal and diesel backups here and there? Surely we’ve got a long way to go, but I am excited for the future, because at the very least, everyone has the common goal of affordable clean energy for all, and that is a movement I am excited for. *long pause* How’s that for a dramatic speech?
But enough of my theatrics, that is the end of this episode! I know it got a little heated and opinionated, but these are things that we should be considering when discussing energy policy! If you would like to learn more about geopolitics, fundamentals, financials, and technical subjects, be sure to go to rarepetro.com. If you want to do your own research, we have compiled some of our favorite links on the website that will direct you to loads of quality data that you can work with to draw your own conclusions. While you are there, take a peek at the rest of the short form content we’ve been producing for over a year now. You could likely search a topic of your choice and find something we’ve written about it. This has been Tavis Kilian with RARE PETRO, and until we see you next time, take care everybody.