360 Horizon: 11/22/09

24 November 2009

Gas, LNG & Oil Outlook

Shell/Qatar partnered LNG plant is delayed by another year

LONDON, Nov 23 (Reuters) - Royal Dutch Shell (RDSa.L) said it had delayed one of its largest schemes by around a year with start-up for the $8 billion Qatargas 4 liquefied natural gas project now planned for late 2010 and the first cargo possibly pushed into 2011.

The delay, which a Shell spokeswoman said was due to contractors struggling to keep up with the pace of developments in Qatar's gas industry, will make it harder for the Anglo-Dutch oil major to turn around a long run of falling production.

"We had been planning for a start-up in early 2010 but now we expect that to come in late 2010," the spokeswoman said on Monday, adding the slippage represented a delay of 10 months.

She declined to say when first cargoes would load but a statement from the company said ramp-up of the project could continue into 2011, raising the prospect the facility may not be in a position to load ships until then.

One dealer said they were not surprised by the delay, as Shell had flagged problems to analysts in recent weeks.

Further delays are possible, with industry analysts at Waterborne LNG saying they expect first cargoes in mid 2011.

The postponement could ease pressure on LNG prices which have come under pressure after the economic recession hit gas demand. Most economists expect the global economy, and energy demand, to be stronger in 2011 than 2010.

The Qatargas 4 project will produce 7.8 million tonnes of LNG annually, equivalent to 280,000 barrels of oil equivalent per day.

State-run Qatar Petroleum owns 70 percent of the project, while Shell owns the rest. Gas will be exported to China and Dubai under oil price-linked contracts which will make the project highly profitable, analysts said.

LNG is natural gas cooled to liquid so it can be exported in ships over distances too far for pipelines to be economic.

Shell has a target of 2 percent to 3 percent average annual growth between 2009 and 2012, despite output falling in recent years.

Qatargas was not immediately available for comment.

Europe's largest oil company by market value said its larger Pearl gas-to-liquids project in Qatar was scheduled to be completed by the end of 2010, with production ramp-up from late 2010 and into 2011.

In March, then-Chief Executive Jeroen van der Veer said Pearl would come onstream in late 2010 or early 2011.

As India's demand for energy grows, it seeks additional LNG (liquefied natural gas) from Qatar

China to divert more industrial natural gas to its people this coming December and January

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China has no plan to cut oil imports from Iran

It is reported that China has no plan to decrease its oil imports from Iran, the world fifth largest crude exporter.

Mr Wang Tianpu president of top refiner Sinopec Corp said China oil imports from Iran will remain at the current level of around 400,000 barrels per day.

The comment came as China announced that it will increase its oil imports from Saudi Arabia by about 12% from this year to top one million barrels a day.

Reuters quoted a Sinopec trader as saying that “We have to secure other supplies as the OPEC cuts may affect grades that our plants really need.”

Iran is the No 3 oil supplier of China, the world’s No 2 oil user.

Total Finds Oil In Vietnam

Are Higher Prices the 'New Normal' for Oil?

The Daily Crux Interviews Marin Katusa of Casey Research On Oil As An Investment

Just ran across this interesting interview between Brian Hunt of The Daily Crux and Marin Katusa of Casey Research on the future of Energy around the planet.

The direct link is here for those of you wanting to read the entire transcript is here:

The Best Energy Investments in the World

Here are some of my favorite gems from the interview. I will highlight those words which especially should be used by you to form a sharper macro-economic view of the world going forward.

I am cutting out any specific mention of companies which Casey Research is recommending. I am simply reprinting the macro-economic views expressed in this interview to help you understand that cheap oil is a thing of our past and as Jim Kunstler would say, the days of "Happy Motoring" . . . making suburbs and exburbs affordable to masses working in the cities . . . are ebbing because of Peak Oil:

The Daily Crux: Marin... we noticed you guys at Casey Research are bullish on energy. Can you explain to us why?

Marin Katusa: Well, as we've mentioned in our Casey Energy letters, we're short-term bears but long-term bulls.

I think there's a very good chance oil will be knocked back down along with other markets in the short term, but I'd consider that a rare opportunity to buy the best companies at a steep discount. Long term, I'm very bullish on oil because I think the supply of cheap oil is running out.

The days of cheap and easy oil are over. Oil is getting harder and harder to extract because most of the easy-to-find deposits have already been found and extracted.

The best remaining deposits are deep underwater like in the Gulf of Mexico or offshore of Brazil, in state-controlled or politically unstable areas like Iran and Venezuela, or experiencing dramatically falling production like Mexico. There are also huge oil-sands deposits in Canada, but these are more expensive to extract - anywhere from $35-$40 per barrel for existing production, up to $65 or more for new production.

The simple fact is oil prices will eventually rise due to the increased costs involved in meeting existing demand.

On top of that, you've got developing countries beginning to significantly increase their own demand. Right now, you've got just 30 or so of the world's most developed countries, known as the OECD, that consume about half of all the oil produced.

As emerging countries like China and India begin to increase their standard of living, they'll start using a lot more oil. As you guys know, oil consumption per capita is tied very closely to GDP per capita of the country. So this means these emerging countries could be using multiples of the oil that they use now.

Today, China uses just under six barrels of oil per day for every thousand people. In India, it's about two and a half barrels for every thousand. In the U.S., it's just under 70 barrels for every thousand. Even if you figure just a 20% increase in China and India per person - those are huge, huge numbers. China alone has over a billion people. This is going to add tremendous upward pressure on prices.

And of course, I'm sure your readers are aware of the long-term threats to the U.S. dollar. Dollar depreciation will only make the problems I just mentioned that much worse.

That said, in the short term, I think oil is very vulnerable to pullbacks in the general stock market. So we've been telling our subscribers to be very cautious. In fact, a year ago, I decided to use $40 oil as the basis for all of our analyses for our newsletter. If a company we were looking at wouldn't be profitable at $40 oil, then we wouldn't go any further. The logic behind $40 was to provide a real margin of safety should we get the correction in oil I'm expecting.

But it also pushed me to look a lot deeper and be more selective, and it's really paid off in our results - over 90% of my recommendations over the last year have delivered significant profits for our subscribers.

The funny thing is that by not using $70 or $80 oil, I started getting hate mail from people, saying, "Don't you know oil's at $73 and you're using $40?" It was hilarious, but that's exactly my point. If a company cannot be profitable at $40 per barrel of oil, it will underperform its peers even when oil is higher. When I use $40 oil and I like the financials - it's gold.

A good example of this is what we did with Nexen. When I first wrote it up, it was trading at C$23 per share. After doing my analysis, I thought its intrinsic value was less. I said, "Buy under C$16 per share." Of course, I got people writing in saying I was out of my mind for setting the buy price so low. Just over a month later, it was trading down below C$16 per share, and my subscribers ended up making about 50% within four months on a low-risk company.

So by using $40 oil, I get my true value, rather than the market value. There's a difference between intrinsic value and the market value, and I go with intrinsic value. I don't care what people are paying in the market right now. You might not get it today, you might not get it next week. You have to be patient. It's what I call "stink bid investing."

Crux: What else do you look for?

Katusa: Another factor I like to look at is what I call game changers. An example of a game changer is what has recently happened to the natural gas sector in the United States. Companies were victims of their own success, because they were so successful in using new technologies to retrieve gas from the shales, they drove the natural gas price down.

Using advanced technologies to discover big offshore deposits is an example of a game changer in oil. But what you're going to see is a lot of the big finds are going to be drilled by the major oil companies - what I call the super majors - because it's just so expensive to drill these targets.

Crux: Nobody else has the money.

Katusa: That's right. So the only frontiers left for conventional oil production that can be extracted easily and cheaply, like I mentioned before, are in politically unstable countries like Iran, Iraq, Libya.

These countries are fully aware of the potential of their resources locked within their borders. They're increasing the royalties they charge, including the gradual increase in the use of service fee contracts.

We spent a whole issue talking about this in our Casey Energy Report, in the October issue. In countries where the governments hold the ownership of the oil - such as south central Iraq, Kuwait, even potentially Mexico - these are places that you want to watch out for, because they are constitutionally barred from giving foreign oil companies ownership of the oil in the ground. They're not as positive as people think they are.

A reliable and friendly oil source to the United States, such as the Alberta oil sands, is not cheap to produce. The oil sands require at least $35-$40 per barrel at the very minimum to extract, compared to less than $5 per barrel in places like Saudi Arabia, Iraq, and Kuwait.

Proven reserves in politically stable parts of the world unfortunately will cost the U.S. consumer a lot more money per barrel. We spent a lot of time in our latest issue of Casey's Energy Opportunities looking at all of the national oil companies. Of those, you've really only got three you can possibly invest in, if you dare.

Crux: How about your take on the likelihood of big takeovers and buyouts? Do you see oil-hungry nations like China coming in to buy up a lot of reserves?

Katusa: Absolutely, but it's not just going to be the Chinese, it's also going to be big oil companies who want to replace their production with proven reserves in the ground.

An advantage the Chinese companies will have over the Western oil companies is the Chinese ability to leverage their political and economic muscle in places such as Africa, Venezuela, and Bolivia.

These countries potentially hold world-class oil deposits, but it's much riskier for a Western company to explore these regions than the powerful Chinese oil companies.

Crux: China is already in a bidding war with ExxonMobil for African oil...

Katusa: Right. What our angle is, if you're looking to invest in Africa, you're looking for elephant-size deposits - what they call "world class deposits."

The company needs to go in with a crew able to maneuver in politically unstable parts of the world. . .

An interview with Marin Katusa, Casey Research
November 25th, 2009

23 November 2009

Ben Bernanke: Greatest Hits

This clip is a splice of 5 appearances on CNBC. This is the top Economic Analyst in the land, the current head of the Federal Reserve.

Like Greenspan, Bernanke seems to have had a different and badly distorted perception of the Economy which hundreds of accurate and clear eyed bloggers saw. Hell, there were normal Americans by the dozens on Motley Fool message boards who predicted the Housing Crash, the Credit Crisis and the Great Recession back in 2004-2005.

It won't be long . . . and I almost guarantee this: someone in the government will praise Bernanke for "saving our Economy".

Never mind he was blind to the red hot overheating of housing, the loosely regulated banks, the corrupt ratings agencies, the unregulated sidebets on CDSs backed up by AIG which was nowhere nearly funded for a black swan event, and so on and so forth.

Bernanke, like Greenspan, was the perfectly calm shill for the banking cartel which they represent, even when the storm clouds were coming at them from all directions.

Watch this video and scratch your heads. Bloggers all over the net were right as rain about the coming pain. Bernanke? He simply couldn't see it coming. And this is the guy who wrote a book about the Great Depression?

The Burned: "Where Are We Now?"

I discovered an uncredited song the other night at the end of Season 2, Episode 1 of Crash.

After a long Google search, I found the name of the singer/songwriter of the haunting piece of music was one, Kurt Baumann. I found him on a site for unsigned musicians called Band Camp.

The song which fit perfectly into the finale of the first episode of Season 2 of Crash was Baumann's "Where Are We Now?"

Kurt Baumann writes:

I wrote this song on a transformational journey down in the desert lands of Mexico. It was also featured on the season premier of "Crash" in October 2009.

(Note: The Burned is Baumann's band name. And his first album The Burned will release on Jan. 26, 2010.

Click this link to hear the first cut, "Where Are We Now".

lyrics to "Where Are We Now?"

I remember I’ve been here before
Some other time some other doorway in my mind
Straight back to you
The grass is never greener than it was before
I’ve seen her change her mind and blink her eye
Its still the same place
Oh Where are we now
Missing a few pieces to your broken hearted Jesus
May the shining light of reason guide us all
Inner voices outer choices opposites and Godly forces
All lead me back home to you
Oh where are we now
Far away
World wide
Heaven hides
I just don’t feel it anymore
It used to be here once before
But I just don’t feel it anymore
Oh where are we now