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Oil moves below $55 and testing $50 a barrel

Oil has settled below $60US per barrel testing the economics of shale production in North America, and oil sands production in Canada while presenting some very interesting investment opportunities in equities.

RBC Capital Markets and CIBC World Markets predict prices will remain below $60 for the first three months of 2015. Societe Generale SA’s Michael Wittner forecasts an average of $64.50 in the first quarter and $61.50 in the second.

Regardless it appears there is continued volatility in price and how low it will is anyone’s guess and one can find a variety of low price forecasts from $43 by J.P Morgan, to as low as $30. Is that sustainable? Not likely, and a price recovery will follow.

In terms of Saudi Arabia, there is plenty of chatter about how low Saudis Arabia’s production costs are and they could drive the price to $20 and still make money. However, keep in mind that Saudis Arabia is a oil export dependent country, and their desired price of oil has more to do with overall expenses (spending) in Saudi Arabia to maintain the country. For Saudis Arabia the concern it is about revenue losses rather then profitability of production. In comparison, in the USA the lower price of oil will have a negative impact on higher cost shale producers,  but a positive impact the overall US economy at a time when the US economy is showing strength.

The low price also represents some significant equity  investment opportunities in the energy sector, as low prices are likely not sustainable under $55 a barrel.

Apache sells stake in Kitimat LNG project to Woodside Petroleum

The Kitimat LNG project was somewhat in doubt when Apache announced its desire to sell their interest, but now has new lease on life, as Apache sells its stake in the project to Woodside Petroleum for $2.75 billion USD. Apache will also get an additional $1 billion to reimburse its net expenditure in the Wheatstone and Kitimat LNG projects between June 30, 2014, and the close of the deal, which is expected to be sometime in the first quarter of 2015. See Apache press release here.

The Provincial Government of British Columbia has bet heavily on building a robust LNG industry and can ill afford to lose momentum. Despite recent weak energy prices a secondary market for Canada’s natural gas is critical to the long term health of the industry in Canada. Currently, Canada only has one customer in the United States with an extensive pipeline network running south. Like Canadian oil, when you only have one customer the customer can dictate the terms and conditions. Having a LNG export facility and oil export facility offers Canadian natural gas and oil to a global market. When you have more then one customer, you have an auction.

More on Apache: Apache sells stake in Kitimat LNG project to Woodside Petroleum

BHP Billiton eyes copper growth

Iron ore prices are down 48% year to date and BHP is looking towards copper to offset a dimming outlook for iron ore prices.  Global miners such as Rio Tinto, and Vale have focused on iron ore for the majority of their profits. BHP always promoted their diversified portfolio but still recorded 52% of their operational profits from iron ore in 2014.

BHP Billiton Chief Financial Officer Peter Beaven recently stated, “Emerging economies are transitioning to consumption-led growth and that’s not a problem for copper because copper is used in the build part of growth as well as in the consumption part.”

Read the Full Article >> BHP eyes copper growth to offset dimming iron ore outlook

Here is when the world’s resources will run out

We have all heard statements made by various experts – many self proclaimed – about when the world’s resources will run out. “Peak Oil” an event based on M. King Hubbert’s theory, is the point in time when the maximum rate of petroleum extraction is reached, after which the rate of production is expected to enter terminal decline. The same theory has been applied to many other commodities, and resources. This infographic, by Visual Capitalist, shows you just how much is left.

Key point with finite resources. Either prices have to go up, or major new discoveries have to be made. The latter requires investment in exploration. Unfortunately, there has been a drying up of capital for exploration over the last three years.

INFOGRAPHIC: Here is when the world's resources will run out

 

Arctic route for Alberta oil could trump stalled B.C. pipeline projects

Alberta’s objective to get land locked oil to overseas markets via the arctic may come together sooner then stalled plans for the Northern Gateway and Keystone XL projects through British Columbia

The basic plan would have a brand new pipeline built from Fort McMurray, Alberta to the northern arctic port of Tuktoyaktak. At nearly 2,400 kilometers the arctic pipeline option would be more than twice the length as the proposed Northern Gateway pipeline to the west coast of British Columbia.

Read more: Financial Post – Arctic route for Alberta oil could trump stalled B.C. pipeline projects

‘Met Coal’ Could Be Reaching a Cyclical Low

A particular type of coal – called metallurgical coal or coking coal – is used in the process of manufacturing of steel. After reaching a six-year low in its price and recent industry cutbacks to production, metallurgical coal is showing classic signs of a resource that is ready for a cyclical uptrend.

Steve Yuzpe, CEO of Sprott Resource Corp., specializes in finding long-term value plays in the private equity sector. He says metallurgical coal is an out-of-favor sector, and by his estimation, it is cheap and the price is probably due to improve.

Read the full article at Sprott’s Thoughts – ‘Met Coal’ Could Be Reaching a Cyclical Low

Bloomberg: China Seen Outspending U.S. Drillers to Chase Shale-Gas Boom

With the world’s largest shale gas reserves, China is spending billions to catch up to the US in developing its shale gas reserves and become more energy independent. China holds 25.08 trillion cubic meters of exploitable onshore shale gas, while the U.S. has 13.65 trillion cubic meters of technically recoverable gas from shale formations. However, China has some challenges with access to water and technology that will see them spend nearly four times the amount of money – so development of shale gas in China will come at a high cost. It seems China is prepared to invest what is necessary to make it happen.

The Chinese government as mandated targets for state-owned-enterprises (SOE) such as Sinopec (China Petroleum & Chemical Corp).

Xiaolei Cao, an analyst at Bloomberg New Energy Finance, said in an interview. “For the government, shale is one of the highest priorities, and Sinopec is looking to distinguish itself by making gains in shale.” and estimates that Sinopec will spend an average of $10 million per well at its Fuling site compares with costs as low as $2.6 million a well in parts of the U.S.

Read more on Bloomberg: China Seen Outspending U.S. Drillers to Chase Shale-Gas Boom