Energy Prospectus

Opening Prices:
> WTI is down $0.38 to $75.94/bbl, and Brent is down $0.47 to $82.69/bbl.
> Natural gas is up 14.3c to $2.691/MMBtu.

AEGIS Notes with my comments in blue
Oil

Oil trades lower as interest rate hike fears offset Russian output cuts
April ’23 WTI lost 38c this morning to trade around $76/Bbl
Russia halted pipeline oil supplies to Poland via the Druzhba pipeline on Sunday

Oil posted a marginal decline last week after Fed minutes, and PCE data indicated concerns about inflation staying high, hinting that rate hikes might continue
The U.S. Dollar relatively weakened to its recent highs but still remains at a seven-week high
Although recessionary concerns continue to weigh on prices, the market continues to watch Chinese demand recovery and Russian supply risk

Russia halts oil flow to Poland via the Druzhba pipeline (BBG)
Lack of paperwork for shipments for the second part of February was the cause of the halt, according to Russian pipeline operator Transneft
The cut-off of February flows came just a few days before Russia decided to cut its production by 0.5 MMBbl/d in March as retaliation for western sanctions

Vitol says oil prices could return to triple digits in the second half of the year (BBG)
“Demand is expected to hit record levels in the second half of the year,” said CEO Russell Hardy
According to Vitol’s estimates, demand is set to rise by 2.2 MMBbl/d this year, and oil inventories look “reasonable” over the next few months
MY TAKE: I get numerous oil price forecasts from energy sector analysts. They all say that oil demand will start exceeding supply in Q2 and could exceed supply by quite a bit in 2H 2023, baring a significant global recession.

Natural Gas

Natural gas prices are higher by 6% this morning in the prompt month
The Summer ’23 seasonal strip is up 11c to $3.07, and the Winter ‘23/’24 strip is higher by 7c to $3.94 < All of my forecasts now assume that HH ngas will average $3.25 in Q3 2023 and $3.75 in Q4 2023 before going over $4.00 in 2024.
Weather forecasts have shifted cooler in the eastern half of the country and warmer in the western half < The MJO has moved into Phase 7.
The Northeast region’s forecast cooled by 17.7 °F in the 6-10 day period, while the Rockies region warmed by 30 °F in the same period < The MJO in Phase 7 will shift the dip in the jet stream to the east.

EOG Resources (EOG) says drilling plans unchanged despite low gas prices (Reuters)
While several producers have announced plans to reduce drilling activity this year, EOG announced on Friday that they would not be changing their strategy
EOG has been increasing activity in South Texas, with output from the region accounting for about 50% of the company’s gas production
CEO Ezra Yacob said, “It's never really been about chasing seasonal demand or aggressively ramping up activities in that play”
EOG is the largest upstream company that I follow with a market-cap over $67 billion. My updated valuation is $164 per share.

Emissions from the US power sector fell in 2022 on the switch from coal to gas (Reuters)
Despite the demand for electricity rising by 2%, emissions of smog components fell by up to 10% compared to 2021
This reduction comes as a result of more coal power plants are retired, leading to an increase in the share of power generated by natural gas
The EPA is expected to issue a ruling on power plant emissions of mercury and other pollutants in the coming months, which could lead operators to retire additional coal plants

Closing Prices:
> Prompt-Month WTI (Apr 23) was down $-0.64 on the day, to settle at $75.68
> Prompt-Month Henry Hub (Apr 23) was up $0.183 on the day, to settle at $2.731 < I told you so! All that's happened is that the Paper Traders got caught with too many FEB23 and MAR23 futures contracts. With the utilities out of the futures market, there were not enough Buyers to take physical delivery. The Paper Traders have a lot less APR23 contracts, so the Buyers and Sellers are back in balance.

Team Biden needs to listen to their own energy experts.

The EIA primary energy forecast for the next 30 years shows that ALL sources of energy are growing. While renewables are expected to comprise a larger fraction of a growing pie, fossil fuels are expected to grow more in absolute terms.

Per EIA: In 2050 the World's Primary Energy sources will be made up of 32% oil, 25% natural gas and 23% coal; a total of 80% from fossil fuels. Our own government says wind and solar will only generate 7% of the world's energy in 2050.

Recently, a spark of sanity has returned to the debate about nuclear power. For a reliable, cost-effective, low-carbon and scalable energy transition, we need to take the path proposed by Robert Bryce in his book Power Hungry. In the near-term, we need more natural gas, which reduces our CO2 footprint and is cheap, reliable and abundant. For the long-term, we need to build nuclear energy, hopefully eventually nuclear fusion. Before that, let’s hope a spark of sanity returns to the discussion about the “Energy Transition”.

Trying to find the actual reference for the 7% of renewables by 2050. Any help will be appreciated. I did find this: https://www.spglobal.com/commodityinsig ... %20changes.

Renewables to make up 27% of 2050 global energy mix

Global ICE vehicle fleet to peak in 2038 with rise of EVs

Oil, gas output to grow through 2050 on Asian demand

Wind and solar is just a small percentage of what EIA lists a "renewables".

Here is the primary energy sources EIA shows for global energy in 2050:
Nuclear 2%
Hydropower 3%
Wind 3%
Solar 4%
Modern Biofuels 3%
Traditional Biomass 5%

Coal 23%
Oil 32%
Gas 25%

https://www.eia.gov/outlooks/ieo/narrat ... pic-01.php

Bullish for oil & gas and for coal. If you haven't looked at coal I would highly recommend - names such as CEIX, ARCH, ARLP and BTU are all trading at 1-2x 2023 forecast cash flow... and two big differences from the O&G names is that a) most of these names have pre-sold 80-90% of their 2023 production at prices above 2022; and b) most have very limited capex (unlike O&G they are not having to spend just to maintain production levels). Yes, you have to hold your nose when investing (it's obviously the worst of the fossil fuels from a pollution perspective), but such is life. I have been a long term investor in tobacco names such as MO and BTI and base my investment decisions on looking for undervalued/unloved segments. O&G fits that bill right now... but so does coal... and as per the EIA demand for coal is not going away.