The Phil Flynn Energy Report 11-1-2019
Supply Side Crush
The price of crude had its worst week being down over 4% on a freak crude oil supply build and worries about a U.S.-China trade deal and the ridiculous impeachment of a President. The Chinese say basically they don’t want to do a long-term trade deal with U.S. because President Trump is impulsive. No kidding. Yet what the Chinese are really saying is the pressure to do a trade deal is less because some partisan political hacks have found the votes to impeach the President in an assault on our constitution and any presumption of fairness. This dangerous impeachment is not only a pathetic attempt to overthrow an election but also to try and set the stage for a re-working of our government that can ride roughshod over our rights and take away our freedoms. If they can have secret trials and secret testimonies to try to convict a fairly elected sitting President, what chance do the rest of us have?
Oil also has to try to come to terms with that big jump in crude supply. Once again it was more about the Energy Information Administration (EIA) upward adjustments than an actual change in inventory. The EIA adjustments are raising concerns about the reliability of their data as the trade is wondering how you can consistently get things so wrong. Still, a leak in the Keystone pipeline and confirmation added to the bearish sentiment along with the fact that “Many mutual funds have today as their fiscal year-end, so it makes sense that there is some tax-loss related activity.” Products also got hit hard. Diesel fell harder on refinery hopes and gas not as much. Yet supply for products is still tight. We still believe there are significant risks to the upside. So get at least partially hedged.
If the U.S. and China get a trade deal on imports, what they will need from the U.S. is Freedom Gas! Freedom gas, of course, is LNG or liquified natural gas and if China has any shot at making a major reduction in greenhouse gas emissions, they are going to need a lot of LNG. Reuters reports today that, “China’s Suntan Green Energy Co. Ltd (0956.HK), a wind power producer and piped gas distributor, plans to build a $1 billion liquefied natural gas (LNG) receiving terminal in north China by end-2022 after its investment plans won state approval, a company official said. Reuters says, “The little-known firm, backed by the Hebei provincial government, joins a handful of Chinese companies outside the dominant state energy giants aiming to own and operate a receiving facility for the super-chilled fuel, of which China is the world’s second-largest buyer. In a Hong Kong exchange filing on Thursday, Suntien said the central government had approved its plan to build a gas terminal in the city of Tangshan with an eventual handling capacity of 12 million tonnes a year. A Hong Kong based investor relations official told Reuters the company would initially invest 8.07 billion yuan ($1.15 billion) for a first-stage terminal able to handle 5 million tonnes of LNG a year by the end of 2022. The project will include eight storage tanks, each sized 200,000 cubic meters, and a berth able to dock LNG tankers between 80,000 and 266,000 cubic meters, the official said.
Suntien, which has a market capitalization of HK$8.47 billion ($1.1 billion), said it plans to finance the Tangshan project through its own capital and loans from financial institutions. The company began life in 2010 as a wind power generator but wants to beef up its natural gas business to contribute half its profit in five years’ time, versus 30% in 2018, said the official, who declined to be named as she is not the company’s official spokesperson. The move would compensate for a less prospective wind power business, which is facing headwinds from over-capacity and dwindling state subsidies, the official said. “The outlook of wind power is less certain ... because of lags in state subsidies and the limits on the amount of generation,” she said.
Its gas business, however, has been robust. Suntien currently operates 4,140 km (2,575 miles) of pipelines in Hebei, China’s top steel-making province, and last year supplied the province with nearly 20% of its total gas needs, securing gas mostly from top gas producer PetroChina (0857.HK). Gas demand in Hebei is forecast to hit 20 billion cubic meters in 2020, up more than 40% from 2018, thanks to a strong government push to switch from coal to gas to tackle pollution, the official said."
In the short-term, natural gas is being driven by the cold blast that most of us are feeling. Still, after a bearish EIA 89 BCF storage report, natural gas settled back a bit. Yet the weather still looks gold. Bret Walts Bamwx.com says that "heating demand generally should remain above normal the next two weeks, with major cold ~Nov 8 - 10. We do see the risk for some kind of moderation of the more excessive cold towards the end of the second week of November, but we remain skeptical of a widespread warm-up. We still have a good source of cold air into the middle of November so I'd anticipate the continued risk of cold blasts of air with heating demand generally remaining above normal." Also go check out the recording of their weather webinar!