energy tidbits - saf group...3. cp believes gibson diluent recovery is “game changer” for crude...

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Energy Tidbits

Dan Tsubouchi

Principal, Chief Market Strategist

[email protected]

Aaron Bunting

Principal, COO, CFO

[email protected]

Ryan Dunfield

Principal, CEO [email protected]

Ryan Haughn

Principal, Energy

[email protected]

Big Positive To Mid Term LNG: India Budget 2020, Targets

Natural Gas To Be 15% of Energy Mix By 2023

Welcome to new Energy Tidbits memo readers. We are continuing to add new readers to our Energy Tidbits

memo and energy blogs. The focus and concept for the memo was set in 1999 with input from PMs, who were

looking for research (both positive and negative items) that helped them shape their investment thesis to the energy

space, and not focusing on day to day trading. Our priority was and still is to not just report on events, but interpret

and point out implications therefrom. The best example is our review of investor days, conferences and earnings calls

focusing on sector developments that are relevant to the sector and not just a specific company results/guidance.

Our target is to write on 48 to 50 weekends per year and to send out by noon mountain time on Sunday.

This week’s memo highlights:

1. India’s budget 2020 yesterday included govt target to get natural gas to 15% of energy mix by 2023 (was 6.2% in 2018). (Click Here)

2. Excellent oil, natural gas, LNG and petroleum products insights from Kinder Morgan investor day. (Click Here)

3. CP believes Gibson diluent recovery is “game changer” for crude by rail. (Click Here)

4. Houthis resumed missile attacks on Aramco facilities within Saudi Arabia. (Click Here)

5. Good comment from CNBC’s Cramer, who highlights capital leaving fossil fuels is “happening very quickly”. (Click

Here)

6. Please follow us on Twitter at [LINK] for breaking news that ultimately ends up in the weekly Energy Tidbits memo

that doesn’t get posted until Sunday noon MT.

7. For new readers to our Energy Tidbits and our blogs, you will need to sign up at our blog sign up to receive future

Energy Tidbits memos. The sign up is available at [LINK].

Produced by: Dan Tsubouchi

Feb 2, 2020

https://twitter.com/Energy_Tidbits

http://www.safgroup.ca/research/trends-in-the-market/


2

Energy Tidbits

Table of Contents Natural Gas – Natural gas withdraw of 201 bcf, storage now +524 bcf YoY surplus ...............................................5

Figure 1: US Natural Gas Storage ....................................................................................................................5

Natural Gas – US gas production in November +8.0 bcf/d YoY ..............................................................................5

Figure 2: US Dry Natural Gas Production ........................................................................................................5

Natural Gas – US November LNG exports +2.8 bcf/d YoY, .....................................................................................6

Figure 3: US LNG Exports (bcf/d) .....................................................................................................................6

Figure 4: Natural Gas Flows to US LNG Export Terminals ..............................................................................6

Natural Gas – US November exports to Mexico +0.6 bcf/d YoY ..............................................................................6

Figure 5: US Pipeline Exports To Mexico (bcf/d)..............................................................................................7

Natural Gas – SAF’s database of US LNG projects .................................................................................................7

Figure 6: US LNG Projects ...............................................................................................................................7

Natural Gas – Shell elevates LNG Canada Phase 2 up to “Define” category ..........................................................8

Natural Gas – Chevron says Kitimat doesn’t make its low cost ranking ..................................................................8

Natural Gas – EIA says Mar/20 gas storage could be >2,000 tcf vs 1,137 tcf in Mar/19 .........................................8

Natural Gas – PNG unable to reach a P’nyang gas agreement with XOM ..............................................................9

Natural Gas – India LNG imports for Dec +22.8% YoY or +0.6 bcf/d ......................................................................9

Natural Gas – Big LNG plus, India wants natural gas to be 15% of energy mix by 2023 ........................................9

Excerpts from SAF Oct 23 blog “Finally, Some Visibility That India Is Moving Towards Its Target For Natural Gas

To Be 15% Of Its Energy Mix By 2030” ................................................................................................................. 10

Figure 7: India’s Projected Natural Gas Consumption @15% Of Energy Mix (bcf/d) ................................... 10

Natural Gas – Negative with warm weather forecast for Feb in Japan and NW Europe ...................................... 10

Figure 8: EIA – Japan Temperature Forecast Feb 1 - 29 .............................................................................. 11

Figure 9: NW Europe 18 Day Temperature Forecast Jan 30 – Feb 16 ........................................................ 11

Natural Gas – Tanker tracking, China Jan LNG imports down 5% YoY ............................................................... 11

Likely close to zero growth China LNG imports in 2020 YoY vs 2019 .................................................................. 12

Figure 10: China’s YoY Growth In LNG Imports vs Rest of World LNG Imports (bcf/d) ............................... 12

Figure 11: Est YoY Change In China’s Natural Gas Demand vs Domestic Natural Gas Supply .................. 13

Natural Gas – Nord Stream delivered 5.66 bcf/d to Europe in 2019 ..................................................................... 13

Oil – US oil rigs down 1 to 675 oil rigs ................................................................................................................... 13

Figure 12: Baker Hughes Total US Oil Rigs .................................................................................................. 13

Oil – Total Cdn rigs up 3 to 247 total rigs .............................................................................................................. 13


3

Energy Tidbits

Figure 13: Baker Hughes Total Canadian Oil Rigs ....................................................................................... 14

Oil – US oil production flat at record 13.0 mmb/d .................................................................................................. 14

Figure 14: EIA’s Estimated Weekly US Oil Production ................................................................................. 14

Figure 15: US Weekly Oil Production ............................................................................................................ 15

Figure 16: YoY Change in US Weekly Oil Production ................................................................................... 15

Oil – EIA Form 914, Nov +203,000 b/d MoM and in line with EIA 2019 forecast .................................................. 15

Figure 17: EIA Form 914 US Oil Production .................................................................................................. 16

Figure 18: EIA Form 914 US Oil Production vs Weekly Estimates ............................................................... 16

Oil – Is Chevron’s Permian vision basically what Cdn oil producer have established .......................................... 16

Oil – Exxon reminds Permian growth will be lumpy .............................................................................................. 17

Oil – Excellent oilfield services insights from Wood Mackenzie webinar .............................................................. 17

Figure 19: Wood Mackenzie Lower 48 Liquids Breakeven Curve................................................................. 18

Oil – Laurentian reminder on oil and gas reserves being hit by ADR inclusion .................................................... 18

Oil – CP: Gibson diluent recovery is “game changer” for crude by rail ................................................................. 18

Figure 20: CP’s DRU Overview Slide ............................................................................................................ 19

Oil – Alberta to overhaul liability management ratio system.................................................................................. 19

Oil – CAPP forecasting Cdn oil and gas capex up $2bn YoY in 2020 .................................................................. 20

Figure 21: Upstream Capital Investment in Canada ..................................................................................... 20

Oil – Cdn crude by rail imports to Gulf Coast 131,000 b/d in November .............................................................. 20

Figure 22: US Crude Oil Movement by Rail October 2019 ........................................................................... 21

Oil – Near term risk to WCS diffs with China taking less Latin America crude ..................................................... 21

Figure 23: WCS Less WTI Differentials ......................................................................................................... 22

Oil – Oil input into refineries down 933,000 b/d to 15.924 mmb/d ........................................................................ 22

Figure 24: US Refinery Crude Oil Inputs (thousand b/d) ............................................................................... 22

Oil – Co-op refinery/Unifor restart talks Fri, but talks broken off again ................................................................. 22

Oil – US “NET” oil imports up 134,000 b/d to 3.151 mmb/d .................................................................................. 23

Figure 25: US Weekly Preliminary Oil Imports By Major Countries .............................................................. 23

Oil – Mexico sends cargoes of medium sour Isthmus crude to PADD 3 Gulf Coast ............................................ 23

Oil – Reuters Survey For Jan production: -640,000 b/d to 28.350 mmb/d ............................................................ 24

Figure 26: Reuters Survey of Jan 2020 production ....................................................................................... 24

Oil – Sounds like momentum building for an OPEC+ emergency meeting ........................................................... 24

Oil – WSJ: "Saudi Air Defenses Thwarted Attack on Aramco" .............................................................................. 24

Oil – No surprise, Houthis, Hezbollah and others negative on Trump/Israel peace plan ...................................... 25


4

Energy Tidbits

Oil – Haftar port blockade continues, Libya NOC says oil production down 931,819 b/d ..................................... 25

Figure 27: Libya Oil And Gas Map Noting Misrata ........................................................................................ 26

Surprised it has took this long for Haftar to use oil as a weapon .................................................................. 26

Oil – Still wonder if lingering Druzhba oil quality concerns .................................................................................... 26

Oil and Natural Gas – sector/play/market insights from Q4 calls .......................................................................... 27

Chevron – multiple sector insights ................................................................................................................. 27

CP – Crude by rail volumes should be higher in Q2 and Q3 ......................................................................... 28

Exxon – Multiple sector insights .................................................................................................................... 29

RPC – E&P activity up in Q1 vs Q4, holding the line on service pricing ....................................................... 29

Shell – Not seeing pressure for LNG price renegotiations ............................................................................ 30

Oil & Natural Gas – Many sector insights from Kinder Morgan investor day ........................................................ 31

Figure 28: Global Natural Gas Demand and Projected US LNG Exports ..................................................... 33

Oil and Natural Gas – Good US oil and gas industry report to add to reference libraries .................................... 33

Figure 29: US Oil and Gas Employment by Industry ..................................................................................... 34

Wuhan Coronavirus – # of infected and deaths increasing at faster rate within China ......................................... 34

Electricity – German cabinet backs plan to exit coal by 2038 ............................................................................... 34

Figure 29: German Coal Phase Out Timeline Graphic .................................................................................. 35

Capital Markets – Aviva: “Asset managers cannot be passive on climate change” .............................................. 35

Capital Markets – CNBC Cramer selling of fossil fuels is “happening very quickly” ............................................. 36

Capital Markets – Hang Seng Index to shine in year of the “resilient rat” ............................................................. 36

Twitter – Look for our first comments on energy items on Twitter every day ........................................................ 37

Energy Tidbits – Sign up on our email distribution for tidbits and blogs ................................................................ 37

LinkedIn – Look for quick energy items from me on LinkedIn ............................................................................... 37

Misc Facts and Figures.......................................................................................................................................... 37

Canada’s Christine Sinclair is all time highest scorer in women’s soccer ..................................................... 37

Is Chief’s Duvernay-Tardif the most interesting man in the world? ............................................................... 37

Chiefs Pat Mahomes reminds me of star financial performers ...................................................................... 38


5

Energy Tidbits

Natural Gas – Natural gas withdraw of 201 bcf, storage now +524 bcf YoY surplus

The EIA reported a 201 bcf natural gas draw, which was right in line with expectations of a 203 bcf draw, and well above the 5-yr average draw of 143 bcf. This brings storage to 2.746 tcf as of Jan 24. This is a narrowing of the YoY surplus to 524 bcf vs 554 bcf surplus last week, with storage now 193 bcf above the 5 yr average. The bigger draw compared to the 5 yr average was positive, but HH prices continue to be very weak. Total gas withdrawals are expected to fall below the 5 yr average over the withdrawal period, which combined with higher YoY production and warmer US temperatures, will be a continued negative to HH prices. Below is the EIA’s storage table from its Weekly Natural Gas Storage Report. [LINK] Figure 1: US Natural Gas Storage

Source: EIA

Natural Gas – US gas production in November +8.0 bcf/d YoY

The EIA released its Natural Gas Monthly, which includes its estimates for “actuals” for November gas production. The big negative to natural gas prices has been higher YoY natural gas supply, and this continues to be the case in November with a YoY increase of +8.0 bcf/d. No question, it is still a strong YoY increase, but lower than the +~10.0 bcf/d YoY increases we saw at the beginning of 2019. The EIA estimates US natural gas dry production in November at 96.5 bcf/d, which is also +1.1 bcf/d MoM vs October at 95.4 bcf/d. The higher MoM gas production makes sense given the higher MoM actuals US oil production data for Nov (discussed later in the memo), which would mean increasing associated natural gas from oil wells MoM, however we continue to highlight that natural gas production growth should slow into H2/20 with low strip pricing and high decline rates. Higher YoY natural gas production is the primary factor keeping HH gas prices low. Our Supplementary Documents package includes excerpts from the EIA Natural Gas Monthly. [LINK] Figure 2: US Dry Natural Gas Production

Source: EIA

EIA - Dry Gas Production

bcf/d 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Jan 56.0 60.0 65.9 65.3 67.8 72.6 73.8 71.0 77.9 88.6

Feb 57.3 58.8 65.2 65.9 67.5 73.7 74.7 71.6 79.4 89.4

March 57.3 61.5 65.1 65.4 68.2 74.1 74.0 73.3 80.2 89.9

Apr 57.6 62.3 65.4 66.0 68.6 75.0 73.8 73.4 80.4 90.4

May 58.0 62.4 65.6 66.3 69.5 74.2 73.5 73.3 81.3 89.9

June 57.2 62.1 65.4 66.3 69.8 74.3 72.5 73.8 81.8 91.2

July 58.3 62.5 65.8 67.0 70.6 74.3 73.1 74.7 83.4 91.3

Aug 58.9 63.2 65.4 67.0 71.6 74.3 72.3 74.7 85.2 93.3

Sept 59.1 63.1 66.2 67.2 71.7 75.0 71.9 75.8 86.4 94.2

Oct 60.1 65.1 66.5 67.6 72.2 74.1 71.4 76.9 87.2 95.4

Nov 60.1 65.9 66.6 68.6 73.1 74.1 72.1 79.0 88.6 96.5

Dec 61.0 65.6 65.8 66.6 74.7 74.0 71.2 79.5 88.9

Average 58.4 62.7 65.7 66.7 70.4 74.1 72.8 74.8 83.4

YoY storage at

524 bcf YoY

surplus

US Nov gas

production +8.0

bcf/d YoY

http://ir.eia.gov/ngs/ngs.html

https://www.eia.gov/naturalgas/monthly/pdf/table_01.pdf


6

Energy Tidbits

Natural Gas – US November LNG exports +2.8 bcf/d YoY,

The EIA Natural Gas Monthly also reported “actuals” for US LNG exports, which were 6.3 bcf/d in Nov, +2.8 bcf/d YoY (same as the YoY change in Oct), but +0.6 bcf/d from Oct and +1.0 bcf/d from Sept. The increase in Nov was expected, as natural gas flows to US LNG export terminals rose steadily in Q3/19 following scheduled maintenance on trains 3 and 4 at Cheniere’s Sabine Pass in Aug. Later in the memo, we have included the SAF table listing all US LNG projects including those that are in construction. Below is our table of EIA’s monthly LNG exports, and our graph of natural gas flows to US LNG export terminals.

Figure 3: US LNG Exports (bcf/d)

Source: EIA

Figure 4: Natural Gas Flows to US LNG Export Terminals

Source: Bloomberg, SAF

Natural Gas – US November exports to Mexico +0.6 bcf/d YoY

The EIA Natural Gas Monthly also provides its “actuals” for gas pipeline exports to Mexico, which were 5.3 bcf/d in Nov, +0.6 bf/d YoY and down 0.2 bcf/d MoM from 5.5 bcf/d in Oct. The EIA’s new STEO for Jan said “Exports to Mexico should continue to increase as more natural gas-fired power plants come online in Mexico and more pipeline infrastructure within Mexico is built”. However, the biggest constraint to increase gas pipeline exports to Mexico continues to the slow build out of natural gas infrastructure in Mexico. Below is our table of the EIA’s monthly gas exports to Mexico.

(bcf/d) 2016 2017 2018 2019

Jan 0.0 1.7 2.3 4.1

Feb 0.1 1.9 2.6 3.7

March 0.3 1.4 3.0 4.2

Apr 0.3 1.7 2.9 4.2

May 0.3 2.0 3.1 4.7

June 0.5 1.7 2.5 4.7

July 0.5 1.7 3.2 5.1

Aug 0.9 1.5 3.0 4.5

Sept 0.6 1.8 2.7 5.4

Oct 0.1 2.6 2.9 5.7

Nov 1.1 2.7 3.6 6.3

Dec 1.3 2.7 4.0

Full Year 0.5 1.9 3.0

Full Year bcf 186 708 1,084

US Nov LNG

exports +2.8 bcf/d

YoY

US Nov pipeline

exports to Mexico

+0.6 bcf/d YoY


7

Energy Tidbits

Figure 5: US Pipeline Exports To Mexico (bcf/d)

Source: EIA

Natural Gas – SAF’s database of US LNG projects One of the big global LNG and natural gas themes for the next few years is the big ramp up in US LNG projects. As noted above, Kinder Morgan highlighted this theme at its investor day this week. Its not just how the added LNG volumes will hit global LNG supply, it is also a reminder of how almost all US natural gas growth effectively flows thru the Gulf Coast, whether it be for US LNG exports, US pipeline exports to Mexico or US industrial use. Below is our SAF table of all US LNG projects.

Figure 6: US LNG Projects

Source: EIA, SAF

bcf/d 2014 2015 2016 2017 2018 2019

Jan 1.7 2.2 3.2 3.9 4.4 4.9

Feb 1.8 2.3 3.4 4.1 4.5 4.8

March 1.9 2.4 3.3 4.2 4.3 4.8

Apr 1.9 2.6 3.5 3.9 4.4 4.7

May 2.0 2.8 3.7 4.2 4.4 5.0

June 2.2 3.0 3.9 4.5 4.6 5.2

July 2.2 3.3 4.0 4.4 4.9 5.4

Aug 2.1 3.3 4.3 4.4 5.0 5.4

Sept 2.2 3.3 4.1 4.2 5.0 5.4

Oct 1.9 3.2 4.2 4.3 4.9 5.5

Nov 1.9 3.0 4.0 4.5 4.7 5.3

Dec 2.1 3.2 3.7 4.4 4.5

Full Year 2.0 2.9 3.8 4.2 4.6

Existing, under construction, and FID large scale U.S. liquefaction facilities

Project name Train

Baseload nameplate

capacity (bcf/d) Project status In-service date Operator

In Service

Sabine Pass Train 1 0.59 Commercial operation Feb-16 Cheniere Energy

Sabine Pass Train 2 0.59 Commercial operation Aug-16 Cheniere Energy

Sabine Pass Train 3 0.59 Commercial operation Jan-17 Cheniere Energy

Sabine Pass Train 4 0.59 Commercial operation Aug-17 Cheniere Energy

Sabine Pass Train 5 0.59 Commercial operation Dec-18 Cheniere Energy

Cove Point Train 1 0.69 Commercial operation Feb-18 Dominion Energy

Corpus Christi Train 1 0.60 Commercial operation Dec-18 Cheniere Energy

Corpus Christi Train 2 0.60 Commercial operation Jul-19 Cheniere Energy

Cameron Train 1 0.59 Commercial operation May-19 Sempra LNG

Freeport Train 1 0.66 Commercial operation Sep-19 Freeport LNG Development, L.P.

Freeport Train 2 0.66 Commercial operation Dec-19 Freeport LNG Development, L.P.

Elba Island Trains 1-6 0.20 Commissioning Dec-19 Kinder Morgan

Under Construction

Cameron Train 2 0.59 Commissioning Apr-20 Sempra LNG

Freeport Train 3 0.66 Under construction May-20 Freeport LNG Development, L.P.

Elba Island Trains 7-10 0.13 Under construction Jun-20 Kinder Morgan

Cameron Train 3 0.59 Under construction Jul-20 Sempra LNG

Corpus Christi Train 3 0.60 Under construction May-21 Cheniere Energy

Sabine Pass Train 6 0.59 Under construction Jun-23 Cheniere Energy

Calcasieu Pass Trains 1-5 0.66 Under construction 2023 Venture Global LNG, Inc.

Golden Pass Train 1 0.68 Under construction 2024 Qatar Petroleum, ExxonMobil, Conoco

Calcasieu Pass Trains 6-10 0.66 Under construction 2024 Venture Global LNG, Inc.



Total Existing or Under Construction (bcf/d) 13.46

Approved but not FID U.S. liquefaction facilities

Project name # of Trains

Baseload nameplate

capacity (bcf/d) Project status In-service date Operator

Magnolia LNG n/a 1.16 Completed FEED, awarded EPC contract N/A LNG Ltd

Lake Charles LNG 3 2.20 Completed FEED, issued EPC tender N/A Lake Charles LNG Export Company, LLC

Delfin FLNG 4 1.58 Undergoing FEED N/A Fairwood Group

Driftwood LNG 5 3.64 Completed FEED, awarded EPC contract N/A Driftwood LNG LLC (Tellurian)

Port Arthur LNG 2 1.78 Undergoing FEED, awarded EPC contract N/A Port Arthur LNG (Sempra Energy)

Freeport LNG Train 4 1 0.67 Completed FEED, awarded EPC contract N/A Freeport LNG

Gulf LNG 2 1.53 Undergoing FEED N/A Kinder Morgan et al.

Plaquemines LNG (Phase 1) 18 1.32 Proposed N/A Venture Global LNG, LLC

Plaquemines LNG (Phase 2) 18 1.32 Proposed N/A Venture Global LNG, LLC

Total Approved but not FID (bcf/d) 15.19

Total U.S Liquefaction Facilities (bcf/d) 28.65Source: EIA

SAF’s listing of all

US LNG projects


8

Energy Tidbits

Natural Gas – Shell elevates LNG Canada Phase 2 up to “Define” category

On Thurs, we tweeted on a LNG Canada tidbits from the Shell Q4 results and earnings call. There were no comments on LNG Canada Phase 2, or for that matter on LNG Canada Phase 1 during the Q4 call, but the interesting tidbit was from the Shell project slides from the Q3 call slide deck but in the Appendix ie. not covered in the call. Shell list their major projects in priority, the first being “projects under construction”, then the next priority project list “Pre-FID options” which is divided into “define” being the next closest to FID, and then “assess/select” being those further from FID. In the Q4 call slide deck, LNG Canada Phase 2 was elevated up (ie closer to FID status) to the “define” status, whereas in the Q3 call slide it was at the lower category “assess/select”. It doesn’t mean that it Shell will move quickly for FID, but it puts LNG Canada Phase 2 a step closer to FID and now likely being able to go FID when Shell determines the time is right. Our Supplemental Documents package includes the Shell project lists from the Q4 call slide deck and Q3 call slide deck.

Natural Gas – Chevron says Kitimat doesn’t make its low cost ranking

Chevron held its Q4 call on Friday and left no doubt as to where Kitimat LNG fits in its capital priority – its not going to be a low cost LNG alternative to be competitive to Chevron’s other alternatives. This is in line with their Dec decision (see our Dec 13, 2019 blog “Chevron Lowers Long Term Gas Prices, Hits Both Short Cycle Dry Marcellus Shale And Long Cycle Greenfield Kitimat LNG” [LINK]) on its dry Utica Appalachian gas and Kitimat LNG. At that time, Chevron made a major writedown including Utica Appalachia and Kitimat LNG. In the Q&A, mgmt. replied “No. We're happy to do things that are competitive and economic, Alastair. And look, we're a big player in LNG. The world will -- demand for LNG will grow over time, and you have to take a long view on these things. Commodity markets get into positions where they get overbuilt. Demand grows in a linear fashion. Supply comes on in stair steps. And so we're in a position right now where the near-term market fundamentals are a bit tough. But long term, like petrochemicals, like refining, you need to be in low-cost positions that are highly competitive where you've got scale, technology, operating efficiency. And so those are the kinds of things we're looking for. And we'll continue to evaluate opportunities to add to our LNG portfolio. Our assessment on the Kitimat project is, given all the other developments out there in the world that, that one was going to be tough to compete versus our alternatives. And so it's a hard decision to come to, but it doesn't condemn the asset class for us. As an investment proposition, we just want to find the very best projects.”

Natural Gas – EIA says Mar/20 gas storage could be >2,000 tcf vs 1,137 tcf in Mar/19

In theory, there was some good news from the EIA brief this week “Natural gas use for power generation is a key part of the natural gas supply and demand balance, even in winter” [LINK], but unfortunately, one of the conclusions is a big negative for natural gas and supports why HH gas prices will be very weak for 2020. (i) The positive is natural gas use for power generation is up 3 bcf/d YoY so far this winter. The EIA attributes the increased power generation to multiple factors including low HH gas prices, reduced gas pipeline congestion due to warmer weather, incremental natural gas fired capacity, and coal plant retirements in 2019. (ii) The big negative is the EIA brief statement “If working gas stocks follow the five-year average rate of withdrawal for the remainder of the refill season, working gas will end the heating season at more than 2,000 Bcf for the first time since 2017”. We recognize that the assumption is based on using 5 yr average withdrawals, but if the warmer temperatures forecast for the next 10 days are any indication, it could be even worse than expected. Nevertheless, storage at more than 2,000 bcf of storage at the end of winter would be +863 bcf YoY, which is why HH is ~$1.85. Our Supplemental Documents package includes the EIA brief.

EIA est storage

could be >2 tcf

on March 31

LNG Canada

Phase 2 closer to

FID

Kitimat doesn’t

make the low cost

cut


https://www.eia.gov/naturalgas/storage/dashboard/commentary/20200129


9

Energy Tidbits

Natural Gas – PNG unable to reach a P’nyang gas agreement with XOM

We have to give Papua New Guinea PM Marape credit for trying to keep up with his promises. Upon being elected in late May, he warned that PNG will look into maximizing gains from the country’s natural resources, and he is fighting to keep that promise. Our Oct 13, 2019 Energy Tidbits memo commented on Marape making it clear that Exxon’s adjacent P’nyang LNG project is not part of the Total Papua LNG project (which he approved in Sept 2019). We saw this as a clear position by Marape that he would push hard to negotiate a better deal with Exxon on P’nyang. This week, Bloomberg Terminal reported that PNG has been unable to reach a gas agreement with Exxon to underpin development of the P’nyang field. It looks like Exxon wasn’t willing to make the concessions offered by PNG, and negotiations have stopped to concentrate on other projects. Despite these comments, we still think the project gets done. On one hand, weak LNG prices gives Exxon leverage to argue PNG is lucky they are considering a massive LNG expansion in a time where other projects will fall by the wayside. But on the other hand, PNG (and Exxon) knows the weak LNG price means Global players like Exxon (Total also involved) will focus on the cost advantaged projects, and this LNG expansion is the perfect definition of a cost advantaged brownfield project located as close as possible to China, Japan, and South Korea. The only travel time disadvantage is shipping to India vs NW Australia, but India is a much smaller LNG market. Our Supplemental Documents package includes the Bloomberg terminal story.

Natural Gas – India LNG imports for Dec +22.8% YoY or +0.6 bcf/d

India is currently a small LNG market relative to the big importers like China, Japan, and South Korea, and is still a at least 2 to 3 years away from having a major impact on LNG markets, which means its 2019 and 2020 LNG demand changes are not material to LNG outlooks. However, the small positive has been increasing YoY LNG imports into India. On Mon, LNG World News [LINK] reported on data from India’s oil ministry’s Planning and Analysis Cell that India LNG imports in Dec 2019 were 3.2 bcf/d, which is +22.8% YoY, or +0.6 bcf/d. The increasing LNG imports in Dec was similar to Nov 2019, which was +19.0% YoY at 3.1 bcf/d, and cumulative LNG imports for 2019 were 4.7% higher YoY. One of the limiting factors for LNG import growth in India it that the country is still at the early stages of its need to build out more gas infrastructure in order to significantly increase LNG imports, and until the gas infrastructure is built out, several LNG import terminals will run at very low capacity in India. But as noted in the next items, India wants to build out domestic infrastructure much faster than expected.

Natural Gas – Big LNG plus, India wants natural gas to be 15% of energy mix by 2023

There was big mid term LNG news yesterday. There was one key It may not impact LNG in 2020 and 2021, but Saturday’s India budget 2020 includes a big positive for mid term LNG. Last night, we tweeted [LINK] “…” Potentially big mid term #LNG positive in India 2020 budget, target #NatGas to 15% of energy mix by 2023. Timing looks unrealistic (was 2030), but shows India is serious to accelerate natural gas demand and moving to 15% is a big plus to demand…”. The Financial Express (India) reported [LINK] “Union Budget 2020: Finance minister Nirmala Sitharaman on Saturday proposed to expand the national gas grid from 16,200 km to 27,000 km to achieve the natural gas consumption target of 15% of the energy mix by 2023. This could be a viable option if such a measure is followed up by a unified tariff policy across the country, industry officials said. In her Budget speech on Saturday, the FM said: “It is proposed to expand the national gas grid from the current 16,200 km to 27,000 km”, adding, “to deepen gas markets in India, further reforms will be undertaken to facilitate transparent price discovery and ease of transactions”. Note natural gas was only 6.2% of the India energy mix in 2018. We were surprised India moved their 15% target to 2023, or 3 years away as opposed to the prior 2030. We think this is almost certainly impossible to

India Dec LNG

imports +22.8%

YoY

PNG and XOM fail

to agree on

P’nyang gas

agreement

India wants natural

gas to 15% of

energy mix by

2023

https://www.lngworldnews.com/indias-december-lng-imports-jump/

https://twitter.com/Energy_Tidbits/status/1223829900768890881

https://can01.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.financialexpress.com%2Fbudget%2Fbudget-2020-expansion-of-gas-grid-experts-say-unified-tariff-to-help%2F1850688%2F&data=02%7C01%7C%7C1d369a77cee74088f2db08d7a797cc80%7C201318985d8447879a8ed802356a1421%7C0%7C0%7C637162143008285364&sdata=z2sXjEUSuec4WiHzIMiJ%2Fo5C5lIR4icDwfd4T7Blf5I%3D&reserved=0


10

Energy Tidbits

reach 15% in 3 years or be close to that, but the key is that it is showing they are even more serious about increasing natural gas. And taking India’s natural gas to 15% of its energy mix (whether it is 2023 or sometime prior to 2030) is a significant plus to LNG markets, a key mid term LNG factor we highlighted in Oct. Our second tweet last night [LINK] was “… India being serious on moving to 15% was reason for our SAF Oct 23, 2019 blog “Finally, Some Visibility That India Is Moving Towards Its Target For Natural Gas To Be 15% Of Its Energy Mix By 2030” that estimated potential added #LNG demand”. We haven’t updated our analysis to a 2023 target, but it would mean cramming the impact to 2030 into 3 years instead of 10 years. Our Supplemental Documents package includes the Financial Express story and our Oct 23, 2019 blog.

Excerpts from SAF Oct 23 blog “Finally, Some Visibility That India Is Moving Towards Its Target For Natural Gas To Be 15% Of Its Energy Mix By 2030” Here is how we opened our Oct 23, 2019 blog “It’s taking longer than expected, but we are finally getting visibility that India is investing significantly towards its goal to have natural gas be 15% of its energy mix by 2030. Earlier in Oct, India Oil Minister Dharmendra Pradhan said that there are $60 billion of natural gas infrastructure and LNG import terminals that are “under execution”. He said “I am not talking about potential investment. This number relates to the project that are under execution”. Natural gas consumption in India is only now back to 2011 levels at 5.6 bcf/d and represents only 6.2% of its energy mix. If India hits its 15% target of its energy mix by 2030, it would add natural gas demand, on average, of >1.5 bcf/d per year.” Below is the graph from our Oct 23, 2019 blog.

Figure 7: India’s Projected Natural Gas Consumption @15% Of Energy Mix (bcf/d)

Source: BP, SAF

Natural Gas – Negative with warm weather forecast for Feb in Japan and NW Europe

We are now thru Jan and winter will be coming to an end sooner than expected. Yesterday morning, we tweeted [LINK] on new warmer than normal temperature forecasts for Japan and NW Europe for Feb. We continue to highlight that its normally impossible for LNG and natural gas markets to catch up after there is LNG/natural gas oversupply leaving peak winter natural gas demand period. Natural gas are already in oversupply and it unfortunately the forecasts will only make it worse. Its very hard to see how it can be anything but a really tough year for LNG and natural gas. Below is the new Japan Meteorological Agency Feb temperature forecast [LINK] and Bloomberg’s NW Europe forecast as of the Fri close.

Warm forecast

for Japan and

NW Europe



https://www.jma.go.jp/en/longfcst/


11

Energy Tidbits

Figure 8: EIA – Japan Temperature Forecast Feb 1 - 29

Source: Japan Meteorological Agency

Figure 9: NW Europe 18 Day Temperature Forecast Jan 30 – Feb 16

Source: Bloomberg Terminal <WFOR> Go

Natural Gas – Tanker tracking, China Jan LNG imports down 5% YoY

No one should be surprised by the Bloomberg terminal Jan 28 story “Chinese LNG Imports Set for First January Drop in 5 Years: BNEF” “Chinese LNG imports are set to drop by 5% year-on-year in January. This is a significant reversal for one of the key areas of growth for global LNG demand, where January imports have increased by 33% on average annually over the last four years. Weak Asian LNG demand, together with an increase in new U.S. supply, have loosened the LNG market. More imports have been pushed into Europe as a result, making it a global swing buyer. The combination of increased domestic gas supply, weakened demand and the start of pipeline imports from Russia in December could have a downward impact on Chinese LNG import demand this month. Weather in northern China has been close to normal for the time of year, unlike Japan and Korea, where a warm winter has cut space heating demand.” This is in line with our expectations. Even before the Wuhan Coronavirus, there is a timing issue for the YoY Jan drop – Chinese New Year. this year was Jan 25, last year was Feb 5. This meant that the pre new year surge was more in Dec this year, whereas it was in Jan last year. We noted this in the Jan 12, 2020 Energy Tidbits. But

China Jan

LNG imports

down 5% YoY


12

Energy Tidbits

there was also a key fundamental factor that we have been highlighting since March - the start up of Power of Siberia gas pipeline from Russia to China n Dec 1. Our Supplemental Documents package includes the Bloomberg terminal story.

Likely close to zero growth China LNG imports in 2020 YoY vs 2019

Its not just the new Power of Siberia pipeline but its also the fact that China’s economy has been slower and that has meant that It hasn’t pushed as hard on LNG in 2019 to allow more lower cost thermal coal generation. But the Bloomberg story does reinforce our fears from March 30, 2019 that it will be a tough year for LNG in 2020. That fear was also reinforced in Dec by Sinopec. On Dec 19, 2019, we posted a 7-pg blog “A Tough Year Ahead For LNG, Sinopec’s China Natural Gas Supply and Demand Forecast Implies Zero Growth in China LNG Imports in 2020” [LINK] on the new 2020 forecast for China’s oil and natural gas supply and demand from Sinopec Economics and Development Research Institute. Sinopec’s China natural gas supply and demand forecast points to a very tough year for LNG in 2020, even tougher than 2019. China has been the driving force for YoY growth in LNG demand in the last five years, but the Sinopec 2020 outlook is a big negative to LNG in 2020. Sinopec’s forecast is for China to need +0.8 bcf/d natural gas imports YoY in 2020, but that can be satisfied by either LNG or pipelines. And Gazprom’s 3.6 bcf/d Power of Siberia gas pipeline to China just started up on Dec 1, 2019. We expect a modest ramp up in the pipeline volumes, but at least enough to more or less cover the +0.8 bcf/d. If so, Sinopec’s forecast means China’s LNG import growth in 2020 is effectively zero growth. With China at effectively zero LNG import growth, there will be more surplus LNG cargoes looking for a home and moving first to NW Europe storage. Our Supplemental Documents package includes the Bloomberg reporting on Sinopec and our Dec 19, 2019 blog.

Figure 10: China’s YoY Growth In LNG Imports vs Rest of World LNG Imports (bcf/d)

Source: BP



13

Energy Tidbits

Figure 11: Est YoY Change In China’s Natural Gas Demand vs Domestic Natural Gas Supply

Source: BP, Bloomberg, Sinopec

Natural Gas – Nord Stream delivered 5.66 bcf/d to Europe in 2019

Markets may not yet know when Gazprom’s 5.6 bcf/d Nord Stream 2 will be in service (we still think not in 2020), but the in service Nord Stream gas pipeline continues to deliver consistent big volumes to Europe. On Wed, Nord Stream reported [LINK] that it transported 58.5 bcm (5.66 bcf/d) in 2019 to Europe, which was a comparable level to 2018. These volumes were after maintenance as Nord Stream noted “In 2019, annual preventive maintenance works were carried out in July.”

Oil – US oil rigs down 1 to 675 oil rigs

Baker Hughes reported its weekly rig data on Friday which was basically neutral for WTI. US oil rigs were down 1 to 675 oil rigs as of Jan 31. Increases were in Ardmore Woodford +1, DJ-Niobrara +1, Eagle Ford +1, Granite Wash +1, and Permian +1. Decreases were in Others -4, and Cana Woodford -2. While the report may be seen as neutral with US oil rigs only down one, the bigger takeaway is US oil rigs really haven’t ramped up in Jan with refreshed budgets like would have been expected. The general expectation was for US drilling activity to increase with new budgets, but with a pullback in US capex and WTI getting hammered in January, US oil rigs have fallen by 6 YTD. Below is our graph of total US oil rigs.

Figure 12: Baker Hughes Total US Oil Rigs

Source: Baker Hughes

Oil – Total Cdn rigs up 3 to 247 total rigs

Baker Hughes reported total Cdn rigs were up 3 to 247 total rigs. Cdn oil rigs were up 3 to 157 oil rigs. Cdn gas rigs were flat at 90 gas rigs. Similar to our commentary last week, the

US oil rigs

were -1 this

week

Total Cdn +3 this

week

Nord Stream

delivered

5.66 bcf/d

https://www.nord-stream.com/press-info/press-releases/a-volume-of-585-billion-cubic-metres-of-natural-gas-was-transported-through-the-nord-stream-pipeline-in-2019-510/


14

Energy Tidbits

post Xmas ramp up is finished now, and Cdn drilling activity is fairly strong on a YoY basis. To put in perspective, a year ago, Cdn oil rigs were 159 and Cdn gas rigs were 84 for a total Cdn rigs of 243, meaning total Cdn rigs are +4 YoY. Below is our graph of total Cdn oil rigs.

Figure 13: Baker Hughes Total Canadian Oil Rigs

Source: Baker Hughes

Oil – US oil production flat at record 13.0 mmb/d

This week, the EIA reported US oil production was flat at the all time record of 13.0 mmb/d for the Jan 24 week. Lower 48 was also flat at the all time high of 12.5 mmb/d this week. The new EIA STEO for Jan is forecasting Q1/20 US oil production to average 13.20 mmb/d, +200,000 b/d from current levels, which means US production needs to average 13.30 mmb/d for the remaining 9 weeks in Q1 to hit the EIA target. Below we pasted an excerpt from the EIA weekly oil production data. [LINK]

Figure 14: EIA’s Estimated Weekly US Oil Production

Source: EIA

US oil

production at

13.0 mmb/d

http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WCRFPUS2&f=W


15

Energy Tidbits

Figure 15: US Weekly Oil Production

Source: EIA, SAF

Figure 16: YoY Change in US Weekly Oil Production

Source: EIA, SAF

Oil – EIA Form 914, Nov +203,000 b/d MoM and in line with EIA 2019 forecast

We are in the camp that expects US oil production to reach a plateau in H1/2020, but its important to remember that US oil growth has been excellent in H2/19 – it was up over 1 mmb/d in H2/19. We should note that a key reason has been the decline in surplus DUCs. Regardless, US oil growth has been excellent. The EIA released its Form 914 data [LINK] on Friday, which is the EIA’s “actuals” for Nov US oil and natural gas production. Form 914 shows Nov of 12.879 mmb/d up 203,000 b/d from Oct of 12.676. Unlike for the Oct data, the GoM contributed a significant amount of the MoM growth in Nov, whereas the GoM was basically flat MoM in Oct. GoM was up 91,000 b/d to 1.995 mmb/d in Nov, Texas was +65,000 b/d to 5.329 mmb/d in Nov vs 5.264 mmb/d in Oct, and North Dakota was -3,000 b/d to 1.479 in Nov. Similar to the Oct data, the actuals for Nov came in higher than the weekly estimates. The actuals for Nov of 12.879 mmb/d were 79,000 b/d higher than the weekly estimates of 12.8 mmb/d in Nov. The data still shows steady oil production growth in the US, and it looks like US oil production is on track to meet the revised down 2019 forecast average of 12.240 mmb/d. Based on the actuals data to Nov, and layering on the average weekly estimates for Dec, US oil production averaged 12.234 mmb/d in 2019 vs the EIA 2019 forecast of 12.240 mmb/d. Below is the EIA Form 914 data for oil, and our graph of EIA actuals oil production data vs the weekly estimates.

EIA Form 914

shows Nov up

203,000 b/d MoM

https://www.eia.gov/petroleum/production/


16

Energy Tidbits

Figure 17: EIA Form 914 US Oil Production

Source: EIA

Figure 18: EIA Form 914 US Oil Production vs Weekly Estimates

Source: EIA

Oil – Is Chevron’s Permian vision basically what Cdn oil producers have established

Yesterday, we tweeted [LINK] “Chevron Q4 Q&A, mgmt describes vision for Permian and why Permian are high-return, long-lived positions and competitive advantage. Food for thought, isn't Chevron's Permian vision what top Cdn oil co's have already established in light oil Viking, Cardium, SE Sask? #OOTT”. In listening to Chevron’s replies to questions on the Permian in the Q4 call on Friday, we thought of our Jan 14, 2020 tweet [LINK] that highlighted “ Cdn oil producers w/ proven track record of generating free cash flow and return to investor.” We have said before that the Cdn oil producers had to adapt years ago to less capital and have been able to build the low risk drilling inventory, infrastructure and ability to produce consistent growth and free cash flow. The Permian has pluses (ie. proximity to export markets, higher rates) and minuses (ie. higher decline rate, higher well costs, lower oil % of boe) versus Cdn light oil plays and no where did Chevron say they are expecting to build their Permian to what Cdn light oil producers have done in the Viking, SE Sask, Cardium – proven light oil models that generate free cash flow and growth at low risk. But anyone who knows Cdn light oil plays can see the connection. In the Q&A, the analyst questioned the high Permian decline rate, asking “And when I think about the underlying decline rates on a skew towards NGLs and gas, given the state of US gas market, help me understand why the increase of the -- putting that much of a -- your portfolio in high-decline assets and skewing towards US gas is incrementally positive for the overall cash flow capacity of the Company.” Mgmt’s reply included “so look, it's -- an individual well is a high-decline asset. The Permian Basin, as you get hundreds and then thousands of wells on production, and you have infrastructure built, the ability to keep that infrastructure full and have it be a very flat production profile at modest incremental investment relative to the production that you're producing is profound. Jay will explain this more in March when we come to New York. But it is a factory. And running a factory, you got certain costs and certain investments in the factory and then you push out to the product of the factory, and that's how to think about the Permian. The commodity mix, look, it's 75% liquids. We're 50% oil in our

Thousand barrels per day Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2019 11,856 11,669 11,892 12,123 12,113 12,060 11,823 12,385 12,479 12,676 12,879 12,850

2018 10,018 10,281 10,504 10,510 10,460 10,649 10,891 11,361 11,498 11,631 11,999 12,038

2017 8,863 9,103 9,162 9,100 9,183 9,107 9,235 9,248 9,512 9,653 10,071 9,973

2016 9,197 9,056 9,089 8,869 8,823 8,654 8,646 8,676 8,534 8,834 8,897 8,798

2015 9,383 9,507 9,585 9,655 9,474 9,354 9,442 9,415 9,478 9,396 9,322 9,263

2014 8,072 8,152 8,291 8,522 8,644 8,747 8,846 8,914 9,078 9,256 9,317 9,561

2013 7,081 7,147 7,203 7,371 7,325 7,276 7,523 7,531 7,836 7,757 7,916 7,928

Chevron’s

Permian vision




17

Energy Tidbits

portfolio right now, 25% NGLs, 25% gas. As the volumes continue to grow, we get a lot of oil production, and we take a long view on markets. Pierre mentioned earlier that returns on investment there are greater than 20% and growing. And so look, if we've got something – somebody mentioned earlier, your current returns are at 7%, those need to improve, well, if you've got opportunities to invest in things that are north of 20%, that's the way to start to lever up returns. And so, look, we look at the commodity prices on at all, we optimize it. We're moving commodities to markets near and far to add value to that. But these are high-return, long-lived positions, and it is a competitive advantage”.

Oil – Exxon reminds Permian growth will be lumpy

Exxon held its Q4 call on Friday. Exxon posted its slide deck ahead of the call and we tweeted [LINK] “Exxon Q4 call about to start at 7:30am MT. 2020 is to be a very big growth year for Permian, one focus will be what do they message on the rate of oil growth in Permian. Q4/19 US unconventional production was 294,000 boe/d, flat vs 293,000 boe/d in Q3/19.” Our tweet included the Exxon’s Unconventional oil graph in the Q4 slide deck vs the Q3 slide deck. No surprise, the 2nd question on the call was on these two graphs. Mgmt replied “Yeah, I think with respect to the first point you made around the difficulty of extrapolating from any one quarter is exactly right. I think when we introduce that and Neil Chapman talked about it we, we said it wasn't going to be a smooth development and that we would see a lumpy progress with respect to the volumes growth. So I don't, I wouldn't draw a whole lot, we're not, we haven't seen anything in that development which would suggest anything other than continuing on that path. But again, it will be lumpy. And I think if you look back at that red line, you will see that lumpiness has been playing out historically. So I think you're going to see that as we continue to go forward. I think in a really important point. If you look at the volumes that we delivered in the Permian were above what we said we were going to do. Last year at the Investor Day by about 20,000 barrels a day. So that's clearly on track.” Exxon didn’t specify it, but there are operational reasons why there shouild be some lumpiness as Exxon moves to cube development in the Permian and also winter weather access issues in the Bakken. Our Supplemental Documents package includes the Exxon unconventional oil growth slides from the Q4 and Q3 call slide decks.

Oil – Excellent oilfield services insights from Wood Mackenzie webinar

We thought there were some excellent insights from the Wood Wood Mackenzie webinar “Shale service costs in 2020: what is the market telling us? Should we expect continued deflation or something different?”. (i) Our overall takeaway was we thought the Wood Mackenzie service sector presentation supports the thesis that US oil wells economics are reaching a plateau and not likely to get much better. This is important as it means that, once the surplus DUCs get worked off (and they are doing so) and well costs stop falling (as they are getting to there), there will be a direct correlation to capital spending wells drilled and production. Its why we expect to see US oil plateau in H1/2020 as these events all seem to be in play. The Wood Mackenzie webinar highlighted well costs were down in 2019 and again in Q1/2020, but service sector really can’t give anymore on costs. Even with the lower wells costs, well performance gains have basically plateaued and breakeven costs have stopped falling ie. reached a peak. And the current service sector cost environment is unsustainable and they have to increase pricing. (ii) Good slide that shows industry continues to drive down well costs in the Delaware, in great part due to the increase of local basin sand instead of Northern White from Wisconsin. Note Bakken is also winning on its Northern White due more competitive pricing for Northern White and better rail prices. (iii) But despite the lower cost structure, Wood Mackenzie says liquids breakeven curve for Lower 48 in total “has stopped falling”. We listened to the webcast and they said these cost curves are for the Lower 48. Note that these breakeven curves are for breakeven to make a 15% IRR. We

Exxon: Permian

growth will be

lumpy

Wood Mackenzie

oilfield services

insights



18

Energy Tidbits

doubt many wells would be approved by a producer with the expectation of an unrisked 15% IRR, the payout on such a well would be either at least a few years or the decline curve so steep that the well pays out and then there is nothing much left to produce. (iv) The problem going forward is Wood Mackenzie highlights “the current cost environment is unsustainable. The OFS sector must claw back margins and costs need to increase”. This is the challenge, the service sector can’t give any more cost reductions, rather they have to increase costs. And now with the big gains in cost savings being captured from the switch to local sand, it means that well cost reductions are near the end. And if this is combined with the fact that the breakeven curves aren’t falling, it means that well IRRs are not going higher.

Figure 19: Wood Mackenzie Lower 48 Liquids Breakeven Curve

Source: Wood Mackenzie

Oil – Laurentian reminder on oil and gas reserves being hit by ADR inclusion

One of the big structural changes for lenders and Canadian oil and gas producers in 2019 was the Redwater case ruling, whereby the Supreme Court ruled that energy companies must use funds from bankrupt estates to reclaim abandoned well sites and facilities before any other claims are paid. This ruling gives asset retirement obligations (AROs) a much higher weighting in assessing the credit profiles of producers and is expected to negatively impact reserve values for companies. This week, Laurentian provided a good reminder on oil and gas reserves being hit by the inclusion of future abandonment, decommissioning and reclamation (ADR) expenditures. Laurentian writes “the new guideline from the October 2019 update to the COGEH stems from the 2019 Redwater decision, and mandates that in cases of insolvency, abandonment expenses and reclamation obligations are to be satisfied prior to any creditor claims including first lien secured creditors. In response to this decision, the COGEH now states that all abandonment, decommissioning, and reclamation costs be included in NPV calculations that include both active and inactive development (i.e. producing wells, suspended wells, service wells, facilities, etc.). Previously, asset retirement obligations in the reserve NPVs were only applied on wells with booked reserves”.

Oil – CP: Gibson diluent recovery is “game changer” for crude by rail

CP Rail held its Q4 call on Thurs, and one of the important takeaways was CP calling the Gibson diluent recovery unit a “game changer” for crude by rail, saying it will make CBR competitive with pipe. As a reminder, on Dec 3, 2019 Gibson announced a JV [LINK] with US Development Group (USD) to build a diluent recovery unit (DRU) which removes the diluent from heavy Cdn crude, thereby creating a more concentrated and viscous crude

Reserves to be hit

by ADR inclusion

DRU a game

changer for crude

by rail

https://www.gibsonenergy.com/news/press-releases/2019/gibson-energy-and-usd-announce-joint-venture-to-construct-dru-at-hardisty-utilizing-innovative-drubi/


19

Energy Tidbits

specifically designed to be transported as a non-hazardous commodity by rail. Prior to the CP Q4 call, we hadn’t seen any economics or comments on the general economics on the DRU. There were three CP comments to note on the new “DRUbit” crude oil. (i) “Game changer” for crude by rail. CP said “This is is a game changer for crude and what is a unique and innovative development that will enable our franchise to enjoy sustainable crew by Rail revenues that are safer and more efficient to move for the long term.” (ii) Making CBR cost competitive with rail. By recovering the diluent for reuse in the Alberta market, diluent delivered costs are lowered, and more bitumen can be transported via rail. In the prepared remarks, mgmt. said “This innovative development creates a sustainable and safer crewed by rail shipping model to the US gulf. When operational in 2021, the year you process will remove the diluent prior to loading the rail card Hardesty allowing for approximately 30% more crude to be loaded in each tank --making crude by rail cost competitive with pipe”. (iii) By removing the diluent, the crude will be classified as a non-hazardous commodity. Mgmt said “Further by removing the diluent it returns the crude to a more concentrated state, and is no longer classified had as a non-hazardous commodity”. In the Q&A, mgmt. also noted some discussion about a potential unit in Edmonton. In the Q&A, mgmt. replied “This point the DRU, it's been announced to be built in Hardesty a single line so served by CP so there is a potential down the line, to build one in Edmonton, some of the players have talked about doing that it may or may not happen I'm not sure that's there to their decision to make but should it occur in Edmonton will benefit from that as well, because we also serve the facility. So Hardesty at this point, is the only one that is not a maybe they're moving forward as well under way we expected to be operational in 2021, and we will uniquely serve”. Below is the DRU overview slide from the CP Q4 call slides. Our Supplemental Documents package includes the Gibson Dec 3, 2019 announcement.

Figure 20: CP’s DRU Overview Slide

Source: CP

Oil – Alberta to overhaul liability management ratio system

For years, the AER has published monthly liability management ratios (LMRs) for every oil and gas company in Alberta, which is a useful tool for measuring a company’s total assets to its total liabilities. Starting in January, we and others noticed the AER stopped publishing the individual company LMRs, and this week, Financial Post [LINK] said the AER is working on a complete overhaul on the environmental liability rating scheme, which it now calls a flawed system. Alberta energy minister Savage said “A full review of how the government and

AER overhauling

LMR system

https://business.financialpost.com/commodities/energy/alberta-to-overhaul-flawed-scheme-that-regulates-old-oil-and-gas-infrastructure


20

Energy Tidbits

regulators handle oil and gas clean-up rules is years, if not decades, overdue” and said the new policies would be rolled out by the end of Q1/20. The AER also commented on the overhaul, with a mgmt. official saying, “Changes are coming to (the AER's directives on clean up obligations), but in the meantime the AER will not perpetuate the false sense of security offered by this flawed system”. This decision ties to the above item AROs being given a higher weighting in assessing the credit profiles of producers, and we expect the new liability rating system will push companies to set more aside for AROs, as the system incorporates a more realistic value on abandonment and reclamation costs related to company assets. Our Supplemental Documents package includes the Financial Post story.

Oil – CAPP forecasting Cdn oil and gas capex up $2bn YoY in 2020

No question, Cdn oil and gas capex is nowhere near 2014 levels before the big drop off in oil prices, but the positive news is capex is expected to be higher 2020 vs 2019. This week, CAPP announced its Cdn oil and gas capex forecast for 2020, which is +$2bn YoY or +6.0% to $37bn [LINK]. This is a solid positive for the Cdn oil and gas sector, and is a big win for Jason Kenney, as the CAPP president writes “We are very happy to see an increase in capital investment expected for 2020. It’s a reflection of the hard work and determination on many fronts to bring the industry into a more competitive position. That includes the corporate tax cut by the Government of Alberta, and incenting crude by rail under curtailment, which is helping to attract business and investment”. Another positive from the CAPP forecast, is they expect the additional $2bn in capital spending to create or sustain about 11,800 direct and indirect jobs across Canada. Below is the CAPP graph pf upstream capital investment in Canada since 2014. Our Supplemental Documents package includes the CAPP forecast.

Figure 21: Upstream Capital Investment in Canada

Source: CAPP

Oil – Cdn crude by rail imports to Gulf Coast 131,000 b/d in November

The EIA posted it’s monthly “U.S. Movements of Crude Oil by Rail” [LINK] on Friday, which also had good insights on Cdn crude by rail. Falling Gulf Coast heavy oil imports from Mexico and Venezuela have created opportunities for Cdn heavy oil, Columbia, Brazil and others in PADD 3. Canadian CBR volumes to PADD 3 (Gulf Coast) were 131,000 b/d in November, which is -53,000 b/d YoY and down 42,000 b/d MoM from Oct, however, Oct was

CAPP calling for

higher o&g capex

in 2020

Cdn CBR 131,000

b/d to Gulf Coast

in November

https://www.capp.ca/news-releases/capp-forecasts-2-billion-increase-in-upstream-oil-and-natural-gas-investment/

https://www.eia.gov/petroleum/transportation/


21

Energy Tidbits

originally estimated at 180,000 b/d and was revised down 7,000 b/d to 173,000 b/d. The lower MoM exports is likely attributed to the CN rail strike, with impacted CBR volumes and we would expect to see higher Canadian CBR volumes to PADD 3 in Dec with the higher WCS-WTI differential, although as we discuss later in the memo, Cdn exports to PADD 3 may be impacted by China taking less Latin American crude. Below we pasted an excerpt from the EIA US Movements of Crude Oil by Rail.

Figure 22: US Crude Oil Movement by Rail October 2019

Source: EIA

Oil – Near term risk to WCS diffs with China taking less Latin America crude

WCS diffs have narrowed a little bit in the past two weeks bouncing off the wide of $24.65 in mid Jan to close Friday at $20.65. With the US sanctions on Venezuela in Jan 2019, Canada has been able to capitalize on increasing exports to PADD 3 to replace Venezuelan barrels, however we always highlight that any increased competition for Cdn heavy/medium crude in the Gulf Coast has the potential to push back on WCS differentials. This week, we were reminded of this risk, as Bloomberg Terminal reported that China is taking less Latin America crude due to coronavirus, and on Thurs we tweeted [LINK] “Near term risk to WCS diffs. Bloomberg "China Demand for Latin America Oil Grinds to Halt on Virus Fear", means more Latin America heavy crude to come to Gulf Coast. #OOTT”. Bloomberg Terminal said that no sales have been reported since last week for March cargoes from Brazil and Colombia, and they note that unsold cargos are piling up. Our fear for WCS diff risk is these unsold cargoes will be sold to US Gulf Coast refiners, thereby increasing competition for Cdn heavy/medium crude and pushing back on Cdn differentials. Below is the current WCS diffs graph from Bloomerg terminal data. Our Supplemental Documents package has the Bloomberg Terminal story.

WCS diff risk with

Coronavirus



22

Energy Tidbits

Figure 23: WCS Less WTI Differentials

Source: Bloomberg

Oil – Oil input into refineries down 933,000 b/d to 15.924 mmb/d

For the Jan 24 week, EIA estimates crude oil inputs to refineries were down 933,000 b/d to 15.924 mmb/d, which compares to the Jan 17 week where oil inputs were down 116,000 b/d. Overall crude inputs are now 539,000 b/d lower YoY. The big drop in crude inputs was expected as the normal Q1 turnaround period is in full swing, and crude inputs to refineries are always lower in Jan/Feb due to normal maintenance. Refinery utilization was down 3.3% this week to 87.2%. The below graph notes how every year, crude oil inputs to refineries are always lower in Jan/Feb.

Figure 24: US Refinery Crude Oil Inputs (thousand b/d)

Source: EIA, SAF

Oil – Co-op refinery/Unifor restart talks Fri, but talks broken off again

It looks like the Co-op Refinery lock out will be continuing for an indefinite period unless the govt imposes binding arbitration. It was potentially a week for a change in direction as the refinery and union agreed to restart talks on Friday. It looks like the talks were a complete failure as the talks broke off only hours after the restart. And in looking at the union’s release [LINK], they seem to see the refinery taking an even tougher stance. Unifor wrote “During today’s negotiations, Unifor tabled new proposals that would have increased refinery worker personal pension contributions to up to six per cent of earnings, saving the company millions. There were no new union-side demands included in the proposal. When Co-op responded, it refused the union’s proposals and offered new concessions that would have affected

Co-op Refinery

and Unifor break

off talks

Oil input into

refineries down

933,000 b/d

https://www.unifor.org/en/whats-new/press-room/talks-break-between-unifor-and-co-op-0


23

Energy Tidbits

scheduling and safety, in addition to current concession demands to slash the pensions and benefits. After talks broke off, Local 594 President Kevin Bittman and Dias wrote to Premier Scott Moe asking him to impose binding arbitration. During the process of binding arbitration the lockout would end, allowing Local 594 members to return to work.” Our Supplemental Documents package includes the Unifor release.

Oil – US “NET” oil imports up 134,000 b/d to 3.151 mmb/d

US “NET” imports were up 134,000 b/d to 3.151 mmb/d for the Jan 24 week. US imports were up 229,000 b/d to 6.660 mmb/d and US exports were up 95,000 b/d to 3.509 mmb/d. Some items to note on the by country data. (i) Canada was up 286,000 b/d to 3.845 mmb/d for the Jan 24 week, which reverses the decrease from last week, and makes sense with PADD 2 imports up 249,000 b/d and warmer temperatures allowing for higher Canadian crude by rail. (ii) Saudi Arabia was up 195,000 b/d to 555,000 b/d. Despite the increase for the Jan 24 week, imports from Saudi are significantly lower YoY, as average imports in Jan 2019 were ~775,000 b/d. (iii) Colombia was -389,000 b/d to 338,000 b/d as the country seems to follow a pattern of up big one week, and down big the next. (iv) Nigeria was down 184,000 b/d to 0 b/d, which is likely due to tanker timing. (v) Venezuela remained at 0 due to US sanctions. (vi) Mexico was +319,000 b/d to 800,000 b/d. Below is our table of the US oil imports by major country.

Figure 25: US Weekly Preliminary Oil Imports By Major Countries

Source: EIA, SAF

Oil – Mexico sends cargoes of medium sour Isthmus crude to PADD 3 Gulf Coast

There was another near term negative to Cdn oil differentials with more Mexico oil hitting the PADD 3 (Gulf Coast) refineries. Canada has been the big winner in the decline in PADD 3 imports from Venezuela and Mexico. Last week’s (Jan 26, 2020) Energy Tidbits memo noted how Pemex had missed adding its ~100,000 b/d in Dec and how this was a positive to Cdn oil diffs as it means less potential for increasing Mexico oil into PADD 3. However, this week, it appears that Pemex not only missed its ~100,000 b/d production adds, it’s refineries are not operating at expected capacity. Platts posted a blog [LINK] “Mexico sends rare cargoes of medium sour crude Isthmus to USGC” which said Pemex exported three cargos of Ishthmus to the USGC between December and January. Platts writes “Low operating rates at some of Pemex’s refineries are thought to have freed up barrels of Isthmus crude. At the same time, refineries on the USGC have been looking for alternatives to Venezuelan crudes following the imposition of sanctions last year”. US refiner Valero was the buyer for all three cargos, which makes sense as Valero was a main US purchaser of Venezuelan crudes and has been seeking replacements for Venezuelan supplies. Any added medium sour oil into PADD 3 will impact Cdn oil diffs. Our Supplemental Documents package includes the Platts blog.

Nov 29/19 Dec 6/19 Dec 13/19 Dec 20/19 Dec 27/19 Jan 3/19 Jan 10/19 Jan 17/19 Jan 24/19 WoW

Canada 3,162 3,510 3,675 3,921 3,611 3,606 3,837 3,559 3,845 286

Saudi Arabia 460 480 223 493 567 416 203 360 555 195

Venezuela 0 0 0 0 0 0 0 0 0 0

Mexico 763 624 788 459 605 576 595 481 800 319

Colombia 71 186 341 254 50 396 180 727 338 -389

Iraq 313 353 406 360 117 468 537 227 143 -84

Ecuador 434 267 202 197 360 252 334 218 186 -32

Nigeria 166 306 132 191 96 150 131 184 0 -184

Kuwait 0 0 0 0 0 0 0 0 0 0

Angola 0 49 0 0 0 0 0 0 0 0

Top 10 5,369 5,775 5,767 5,875 5,406 5,864 5,817 5,756 5,867 111

Others 620 1,112 812 934 946 866 735 676 793 117

Total US 5,989 6,887 6,579 6,809 6,352 6,730 6,552 6,432 6,660 228

US NET oil

imports up

134,000 b/d

Mexico sends

more medium

sour to PADD 3

https://blogs.platts.com/2020/01/30/mexico-medium-sour-crude-isthmus-usgc/?utm_source=hootsuite&utm_medium=twitter&utm_term=plattsoil&utm_content=c1321adb-480c-4819-b75b-a65da93f2030&utm_campaign=hootsuitepost


24

Energy Tidbits

Oil – Reuters Survey For Jan production: -640,000 b/d to 28.350 mmb/d

Reuters released it’s survey of Nov 2019 OPEC production on Friday. (i) Overall, OPEC was down 640,000 b/d MoM to 28.350 mmb/d in Jan. (ii) Libya was down 390,000 b/d in Jan due to the NOC force majeure primarily driven by Haftar’s forcing the closing of ports. (ii) Saudi Arabia was down 80,000 b/d MoM to 9.720 mmb/d. Saudi expects to produce around current levels in Feb. (iii) Ecuador is no longer in the table as they left OPEC at Dec 31. (iv) Iraq was down 40,000 b/d MoM to 4.530 mmb/d, and is now down 230,000 b/d since Aug as it moves towards compliance. (v) Nigeria was down 30,000 b/d MoM to 1.800 mm/d, and is down 110,000 b/d in the past two months. However, Nigeria’s decrease is likely due to their recent decision to recent decision to no longer include condensate in their oil volumes. (vi) Venezuela was up 30,000 b/d MoM to 750,000 b/d and supports the view that Venezuela may have bottomed in the fall. Below is our running table of Reuters survey data.

Figure 26: Reuters Survey of Jan 2020 production

Source: Reuters, SAF

Oil – Sounds like momentum building for an OPEC+ emergency meeting It isn’t definite, but comments from Russia Energy Minister Novak seemed to support the momentum for an OPEC+ emergency meeting. Russia has seemed to be the key holdout, but Novak’s comments on Friday were looked upon as being a step towards an emergency meeting. Platts reported [LINK] on Novak’s comments to reporters “We can meet earlier, it's not a problem. We can meet very quickly if necessary. We can even reschedule the meeting. We have discussed it; we are ready to move it. But regarding timeframes and dates, we are in the discussion stage, based on an assessment of the situation”. Plus on Friday, the reports came out that the Joint Technical Committee will be meeting Feb 4/5 in Vienna. The JTC normally meets ahead of OPEC ministerial meetings to provide analysis recommendations. There is no confirmation yet of an OPEC+ ministerial meeting, but the Sat reports were pointing to potential meetings on Feb 8/9 or Feb 14/15 for any emergency meeting.

Oil – WSJ: "Saudi Air Defenses Thwarted Attack on Aramco"

It looks like the risk of Houthis missile attacks on Saudi Aramco facilities is back. This week, there was a good WSJ story “Saudi Air Defences Thwarted Attack on Aramco” [LINK] and on Thurs, we tweeted [LINK] “Thx WSJ for report Saudi air defense last week shot down missiles aimed at Aramco oil facilities ie. Jazan. Seems significant as Houthis are back to launching missiles attacks at Aramco targets within Saudi Arabia, and before Wed Trump peace plan”. According to WSJ, the Yemeni rebels targeted Aramco’s oil refineries, including the 400,000 b/d Jazan oil refinery, airports, and other targets inside Saudi Arabia. We believe the significant point to note here is it says the Saudi’s have had missiles launched at Aramco facilities, but they were able to thwart the attack and that these attacks are in Saudi Arabia and not at Saudi forces in Yemen. These are just short range missiles and there

Thousand b/d Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec Jan MoM Jan YoY

Algeria 1,060 1,030 1,025 1,025 1,025 1,010 1,030 1,030 1,030 1,020 1,020 1,020 1,010 -10 -50

Angola 1,450 1,440 1,450 1,420 1,500 1,400 1,390 1,360 1,410 1,390 1,250 1,400 1,380 -20 -70

Congo 320 330 330 340 330 330 340 340 330 350 340 340 330 -10 10

Equatorial Guinea 120 120 130 120 110 110 110 110 110 110 120 120 120 0 0

Gabon 190 200 200 200 190 200 210 200 210 210 210 210 210 0 20

Iran 2,750 2,800 2,750 2,600 2,200 2,150 2,150 2,100 2,070 2,100 2,100 2,080 2,080 0 -670

Iraq 4,650 4,580 4,500 4,530 4,650 4,650 4,700 4,760 4,700 4,650 4,620 4,570 4,530 -40 -120

Kuwait 2,710 2,700 2,710 2,690 2,710 2,650 2,650 2,600 2,650 2,650 2,706 2,710 2,670 -40 -40

Libya 880 900 1,100 1,150 1,250 1,220 1,100 1,130 1,200 1,190 1,180 1,150 760 -390 -120

Nigeria 1,840 1,820 1,850 1,920 1,820 1,860 1,850 1,930 1,950 1,930 1,910 1,830 1,800 -30 -40

Saudi Arabia 10,250 10,120 9,800 9,850 10,050 9,800 9,650 9,750 9,050 9,900 9,850 9,800 9,720 -80 -530

UAE 3,070 3,050 3,045 3,050 3,055 3,046 3,068 3,065 3,070 3,073 3,065 3,040 2,990 -50 -80

Venezuela 1,170 1,050 900 800 750 740 750 730 600 650 680 720 750 30 -420

Total OPEC 13 30,460 30,140 29,790 29,695 29,640 29,166 28,998 29,105 28,380 29,223 29,051 28,990 28,350 -640 -2,110

Reuters OPEC

down 640,000 b/d

in Jan

Houthis

attempted attack

on Aramco

facilities

OPEC+

considering

earlier meeting

https://www.spglobal.com/platts/en/market-insights/latest-news/oil/013120-futures-5-oil-slide-extends-as-us-quarantine-efforts-carrier-cancellations-add-to-demand-concerns

https://www.wsj.com/articles/saudi-air-defenses-thwarted-attack-on-aramco-11580320697



25

Energy Tidbits

haven’t been any reports of long range missiles. Our Supplemental Documents package includes the WSJ story.

Oil – No surprise, Houthis, Hezbollah and others negative on Trump/Israel peace plan

No surprise, yesterday the Arab League firmly rejected the Trump Middle East peace plan. We only saw pictures of the Arab League release in Arabic, but the PLO posted an unofficial translation [LINK] and it’s a pretty clear total rejection. One of the reasons why we saw the WSJ Houthis reported missile attack against Aramco was significant was that it was before their negative reason to Trump’s Tues announcement of his Middle East peace Plan. Trump described it as a “win-win solution for both sides” but that wasn’t the view of the Houthis, Hezbollah and many others. The reaction of the Houthis and other Palestinian leaders was negative on the Trump plan, which has to only increase the Houthis risk given their reaction to the plan was to include Saudi Arabia and UAE for their role. Al Jazeera [LINK] provided a good wrap up of the comments on the peace plan, which included (i) Palestine president Abbas saying, "After the nonsense that we heard today, we say a thousand no's to the Deal of The Century". (ii) Hezbollah. “Calling the plan a "deal of shame", Lebanon's Hezbollah movement said it was a very dangerous step which would have negative consequences on the region's future, according to Al Manar TV. It also said the proposal would not have happened without the "complicity and betrayal" of several Arab states. (iii) Houthis. “Mohammed Ali al-Houthi, a leader of Yemen's Houthi rebels, said Trump's proposal was "blatant US aggression on Palestine and the nation". "It is a deal funded by Saudi (Arabia) and the UAE (United Arab Emirates) to cement Israeli occupation," he said. "The people of the region have to bear the responsibility of standing up to this danger and facing it with every possible and legitimate means." Our Supplemental Documents package includes the PLO unofficial translation.

Oil – Haftar port blockade continues, Libya NOC says oil production down 931,819 b/d

There is no change to the vast majority of Libya oil production still being shut in with the Haftar ports blockade. As of our news cut off of 8am MT, the latest NOC update is still as of Jan 29 [LINK] . The shut in levels are basically unchanged in the past week. As of Jan 29, the NOC said production was down 931,819 b/d to 288,181 b/d (vs 1.220 mmb/d pre blockage). The financial impact is huge with a loss approaching $900 million including today in revenues. We do not expect any return of the oil production in the coming days. Rather the question will be how long will it be off and what needs to be changed to return the roduction. The news reports continue to be of renewed attacks by Haftar’s forces in the southern districts of Tripoli and still around Misrata, a major 550,000 population city ~200 km east of Tripoli. The other broadly reported story is the escalation of arms being supplied by UAE to Haftar forces.

Libya oil

production

down 931,819

b/d

Houthis

Hezbollah

negative on

Trump peace

plan

http://www.dci.plo.ps/en/article/14466/Cairo,-Egypt-Unofficial-translation-of-the-Statement-by-the-Ministerial-Council-of-the-Arab-League-on-the-US-'Plan'-(February-1,-2020)

https://www.aljazeera.com/news/2020/01/world-reaction-trump-middle-east-plan-200128173439574.html

https://twitter.com/NOC_Libya/status/1222771101010485249


26

Energy Tidbits

Figure 27: Libya Oil And Gas Map Noting Misrata

Source: EIA, SAF

Surprised it has took this long for Haftar to use oil as a weapon

It is important to remember that even though approx. 80% of the oil production is in Haftar controlled eastern Libya, all export revenues flow directly to Tripoli based NOC. So Haftar shutting down oil production hits the Tripoli based govt. We are surprised it has taken this long for Haftar to use oil as a weapon. Our April 14, 2019 Energy Tidbits [LINK] highlighted this point with an item “Oil – Does Saudi/UAE backing give Libya’s Haftar the potential to use oil as a weapon?” And tweeted on April 13, 2019 [LINK] “Does Saudi/UAE backing give Haftar staying power to use oil as a weapon if he can’t win Tripoli quickly and must try to win via a semi siege? One more scenario that makes a Libya oil supply interruption seem inevitable and increasing risk premium to oil”. Our thought process was this was the best way to squeezes Tripoli based Libya government. We are just surprised he hasn’t done so until this week.

Oil – Still wonder if lingering Druzhba oil quality concerns

Orlen held its Q4 call on Thurs, and we were left wondering if there is still a problem or concern for Russia oil supply via Druzhba pipeline. Orlen isn’t saying so, nor specifically notes any concerns, but highlights “one of the most important things we did in 2019” was diversify their oil supply. The analysts didn’t press on this question, but in reading the transcript, it feels like they aren’t convinced in why Orlen is diversifying its crude supply to add more Saudi crude, which we believe is at the cost of Russia crude. In their prepared remarks, mgmt. highlights “Now I would like to underline the most important things that we did in 2019. First of all, we diversify crude oil supplies and currently 30% of processed crude oil comes from other directions than Russia. Recently, we signed a contract with Saudi Aramco, increasing volumes by 1.2 million tons per year”. In the Q&A, mgmt. is asked for the logical understanding of buying Saudi crude apart from simply diversification, and mgmt. replied “This is the Crude Oil and Gas Trading Department. It's very logical economically, but not only economically but also strategically. So you need to combine all those factors,

Lingering

Druzhba oil

quality

concerns?




27

Energy Tidbits

however when coming to economics, we need to look at differential calculation and OSP prices from Saudi Arabia. Meaning that OSP from Saudi counts right after euro differentials. So it may differ plus and minus between them. So I mean, again very strict way. Sometimes, Saudi Crude is cheaper so to say comparing to Europe. Minor changes, but still we are facing that”. Then, the same analyst asked what the logistical cost is of one crude vs another, and asked about the difference between supplying directly thru pipe vs offshore ship deliveries, mgmt. responded “I wouldn't go into details. Let's just focus on the very end. The very end more or less either euros or a randomized or economically wise to inject to our facilities. Of course, we are working both of us too long in that business or looking around that business knowing that the pipe is cheaper than seaborne deliveries. However, due to our negotiation process, we achieved quite convenient conditions, allowing us to take that crude to our portfolio. That's the answer for your question”. Given the mgmt. comments, we still have to believe there are some sort of lingering concerns on consistency of crude quality or the crude quality itself on Druzhba, especially considering the Dec announcement from PERN, the operator of the Polish section of Druzhba confirmed that cleansing of the Polish oil transfer section will continue into 2020, which has to imply that the pipeline is not back to normal.

Oil and Natural Gas – sector/play/market insights from Q4 calls

We are just starting to get into Q4 calls and we expect to see a ramp up this week. This is our favorite time each time of each quarter as it is quarterly reporting and this is when we get the best insights into a range of oil and gas themes/trends, sectors and plays. As a reminder, our Energy Tidbits memo does not get into the quarterly results, forecasts or valuation. Rather the purpose of highlighting a company is to note themes/trends and plays that will help shape a reader’s investment thesis to the energy sector. In the conference calls, we also tend to find the best insights from the Q&A portion as opposed to the prepared remarks. Plus we tend to get the best E&P sector insights from services, pipelines, refineries and utilities

Chevron – multiple sector insights

There were a wide range of sector insights from the Chevron Q4 call on Friday. (i) Earlier in the memo, we noted Chevron’s Kitimat views, why Chevron’s vision for the Permian reminded us of proven Cdn light oil models, and the extending of subsea tie back distances. (ii) There wasn’t a lot of detail on the Permian, but Chevron produced 514,000 boe/d (not b/d of oil) in Q4/19, which was up from 455,000 boe/d in Q3/19. Mgmt made a number of positive, but general, comments on the Permian on the call. One interesting item was that the Q4 call slide deck didn’t include the normal Permian production oil slide that plots actuals vs the Chevron long term forecast Permian oil growth. (iii) Reminds Permian is 50% oil of the boe. In the Q&A, mgmt. replied “We're 50% oil in our portfolio right now, 25% NGLs, 25% gas.” (iv) Chevron’s 2019 reserve replacement was 44%, but would have been ~90% if it hadn’t written off 400 mmboe of Appalachia gas reserves and sold 100 mmboe. (v) Who would have ever thought a supermajor would differentiate itself from its peers by being short cycle. Mgmt said “Chevron's capital program is unlike our peers. Our spend profile has low execution risk and is focused primarily on short cycle, high return investments that are expected to sustain and grow the enterprise for many years to come.” (vi) Kuwait/Saudi neutral zone slow ramp up in 2020. “All of that suggests that we should resume work in the PZ this year. It's been shut in since May of 2015. And so we will be careful to ensure that any startup and resumption of activity is safe that we really focus on equipment integrity. And so it will be a careful restart and a gradual ramp. And so I think in terms of production this year, we're likely to see a start-up at some point and then some work before we begin a gradual

Sector insights

from Q4 calls


28

Energy Tidbits

ramp. So what that nets to is not a lot of impact this year. But if -- it could be some positive upside. I think we'll see more of the ramp completed in 2021. We eventually will have to get some new rigs in there to begin drilling additional wells. And so, but it should be on a trend line over the next 18 months or so back towards something that looks like we saw before we shut down”. (vii) Chevron is “not banking on a recovery in gas prices” for 2020. (viii) “And as I mentioned earlier, we've been hanging in in Venezuela, which has tremendous potential”. (ix) Its easy to see the challenge for independents to build a Permian company that is returns oriented if Chevron’s economics for the Permian are the standard. We would assume their Permian economics are related to the total Permian spend and do not include overall corporate overheads, dividends, interest, etc. Chevron said “We showed in the second quarter that, even in a growing asset, and we are investing and growing in the Permian, that returns are heading to 20% and north of that”. Our Supplemental Documents package includes excerpts from the Chevron Q4 call transcript,.

CP – Crude by rail volumes should be higher in Q2 and Q3

Earlier in the memo, we discussed comments from CP’s Q4 call on mgmt. calling the Gibson diluent recovery unit a “game changer” for crude by rail, and there were also good insights on CBR and lower US thermal coal volumes in the Q4 call. (i) CP is expecting similar crude by rail run rate in Q1, but then up in Q2 and Q3. Mgmt said “This was also our largest crude by rail quarter in the company's history with over 36,000 carloads”. Then in the Q&A was asked for more color on 2020. Mgmt replied “Yes, I mean it kind of Chris in a time frame where you could be able to see some of the pipe capacity come available. So it might actually, you know acts as an insulator. I'm not a quite a one-for-one replacement. But if Keith said from academic capacity standpoint, there shouldn't be any issues there, in terms of the run-rate. I'm kind of looking at Q1, the tool and probably in a similar space as we saw Q4. I do think sort of market pending and as we know this the crude crude-by-rail market in the pretty volatile. But if things hold in the Fred range that we see today, I could see some acceleration as a government contract fully gets converted, you can see a little bit upside Q3, Q2, Q3 and in probably that sort of run rate continuing as we look to close out fourth quarter in the year”. (ii) Sounds like the Alberta govt CBR deal is close to be assigned to someone else. In the Q&A, mgmt. was asked “can you update us on your current timing expectations around the government contracting Alberta at this point?” Mgmt replied “Yeah, so I'd say generally we are in terms of our agreement with the highly likely party that over will be assigned to is completed that party is working with their suppliers, their destination markets they'll sell into, I would expect, we may see some ramp up of that associated volume as we move into February here, so fairly tight”. (iii) US thermal coal volumes hit by low natural gas prices. They didn’t specifically say ‘thermal” but through most of 2019, we saw all the rail companies note that it was US thermal coal exports being hit as low natural gas prices in Europe were hurting US thermal coal exports to Europe. In the call, CP said “Now moving on to coal revenues were down 10%, were volumes were down 8%. Canadian coal volumes were down as a result of maintenance at the mines and again, the weather challenges I spoke about in Vancouver. Further low natural gas prices resulted in US coal volume being down 17%. all in all I expect coal volumes to be slightly down in 2020”. Our Supplemental Documents package includes excerpts from the CP Q4 call transcript.


29

Energy Tidbits

Exxon – Multiple sector insights

Exxon held its Q4 call on Friday. (i) xxx (ii) IMO 2020. Expect to see prices transition into parity. Mgmt highlighted “Regarding IMO. We continue to see clean dirty product spread expand in the fourth quarter. however. Light, sweet and heavy sour crude differentials have been slow to respond with lower global supply of sour crudes, strong global refining runs coming out of fall maintenance and the previously mentioned industry capacity additions. The chart on the upper left of this page shows medium, heavy sour crude discounts relative to Brent through 2019. While the spread has expanded recently crude discounts are not at parity with high sulfur fuel oil prices. The marine fuel supply chain fundamentals are still transitioning, feed and product pricing have not reached equilibrium, placing pressure on low to medium conversion margins. now, we would expect this to result in fewer heavy sour crude runs ultimately leading to higher discounts and market parity.” (iii) Reminds commodities correct over time. “Depressed margins are driven by excess capacity this will be a short-term impact, particularly if industry investments back significantly which by the way, we're beginning to see. We know demand will continue to grow, driven by rising population, economic growth and higher standards of living, that excess capacity will shrink, typically faster than people think and margins will rise then new capacity will be needed.” (iv) Guyana. Exxon did not give a revised production target (currently >750,000 b/d), we expect that right before the March 5 investor day. (v) Guyana Liza Phase 2 of 220,000 b/d “startup in early 2020”. Exxon is the operator, whereas Hess is the non-operator partner, writes “The Liza Unity FPSO will be employed for the second phase of the Liza development and will have a production capacity of 220,000 gross barrels of oil per day. Liza Unity is under construction and expected to start production by mid 2022.” (vi) Exxon noted its refineries had the highest level of turnarounds in the last 15 years, this year turnarounds back to normal levels. (vii) Mozambique LNG. In the Q&A, mgmt. wouldn’t confirm FID would be in 2020, but said “as we make progress will FID that when we get to the right stage. I think right now, we're working towards timeline that would give us production somewhere back in 2025 something like that”. The reality is that in service in 2025 implies FID in 2020. (viii) See LNG oversupply working itself out as investments slow and demand catches up to supply ie. the “dynamic of capital intensive, long cycle investments and as come out of the market adjust in compared to demand just take some time for those to reach balance but you typically see that and I don't think that dynamic is going to change.” (ix) “We continue to believe that in the medium to long term that market prices will be set by the marginal the cost and return criteria of the marginal barrels needed to meet that demand”. (x) Didn’t confirm or deny that LNG buyers are looking to renegotiate long term contracts, but did say “At the same time a lot of the buyers in LNG market are interested in ensuring long term deliveries and surety of supply and so there is still a desire for the longer-term contracts as new projects are FID developed oftentimes of financing requires secured outlets in terms of on that. So there are a lot of underlying dynamics with that that keep what I would say is the more traditional longer term transactions in place.” Our Supplemental Documents package includes excerpts from the Exxon Q4 call transcript.

RPC – E&P activity up in Q1 vs Q4, holding the line on service pricing

RPC (an oilfield services company) held its Q4 call on Thurs. (i) They expect Q1 to be a little better with refreshed budgets, vs the holiday impacted Q4, but far from a big increase. During the call, mgmt. said “First thing to say is that January is trending better than December was. So we're seeing – we saw a pronounced seasonal


30

Energy Tidbits

slowdown as we've discussed in fourth quarter and we're certainly coming back seasonally it's a little bit of a slow start in January, but we are finishing the month pretty strong. An overarching concern though continues to be our customers' ability to get the capital to work in 2020 that's been a concern, and it remains a concern that we just don't have any visibility into how that part of things is going to pane out All we can tell you again with the caveat of very low visibility is that first quarter is certainly trending up from December as we saw it, but again very little visibility”. (ii) RPC is trying to hold the line on costs, and isn’t seeing any degradation in pricing, but there are still some irrational bidders. This ties to the Wood Mackenzie webinar mentioned earlier in the memo, where they don’t see oilfield services being able to cut more, rather they have to try to recover some margin. On pricing, mgmt. said “It is stable at this point, I don't think the pressure pumpers are taking any more price concessions and it was fairly stable in fourth quarter, although that's not a good quarter to measure but we feel stable at this point … We have, as always during these times seen some of what you characterize as irrational bidding but less and less and we've seen some people who've done irrational bidding and not been able to perform and so it hasn't really stopped. So we have seen that but less in fourth quarter than we did earlier in the year. It would be a real stretch to say that supply and demand are in balance”. Our Supplemental Documents package includes excerpts from the RPC Q4 call transcript.

Shell – Not seeing pressure for LNG price renegotiations

Earlier in the memo, we spoke on Shell moving LNG Canada Phase 2 up to the “Define” category in the Q4 slides, and there were other important takeaways from the Q4 call on Thurs. (i) Not seeing pressure yet for LNG price renegotiations. In the Q&A, mgmt. replied “The reopening of contracts of course, there is, there is always pressure for price reviews is always reasons on both sides by the way to do price reviews in the main, we have not seen any deterioration in the way we have been able to prolong gate or renew the LNG contracts that have come up for renewal, there was not a specific trend of worrying trend definitely not that I'm that I'm aware of. But, Jessica. Can you, and add to that. Jessica Uhl, Chief Financial Officer and Executive Director That's I think the main, the main point is there is an ongoing adjustment or review that happens at any point in time in the portfolio. We've consistently manage that well, we offer a number of things to our LNG customers in terms of being able to provide index flexibility volume, flexibility, et cetera and that's valued and so in terms of just managing that business, we don't see anything unusual or of concern and to date, we've been able to manage that I think quite effectively”. (ii) It’s hard to decipher their answer, but we think they are saying just because LNG spot prices are low, it doesn’t mean they won’t at least look at advancing LNG projects, but the projects have to be cost competitive. In the Q&A, an analyst highlighted that Shell and other peers are positioning for a supply gap in the mid 20’s and asked how Shell would position itself to avoid margin compression when that supply comes online at the same time. Mgmt responded “Yeah, good question(inaudible) I'll take the second one and Jessica will take the first one. I think the cyclical nature and the fact that it's quite often, driven by a build cycle is indeed a challenge in our industry. We cannot (inaudible) together to figure out when would be the right time to build. So this is some of it, you just have to take, and you have to make sure that you read the signals correctly. And therefore do not file in at a time and it's not very wise to bottom. But at the same time, you also have to make sure that, if you can get that right, which almost by definition, you can't. But -- that your project is always going to be competitive, also at a time that it's really tough to get


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Energy Tidbits

into the market. Of course, we can sit there and say, well, they're all really uncertain about the LNG business, the best strategy we have just not participate in it, because at least we can be disappointed. But of course that's also not a long-term viable proposition. So every time we make a choice, we have to make sure we understand the fundamentals of this business through the cycle, all the cycles because every LNG plant (inaudible) or every petrochemicals plant will -- through its lifetime go through multiple cycles. It is simply unavoidable. And therefore making sure that it is competitive come what may it is a very important consideration in every investment decision that we take”. (iii) On the Permian, Shell still thinks there’s more time to be patient. In the Q&A, mgmt. replied “Thanks for acknowledging, our strategic patience when it comes to shale. I think we'll have a bit more patient where we are at the moment. I think at this point in time, of course, -- the framework, but it is I think anything inorganic would not be the right thing to do. I would say we also see of course -- the pressures that we have been talking about a little bit magnified in the shale areas there are some good areas. By the way that we are still working on. We are still growing in the Permian. We are still looking at spending more in places like Argentina, because we believe that there is strong fundamentals. But it -- but I think we have to continue to be prudent with the timing and perhaps even with the choice in the first place. How decarbonization plays into that can indeed also be a consideration. On --. I think your question is spot on it”. Our Supplemental Documents package includes excerpts from the Shell Q4 call transcript

Oil & Natural Gas – Many sector insights from Kinder Morgan investor day

There were many great sector insights from the Kinder Morgan investor Day on Wednesday. (i) One of the important reminders is that all roads for US natural gas demand essentially run thru the Gulf Coast, in particular from the big wave of US LNG that is coming. KMI forecasts natural gas demand growth to increase 28 bcf/d and 84% of that growth to be from the Gulf coast. Of the 84% (or 23.4 bcf/d), Kinder expects LNG exports to increase +15.9 bcf/d, and projects US LNG exports to hit 21 bcf/d in 2030. (ii) Forecast peak oil demand in 2030. “Oil demand increases through 2030, though growth rate slows in late 2020s”. (iii) “Passenger car fuel demand projected to peak in late 2020s due to fuel efficiency, electric vehicles & compressed natural gas”. (iv) Reminds of Asia/Pacific key to natural gas demand growth. “Asia Pacific region accounts for ~50% of the demand growth over the next two decades”. (v) Do not see any peak US oil supply or natural gas supply. Rather see big US oil growth continuing thru 2025, and then slower but still strong growth. See big US gas growth thru 2030. “U.S. provides 85% of increase of increase in in global oil production & global oil production & 30% of increase in global natural of increase in global natural gas gas production by 2030production by 2030”. (vi) Reminder why associated natural gas gets produced – “97% of the value of the wells in the Permian are associated with the oil or the natural gas liquids that makes gas something that has to be moved rather than flared and it makes it an extremely cheap and competitive alternative to other regions.” (vii) Big US gas growth for long term includes growth in dry Marcellus and Haynesville. Mgmt said “still seeing substantial growth in the Northeast and the Haynesville, those dry gas plays the Haynesville nicely positioned for the demand growth that we're going to see on the next slide. And also in the Eagle Ford. So overall, natural gas production expected to grow by 30%, by 2020. And so the point here, one of the points that Rich made earlier hydrocarbons, have a long way to go and peak hydrocarbons and particularly peak natural gas is a very long way out.” (viii) Remind that the move to renewable needs natural gas. “Coming part of the early part of this decade is we're going to get more realistic and practical about how you go about solving that problem, what's required, what's the role that natural gas and other hydrocarbons will ultimately play. It's decades to take new technology and fully

Many sector

insights from KMI

investor day


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Energy Tidbits

deployed in the electric sector. This isn't a matter of typing out new code or optimizing code. This is a matter of replacing installed capital infrastructure that moves stuff, right. That required that generates massive amounts of energy. That doesn't happen overnight. So we need to get more realistic. Not letting people have gas stoves and Berkeley, for example, is not going to solve this. The US is 15% of global emissions and declining and what we're doing in the US declining in as a share, but also declining in absolute terms. Natural gas is part of the solution overall.” (ix) Reminds that wind is intermittent and need natural gas to fill in when it isn’t producing power. “Historically, the variability in natural gas demand has been seasonal. So you saw peaks in the summer, and you saw peaks in the winter. Well, with the addition of renewables to the power generation stack where when the wind doesn't blow or the sun doesn't shine, atural gas has to ramp up and with the variability that comes in LNG demand when there is a [ph]weather about, when there is maintenance, when there's different conditions in the world market, natural gas has to ramp up very quickly -- ramp down very quickly and that's creating more variability. What that means is our 650 Bcf a day or Bcf of storage becomes more valuable”. (x) More Permian natural gas pipelines needed for 2023, but their Permian Pass natural gas pipeline project being slowed down by low natural gas prices. Mgmt was asked “What are the headwinds to commercializing Permian Pass [ph]that was the latest on the project timing will wider this in 2020 change in key perspectives?” Mgmt replied “Yeah, I think the balance sheet discipline that many of the producers [ph]under have caused some slowdown in commercial progress overall with Permian Pass, but ultimately, there is the commercial need. We believe that to be the case sometime. In 2023, and so if you back up from there, whether it's Permian Pass or another project we think, something needs to be commercialized, sometime this year, for that timeline to make sense. And so, we believe look at looking at any analysis, whether it's ours or WoodMac or other parties, there is at least two additional pipelines that are going to be needed after ours and ph]Whistler goes in. So we think Permian Pass is as good as opportunity as any to be one of those at least two additional solutions. So I think as we progress through 2020, we'll have a better read on exactly the timing of execution on that project and ultimately, the level of commercialization.” (xi) Have 16 Jones Act vessels that are relatively young. (xii) Low gas prices right now are seeing some pull back in dry gas. “Yes, I would say the dry gas basins in any gathering systems that are supporting the dry gas basins are probably the most immediate impact where we'll see the most immediate impact. And so we are starting to see volumes roll over, a little bit in the Haynesville, although longer term, I think that's a strategic a place where we're going to need to have volumes growing to support the export market.” (xii) Re project to add liquefaction/export to Gulf LNG in Jackson Mississippi. “With respect to Gulf LNG, I wouldn't expect anything, any time soon there, just in light of the situation right now for US LNG. So I think that's just Not a likely to develop in the near future in the medium term”. (xiii) There are many other good sector insights. Our Supplemental Documents package includes excerpts from the transcript and slide deck.


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Energy Tidbits

Figure 28: Global Natural Gas Demand and Projected US LNG Exports

Source: Kinder Morgan

Oil and Natural Gas – Good US oil and gas industry report to add to reference libraries

This week, the Texas Independent Producers and Royalty Owners Association (TIPRO) published its new State of Energy Report for 2020 which is a good US oil and gas industry report to add to reference libraries [LINK]. The report provides an update on employment, wages, payroll, and production in the US oil and gas industry. (i) One of the highlights was a small increase in total US oil and gas employment in 2019, with 8,454 jobs added to 895,629 total jobs, and annual wages averaging $114,745 in the oil and gas sector. (ii) TIPRO’s commentary on US oil growth is similar to what we have seen from other agencies, as they highlight a slowdown across the sector due to reduced capital in H2/19 and further cuts to capital expected in Q1/20. In terms of a US oil supply outlook, TIPRO cites the new Enervus (formerly Drillinginfo) outlook which calls for YoY growth of +650,000 b/d in 2020 vs 2019, and they write “As operators continue to be constrained by free cash flow generation capabilities, they will take a more modest approach to their activities in the coming years. Operators are working on returning cash to shareholders rather than reinvesting it in the drill bit”. Below we pasted the TIPRO table of US oil and gas employment by industry.

TIPRO State of

Energy 2020

https://tipro.org/newsroom/tipro-energy-reports?id=268


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Energy Tidbits

Figure 29: US Oil and Gas Employment by Industry

Source: TIPRO

Wuhan Coronavirus – # of infected and deaths increasing at faster rate within China

The developments and news on the Wuhan Coronavirus are moving so quickly over the past few days, there is no way to have an up to date summary other than have a running update. So we didn’t try to summarize where we are as they will be very different by the end of Sunday. There are a few general observations that should continue at least thru to markets open on Monday. (i) Reports of first death outside of China in the Philippines. (ii) Accelerated numbers of infected and deaths in China. (iii) More countries reporting their first cases, but still not seeing big numbers outside of China. (iv) More and more shutdowns of the economy in China, and not just around Wuhan. (v) Increasing need for medical supplies and support in China raising concerns on spreading and also the data on infected and deaths. (vi) More countries following the US and other leads of calling the emergency. (vii) Concern that China shutdowns will be extended even further in Feb. (viii) More countries taking action following WHO’s declaring a PHEIC. (ix) A good site to bookmark is the Global Times live update [LINK]. (viii) There is much more but the story is developing constantly so we only included some key points.

Electricity – German cabinet backs plan to exit coal by 2038

Our Jan 12, 2020 Energy Tidbits highlighted Germany’s push to renewables at the cost of coal has led to its electricity costs being second highest (only behind Bermuda) in the world, Reuters [LINK] and others similarly, reported on the expected move by the German cabinet to back plans to exit coal as an energy source by 2038. To support the continued phase out of coal, Germany plans to keep investing heavily in renewable energy as the country (as previously indicated) will also exit nuclear power in 2020 and aims to cut greenhouse gas emissions to 55% of its 1990 level by 2030. Note, Germany is the second largest coal

Wuhan

Coronavirus

moving faster

within China

German cabinet

backs coal exit

by 2038

http://www.globaltimes.cn/content/1177737.shtml

https://uk.reuters.com/article/uk-germany-coal/aiming-to-go-green-german-cabinet-backs-coal-exit-by-2038-idUKKBN1ZS14B


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Energy Tidbits

producer in Europe (behind Russia) and according to BP data, 35% of electricity in Germany was generated by coal in 2018. Our Supplemental Documents package includes the Reuters story.

Good German coal graphic from S&P Platts As part of the planned German coal exit, 18 GW of lignite and over 20 GW of hard coal plants will close by 2038, with 3 GW of lignite and 6 GW of hard coal plant closures to come by 2022. Following the news, S&P Platts posted a good German coal graphic, which shows the phase out of coal capacity and the concurrent uptick in wind and solar capacity. Below we pasted the Platts graphic, and the full graphic is available at [LINK]

Figure 29: German Coal Phase Out Timeline Graphic

Source: S&P Platts

Capital Markets – Aviva: “Asset managers cannot be passive on climate change”

We don’t think it is fair to say others are necessarily following BlackRock in its new ESG priority for investing (see our Jan 19, 2020 Energy Tidbits [LINK]) as we have to believe all other major global investment firms have been closely working in ESG to their investing. And it may well be that the global visibility for BlackRock’s ESG has just been a catalyst for others to make sure their ESG priority is well known. This week, the CIO Aviva Investors, David Cumming, an asset management company with AUM ~£450 Billion, published his op-ed in

“Asset managers

cannot be

passive on

climate change”

https://www.spglobal.com/platts/plattscontent/_assets/_images/latest-news/013020-germany_wind_coal_nuclear.jpg

http://www.safgroup.ca/wp-content/uploads/2020/01/Energy-Tidbits-Jan-19-2020.pdf


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the FT “Why asset managers cannot be passive on climate change” [LINK]. Cumming argues that asset managers must adopt a more radical approach if they are to play a critical role in the response to climate change, and he writes “We need to respond in a manner that is substantive, authentic, informed and impactful. This means focusing on actions, not excuses; outcomes, not intentions. Failing to do so will hurt the reputations of companies, their businesses and their ability to attract talent. Given the consequences, investors cannot wait for governments to respond. Capital must be redeployed to find solutions and address the risks. We also need to be direct and visible in representing our views and communicate our position to customers”. He goes on to explain that asset managers need to pressure companies to adopt science based targets and says “There must be consequences for those that do not meet shareholders’ expectations. In our case, we will vote against directors of companies in high- and medium-impact sectors that are climate laggards and against directors of companies in the Climate Action 100+ that have not committed to science-based targets”. We continue to highlight that regardless of whether investors or CEOs or company directors agree with the science of climate change, they have to understand climate change is impacting investor capital allocation. And we have to believe that companies will, at a minimum, increase their disclosure on their ESG efforts and look to review how they can improve/increase their ESG efforts especially as its clear that asset managers are telling companies they are accelerating their efforts to target what Cumming refers to as “high and medium impact sectors”. Our Supplemental Documents package includes the op-ed.

Capital Markets – CNBC Cramer selling of fossil fuels is “happening very quickly”

We always say its not a question if companies and CEOs agree or disagree with climate change or ESG, they have to understand how these are impacting capital flows into stocks and debt securities. We are big believers in the reality check that fossil fuels are going to keep growing in consumption and are needed, but we also believe increasing climate change priorities around the world will lead to peak oil and natural gas demand sometime after 2030. Its worth listening to the 2 min CNBC clip [LINK] “Jim Cramer: ‘I’m done with fossil fuel’ stocks”. Cramer’s message that capital is leaving fossil fuel stocks is not new, but he does highlight something others don’t – its happening very quickly. So even if there is a solid outlook for oil for the next decade, to a lot of capital, it just doesn’t make a difference. We made a transcript of the key quotes that included “I’m selling the fossil fuels. We’re done”, “we’re starting to see divestment, all over the world. We’re starting to see the companies just regard them as, I mean big pension funds say listen we’re not going to own them anymore” “the world has changed. There are new managers. They don’t want to hear if these are good or bad”, “this has to do with new kinds of money managers who frankly just want to appease younger people who believe you can’t ever make a fossil fuel company sustainable”, “We’re in the death knell phase.” “this is the other side of Tesla. These stocks don’t want to be owned by younger people” “You can tell that the world’s turned on them. and its actually kind of happening very quickly. You’re seeing divestiture by a lot of different funds. Its going to be a parade. Its going to be a parade that says look these are tobacco and we’re not going to own them”.

Capital Markets – Hang Seng Index to shine in year of the “resilient rat”

Each lunar new year, CLSA comes out with its outlook for the Hang Seng Index (HSI), which is a bit of a humor piece and also includes top sector pics for the year [LINK]. The outlook starts off with “Diligent, industrious and positive, the Rat occupies the first position in the 12-year cycle of animals in the Chinese horoscope. This year, the ever-resilient Rat will sharpen its teeth and claws to operate at a high level and keep the cats away from the cheese. Harmony between earth and metal in the Rat’s Feng Shui fortune chart bodes well for the HSI”. CLSA sees a strong start to the year but says the HSI index will finish the year just

CLSA’s year of

the rat outlook

CNBC Cramer

capital leaving

fossil fuels “very

quickly”

https://can01.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.ft.com%2Fcontent%2Fac9c2345-ed98-4f03-a537-b9926819b675&data=02%7C01%7C%7C7f0f36878f7640b00b2c08d7a5b8df50%7C201318985d8447879a8ed802356a1421%7C0%7C0%7C637160085753667873&sdata=COc303dkJF4mTs3UqFpzdL9EhtMry26mx5f%2F4YYhMhA%3D&reserved=0

https://www.cnbc.com/video/2020/01/31/jim-cramer-fossil-fuels-oil-energy-squawk-box.html?&qsearchterm=cramer%20fossil%20fuel

https://www.clsa.com/the-rat-pack-hits-townclsa-feng-shui-index-2020-year-of-the-metal-rat/


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Energy Tidbits

below the summer high. They write “The year should start well. Early on, newly implemented regulatory measures are expected to improve business conditions. This will trigger a small market buying incentive which will peter out in March, as contradictions in market conditions permeate the wider world. No need to get anyone’s mazes in a twist, gains will be made in all sectors through to the summer. In late summer, the gains are less impressive, and profit taking is to be expected. A few rattles of the cage to wake our Rooster up in the last quarter, and the HSI will finish the year just below the summer high”.

Twitter – Look for our first comments on energy items on Twitter every day

For new followers to our Twitter, we are trying to tweet on breaking news or early views on energy items, most of which are followed up in detail in the Energy Tidbits memo or in separate blogs. Our Twitter handle is @Energy_Tidbits and can be followed at [LINK]. We wanted to use Energy Tidbits in our name since I have been writing Energy Tidbits memos for over 19 consecutive years. Please take a look thru our tweets and you can see we aren’t just retweeting other tweets. Rather we are trying to use Twitter for early views on energy items. Our Supplemental Documents package includes our tweets this week.

Energy Tidbits – Sign up on our email distribution for tidbits and blogs

For those interested in receiving out Energy Tidbits memos and blogs, please go to our blog sign up. We will be using the blog notification list for Energy Tidbits. The blog sign up is available at [LINK].

LinkedIn – Look for quick energy items from me on LinkedIn

I can also be reached on Linkedin and plan to use it as another forum to pass on energy items in addition to our weekly Energy Tidbits memo and our blogs that are posted on the SAF Energy website [LINK].

Misc Facts and Figures.

During our weekly review of items for Energy Tidbits, we come across a number of miscellaneous facts and figures that are more general in nature

Canada’s Christine Sinclair is all time highest scorer in women’s soccer First of all my apologies to all football fans for using soccer, but that is how the sport is known in North America. But a big shout out to Canada’s Christine Sinclair, who became the all time highest goal scorer with her 185th goal in international football matches to surpass the legendary US Abby Wambach. Two things that were reinforced by this milestone. We saw multiple interviews with Christine post her record and as usual, she was her modest, impressive self. And the second was also no surprise, the classy immediate tweet by Abby Wambach congratulating Christine. Is Chief’s Duvernay-Tardif the most interesting man in the world? How can we also note another Canadian sports star who will be on prime time night – Laurent Duvernay-Tardif with the Kansas City Chiefs. With the two weeks before the Super Bowl, we could have written pages on NFL football tidbits because the two week period means that every potential tidbit story line has been said. We decided to note what Kansas City Chiefs teammates say about guard Laurent Duvernay-Tardif, who will be the first doctor to ever play in the Super Bowl. Tight end Travis Kelce was reportedly “steals a line from the Dos Equis commercial when he calls him “the most interesting man in the world”. Its not just his being a doctor, but also because of his exploration of the world. Duvernay-Tardif is also unique as he played college football at McGill. One related tidbit we weren’t aware of that probably explains why

Look for energy

items on LinkedIn

Sign up to receive

future Energy

Tidbits memos

@Energty_Tidbits

on Twitter

https://twitter.com/Energy_Tidbits


http://www.safgroup.ca/


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Energy Tidbits

the Chiefs drafted him and why they were so supportive of him finishing his studies and training was reading that Chiefs head coach Andy Reid’s mother, Elizabeth, was one of the first women to graduate in medicine from McGill. Chiefs Pat Mahomes reminds me of star financial performers Our Jan 12, 2020 Energy Tidbits noted the Peter King Mike McCarthy interview [LINK], wherein McCarthy’s comments on NFL success reminded me of what I have observed from some of the star financial performers I have worked with over the past 25 years. Yesterday morning NFL Network had Geoff Schwartz (former Carolina guard, brother of Chiefs tackle Mitch Schwartz) on one of its many panels and Schwartz said what makes Mahones the best is that “he makes everything right in the end”. As soon as he said that, I automatically thought of seeing many many times over the past 25 years how a star performer did exactly just that. Estimated 1.4 billion chicken wings this Super Bowl weekend No surprise, chicken wings still seem to be #1 food for Super Bowl snacking. The National Chicken Council’s “Chicken Wing-Onomics 2020” [LINK] estimates Americans will eat a record breaking 1.4 billion chicken wings this weekend, +2% or 27 million more wings than last year. The council also noted some trivia such as “1.4 billion wings could circle the circumference of the Earth 3 times” “If each wing were one second, it would equal 45 years”. There was one surprising chicken wing trivia when we saw the Chicken Farmers of Canada Wed release “Chicken Wings Dominate Super Bowl Menus” [LINK] and its estimate that Canadians will consume 75 million wings during the game this year. We normally use a rule of thumb of 10 to 1 when comparing the US vs Canada and would have assumed that we would have been at least 100 million wings. Bruins Bergeron, another example of a modest impressive Cdn athlete One last shout out to another modest impressive Cdn athlete – the Boston Bruins Patrice Bergeron. In watching TSN on the Sinclair record, there was a subsequent clip [LINK] on how Tampa Bay Lightning’s Gemel Smith had found himself in “a sunken place” in a period of depression post concussion issues. Prior to Tampa Bay, Smith had been claimed by the Bruins where he met Bergeron. In the clip, Smith notes how Bergeron’s reaching out was a key event to help him on the way out of depression. But then of the clip, when they say to Bergeron about how significant he was in helping Smith, Bergeron says “It doesn’t take much to just ask a person how he’s doing. Tell someone not to suffer alone, to be there for him and to ask how he was doing, that’s really all I did”. FDA warns Purell stop saying it helps prevent flu The rapidly expanding Wuhan coronavirus has been causing a run on face masks and other items to help protect during flu season and the risk of coronavirus. But it looks like the US Food and Drug Administration will be preventing a run on Purell hand sanitizer. CNN [LINK] (and others similarly) reported “The US Food and Drug Administration is giving the maker of Purell products a stern warning: Stop making unproven claims that over-the-counter hand sanitizers help eliminate Ebola, MRSA or the flu” “Among the claims: Purell "Kills more than 99.99% of most common germs that may cause illness in a healthcare setting, including MRSA & VRE"; and "Purell Advanced Gel, Foam, and Ultra-Nourishing Foam Hand Sanitizer products demonstrated effectiveness against a drug resistant clinical strain of Candida auris in lab testing." Within the "Frequently Asked Questions" section on gojo.com, the

https://profootballtalk.nbcsports.com/2019/12/16/mike-mccarthy-coaching-nfl-fmia-week-15-peter-king/

https://www.chickencheck.in/infographics/super-bowl-chicken-wings-2020/

https://www.newswire.ca/news-releases/chicken-wings-dominate-super-bowl-menus-821628966.html

https://www.tsn.ca/video/do-not-suffer-alone~1885701/do-not-suffer-alone~1885701

https://www.cnn.com/2020/01/27/business/fda-purell/index.html


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Energy Tidbits

agency noted the company says that "Purell Healthcare Advanced Hand Sanitizers, which are formulated with ethyl alcohol, may be effective against viruses such as the Ebola virus, norovirus, and influenza." The FDA warning letter is found at [LINK]. Steyer spent $202.5 million of his own money on his campaign We couldn’t help note this number from this Reuters story on Sat “Billionaires bombard U.S. presidential campaign with hundreds of millions in cash” [LINK] that noted Bloomberg and Steyer spent ~$389 million last year on their campaigns. Including Steyer spending $202.5 million of his own money. We don’t care what party you are with, that’s an impressive amount of his own money. For comparison, Trump spent ~$66 million of his own money, which was a big number at that time.

https://www.cbsnews.com/news/purell-sanitizer-maker-told-to-stop-claiming-it-kills-ebola-flu-other-viruses/

https://www.reuters.com/article/us-usa-election-fundraising/billionaires-bombard-u-s-presidential-campaign-with-hundreds-of-millions-in-cash-idUSKBN1ZV3DF