Drought - again; big news for Bakken and Three Forks; the Russia-Poland-Ukraine gas drama; an unexpected Shell resignation; and the best to come in this week’s premium newsletter …
Drought is what’s on everyone’s mind as winter turns into summer, largely bypassing spring. It’s a poignant fear, especially after last year’s drought, which reached severe levels across more than 60% of the US. And here’s where it ties into energy, according to a recent Reuters report: Power plants are the largest consumers of water, followed by the enormous amounts of energy required to supply homes, farms and factories and to treat waste water. Nuclear power plants also require large amounts of water to keep generating, and another drought could put their capacity at risk.
Washington is toying with some policy changes that reflect this linkage between water and energy more clearly, and a special Senate committee is now working out how the two can be better managed in tandem. Of course, the issue of hydraulic fracturing will necessarily be a part of this agenda.
Now let’s jump into the big unknown—the Bakken and Three Forks Shale formations in the Dakotas and Montana. The federal government has more than doubled estimates for these formations, which straddles the three states.
Four years ago, government geologists didn’t have that much hope for the Bakken and Three Forks formations, but they are re-evaluating that data alongside drilling tech advancements and some 4,000 new wells. The new estimate: 7.4 billion barrels of undiscovered and technically recoverable oil and 6.7 trillion cubic feet of natural gas in Bakken and Three Forks! In other words: twice the oil and thrice the natural gas. In 2008, the estimate was 3.6 billion barrels of oil.
There’s also some big company news this week: Shell CEO Peter Voser has unexpectedly announced he will be stepping down next year, even as the company’s profits for the first quarter of this year jump to $8 billion. No one saw this coming, apparently, especially when Voser is being credited with a remarkable couple of years. The reason given for his retirement is “lifestyle change”, which will be boosted by a $20 million (give or take) pension fund.
In the meantime, for Gazprom watchers, we’re closely monitoring the Poland-Ukraine-Russia drama unfold. As Russian gas giant Gazprom registers its first decline in a decade, posting a 9.5% drop in profits for 2012 due to falling liquefied natural gas (LNG) demand from Europe and rising costs, we expect an uptick in game-playing. Right now, that venue is Poland, where the government says it was blindsided by its own state-controlled gas company (PNGiG) and a Polish-Russian joint venture, EurPolGaz. The two bodies allegedly signed a Memorandum of Understanding for the construction of a pipeline that would carry Russian gas, bypassing Ukraine, without the government’s knowledge. In the ensuing political crisis, the Polish treasury minister has been sacked.
More than anything, this story illustrates the extent of Gazprom’s influence in Poland’s state gas company and the EurPolGaz joint venture. It’s all about Ukraine in the end, which Russia wishes to punish for pursuing energy independence. The short story is that Ukraine relies on gas transit fees, and Russia is seeking to limit those with retribution pipelines that bypass the country. We offer more on this topic in this week’s premium newsletter…
Also in this week’s premium newsletter, don’t miss our executive report on Paraguay’s oil and gas prospects, Trader Dan Dicker also lends his insight on taking advantage of the narrowing WTI Brent spread. It’s a must read!
Today’s report is taken from our Inside Opportunities section of the premium letter and takes a look at energy opportunities in Paraguay and our top picks for junior companies with great assets and smart strategies here.
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I hope you enjoy this week’s report and have a great weekend.