We are going to highlight two energy issues for you this week. The first, oil and gas in East Africa—because this is the hottest place right now and we can’t get enough of it. The second, what everyone’s talking about on the energy scene and follow the re-election of Obama—because we can’t ignore it.
The most interesting point to come out of this interview was the change in risk perception.
A series of political risks for the oil and gas industry in North America--such as the delays over Keystone XL pipeline and the ruckus over the Marcellus Shales—has forced a re-examination of risk. The conclusion? Risk is no longer confined to developing countries.
It was a very interesting interview and you can read the whole conversation here.
Things are looking hot in East Africa as the potential is vast and there is still so much to explore. From major gas finds in Mozambique and Tanzania, to optimism over oil production and future exploration in Uganda and Kenya, this is the place to be. There are plenty of hurdles to overcome, though, particularly on the regulatory scene. These governments are realizing their potential and they are starting to demand more from those they grant concessions to.
Back in the US, the culmination of the elections in a second term for Barack Obama has everyone wondering what is going to happen to the Keystone XL pipeline. It has been a sensitive political issue over which Obama has postponed a decision until 2013. It has met with numerous roadblocks, even in oil-friendly Texas, which we discussed at length last time. This is a TransCanada project, and the company and Canadian officials are confident it will go ahead. We also think it will go ahead early next year.
One Keystone booster will be the victory in the Senate of two Democrats who support Keystone XL: one in Montana and the other in North Dakota, along the Keystone route.
The stock market, however, was not so optimistic. In trading following Obama’s win, TransCanada shares dropped 87 Canadian cents, or 1.9%, to C$44.63 on the Toronto stock exchange, while the overall market was down about 1%.
Overall, crude-oil futures tumbled, with ExxonMobil declining 2.6% and Chevron 2.5%. Coal stocks, which would have rallied with a win by Mit Romney, suffered major drops. Gold futures slipped to about $1,715 an ounce while crude-oil futures tumbled 3.3% to about $85.80 a barrel.
While we don’t think big oil will face much of a challenge, Obama certainly will. But natural gas might actually come out pretty strong. Overall, we see a continuation of the boom in US oil and gas production over the next presidential term. Although, tax breaks for the oil and gas industry are likely to be targeted.
Of course, the renewable energy sector, particularly wind, considers its own victory in tandem with Obama’s. Here we will see the wind production tax credit renewed.
All of this has taken place against the backdrop of Hurricane Sandy, which itself will prompt some major changes, regardless of who is in office. The US electricity grid is under the scrutiny it deserves. After record blackouts and a less-than-satisfactory recovery period, calls for billions in investment to upgrade the grid are greater now than ever. The main debate is whether the US—like Europe—should bury its power lines to protect them from severe weather threats. Some major power companies are already exploring this option. However, eight state utility commissions have already ruled it out because it would cost tens of billions of dollars. What we might see is a piecemeal project here, where the most vulnerable cables are buried, but the bulk remains above-ground.
We’ll end this note by skipping back to Africa, specifically to Madagascar. As we outline in our investor special today, at stake here is a potential 20 billion barrels of oil. Extraction is difficult, but the potential is too vast not to try. New developments in that area make this one of East Africa’s mounting investor attractions… Click here to read the report.
By. James Stafford of Oilprice.com