Shell's Profit, Smaller Companies' Demise

According to a Wall Street Journal article, Royal Dutch Shell PLC increased its profit strongly in the third quarter. However, the Obama administration’s drilling moratorium in the Gulf of Mexico, which ended this month, will have long lasting effects on production. Because of the ban, next year Shell expects to pump 40,000 barrels per day less than it had planned before the moratorium was enacted. This is 1.3% of its production (WSJ). Interestingly, Shell still reported an 88% rise in profit that beat expectations on Wall Street. This rise is likely because of increased natural gas and oil prices (WSJ). The company has also embarked on an “efficiency drive”, which also had an effect on profit. So far, Shell has lost $115 million because the moratorium forced some rigs to be unused (WSJ).

It is unlikely that production will return to forecasted levels very soon because of uncertainty about new regulations. Companies are trying to figure out how increased inspections, required spill cleanup plans, and more examination of testing will change business (WSJ). There are other companies, unlike Shell, that have taken unsustainable losses because of the ban. Some smaller companies, which represent 60% of production in the Gulf, will have to leave the Gulf of Mexico (WSJ). This could leave negative consequences for production of oil and gas in the U.S. While Shell increased profit, its development projects in Alaska and its projects in the Gulf have been slowed or stopped as well (WSJ).

All in all, this issue is not very complicated. Shell has increased profits, but it has still been hurt by the moratorium. The same cannot be said for smaller, independent companies. I hope that their production is not harmed to a large extent because as the article stated, that could have a large effect on U.S. production, which would likely push prices up. I suppose the only way to resolve this and move on is to figure out the new regulations in the Gulf so companies can get back to work and adjust their plans to reflect the new policies. Otherwise, the U.S. energy industry could be hurt by increased prices.

Chazan, Guy. "Shell: Drilling Ban Fallout Will Endure." Wall Street Journal (2010): Web. 28 Oct 2010.

It's About Location

This piece by Sam Hopkins shows that investing in green energies has just as much to do with the location as the company itself. He breaks down the pros and cons of each of the major area of oil producing and consuming.

North America
Pros- Political pressure is higher than ever to purse renewable energies.

Cons- Mexico’s biggest oil reserve, the Cantarell offshore field, has had 34% decline in production in the past year. Also, entrenched political groups, namely the corn industry, have dictated the US’s approach to clean energy.

Europe
Pros- The EU has many new members from the east, who have low-cost but high-tech industrial bases, that are former Soviet satellites. The EU also has a binding “20x20” target, which forces each of its 27 members to have 20% of all their energy to come from renewable energies by 2020. The Cleantech Competition across the EU will help them innovate and share to reach the 2020 target.

Cons- The recession has begun to slow down government spending on green energies.

Asia-Pacific:
Pros-As countries like China and India dance in their new money, they have spared plenty and are eager to invest and innovate to “leapfrog” fossil fuels.

Cons- Asia is way too reliant on coal.

Middle East
Pros- Superfluous money and an understanding that its oil reserves are running out have given reason to try greener energies. Masdar City in the UAE is fine example of the Middle East’s progress. Masdar City will be a walled city that is powered by solar panels and other green energies to achieve a zero-carbon output.

Cons-
Political questions and Iran’s increasing oil production are big obstacles to be overcome.

Africa
Pros-Africa has such a wide variety of climates and terrains. Every type of energy can be found there.

Cons- Rampant corruption and lack of unity are the biggest problems Africa’s green dream faces.

Latin America
Pros- Many countries are veterans to localized energy, like sugar ethanol, palm oil, and jatropha biodiesel. Solar energy is also abundant and cheap in Latin America.

Cons-
There are protective tariffs in a majority of the ethanol consuming countries. Also, Venezuela’s energy plan is oil-centric.

Sam Tompkins ends with to final points: politics is key and look out for a green Latin America.

When we plan our investing, I think all of his pointers will help. One of the things that I think could use some more research is the niche in Latin America. We need to find out more on why he points us so confidently in that direction.

http://www.greenchipstocks.com/articles/international-clean-energy/388

Cali Solar Power Plant Gets Approval

A solar power plant project has been given approval by the United States government.  This project consists of a plant located in the region of Blythe, California on federal land. According to the Wall Street Journal, this plant is a joint venture, called Solar Trust of America, by the German company Solar Millennium AG and Ferrostaal AG.  It is a six billion dollar project located on 7,025 acres in a California desert with the potential to generate up to 2,800 megawatts (WSJ). Now that approval has been granted, the next step for developers is to seek federal grants and loans.  If everything is done in a timely fashion, as this certain grant is soon to expire, the company could get up to a 900 million dollar grant.  California is eager for this project, as it is one of many solar plants they are envisioning for the state.  Another benefit for everybody is the job creation.  During construction, up to 1,000 jobs will be created and 300 daily jobs once it is completed.  This plant isn't using conventional solar panels that you or I think of.  It uses curved mirrors to send light into a central tube that will create steam to rotate the turbines and create energy.

As is California, I am much to eager about this project.  It is a sign of the future of alternative energies in America.  With the Obama administration's approval of this plant, much headway will be made.  Being as California has many acres of desert, projects like these make perfect sense.  The German company seems to have a firm grasp on the technology and if they feel this can be done in a cost efficient manner, then kudos to them.  This will be of great concern to the oil and gas industry.  As California has plans to build several more of these plants, the other energy companies in the industry might begin to worry with this project breaking ground.  I feel that regardless of how they take this news, it is a good sign of the future of the energy industry and the direction it is heading.  My only concern is that it would be nice to see some American companies gaining momentum in this sector of the industry. However, I feel after seeing the potential success and profits of this project, they might begin to see the light.

http://online.wsj.com/article/SB10001424052702303467004575574392614626562.html?mod=WSJ_Energy_leftHeadlines

Bumpy Road for a Maryland Nuclear Project

Mark Peters recently wrote an article in the Wall Street Journal about a nuclear project that has run into some trouble. Constellation Energy Group Inc. was going to build a reactor in Calvert County, Maryland, but it recently exited a government program that would guarantee funds for the project. This project was going to be a joint venture between Constellation and Electricite de France SA. However, Constellation claims that the government’s terms are unrealistic, making the project impossible at this point. The federal government demanded $880 million up front from Constellation, in case of a default on the loan. This large request essentially made the project “uneconomic,” according to Constellation (WSJ). This however, is not the only issue in this project. There have been disputes between Constellation and the French company as well. They are arguing a clause in the contract and whether or not EDF is stipulated to buy 12 power plants from Constellation (WSJ). This government problem is just another, larger bump in the road.

All the sides are pushing blame on each other in this dispute. Electricite de France SA is frustrated with Constellation and Constellation is frustrated with both Electricite de France SA and the federal government. They complained in a letter to the Department of Energy that the $880 million in fees came from a “flawed approach that the White House Office of Management and Budget has taken” (WSJ). They claim that the fees could end the project altogether. The government claims that this program is in place to provide affordable financing. There has only been one other grant under this project that went a company in Georgia (WSJ). Now competition remains between other companies and other sites.

This is a tricky article to judge. There is one quotation that brings in what I have said about natural gas, but not about nuclear: “The economics of building multibillion-dollar nuclear reactors have deteriorated with a sharp drop in the price of natural gas… and a pullback in electricity demand during the recession” (WSJ). I have not thought about the correlation between nuclear and natural gas, but it makes sense. One issue that this quotation brings out is the focus of the energy industry. Clearly it is still focused on cheaper fuel like natural gas, not a more expensive cleaner alternative, whether that is nuclear, solar, or wind. I would not necessarily disagree with this approach because raising prices would drastically affect the market. However, at some point, we will have to sacrifice prices for environmentalism.

Peters, Mark. "Constellation Energy Nuclear Project Snags." Wall Street Journal (2010): n. pag. Web. 12 Oct 2010. .

Are Ocean Based Alternative Energies Really Better For Our Environment?

According to the Wall Street Journal, Google, Good Energy, and Mavuben Corporation, have all invested in a ten-year offshore wind energy plan. The starting price of this plan is five billion dollars. This plan is to provide energy to 1.9 million houses along the east coast by placing windmills on the shallow parts of the Atlantic Ocean. A transmission line that runs 350 miles between Virginia and New Jersey caries the energy from the windmills to the houses. Though this is a great innovation for alternative energy, it runs into many problems. One of which the infrastructure is extremely complicated in both economic and technical ways.

I think it is wonderful that Google is investing in eco-friendly projects, it shows that as a big company it also cares about the environment. However, in the article I read that the environmentally friendly groups support this innovation, but do they know what damage goes into the ocean? For such infrastructure to be built, reefs are going to be torn apart and marine habitats are going to be destroyed. This affects the food chain and also the biogeochemical of the environment. In my opinion, this is way more harmful than polluting our air because reefs and marine life is something that cannot be replaced, since it can take up to one million years for an extensive reef to be developed. Also, there is already another alternative energy source that uses the ocean called the Wave Power. It has the same concept as the windmill, but instead of being exposed to the air, it is built under the water and runs on the waves. This infrastructure is proved to be more effective than windmills because waves and tides are much easier and precise to predict than wind. In my opinion, I really do not see the point in investing so much money in this project, but you never know where it can take us.

http://online.wsj.com/article/SB10001424052748703440004575547381873787098.html?mod=WSJ_newsreel_technology

Shell's Last Stand in the Arctic

     According to a recent Financial Times article, Royal Dutch Shell is offering to create an oil containment system for the Arctic if the government allows them to drill offshore in Alaska.  The company is extremely eager to start drilling in this region because it is considered a mecca of untapped oil reserves (FT).  Shell signed a ten year lease to drill here almost five years ago and have yet to begin drilling.   This is due to government barriers and environmental concerns that have blocked the drilling here.  They've invested several billion dollars in this project, which is why they are so eager to get things moving.  The company has laid out a plan that consists of containing the oil, should there be a spill.  The details of this plan include a collector anchored to the ocean floor and a standby rig which would provide relief in case of a disaster (FT).  They have presented these ideas to the government for approval and are eagerly awaiting a response.  Many feel they won't have an issue, but one never knows. Shell is asking for a decision by December 1st.  The man that is vice-president of Shell Alaska even released a statement saying that the situation would not be good if they decided to sue for losses on leases they paid for due to the government barriers (FT).

     If Shell truly has the technology and expertise to start safely drilling offshore in Alaska, this could be huge progress for the industry.  As the reserves here stand in the billions of gallons, there is much money to be made. Another great thing about this is, it is domestic oil reserves.  However, in the wake of the Deepwater Horizon, all safety issues need to be dealt with, as drilling in the Arctic presents many challenges that were not even factors in the Gulf of Mexico.  Shell did pay for these leases and deserves the right to drill, but their vice-president's remarks came off with a threatening tone to me and I don't know how much the government and the public will appreciate that.  The industry will benefit as a whole from this because it presents potential to gain a lot of profit domestically, which will benefit the nation as a whole as well. That being said, the plan that they have come up with is a safety plan simply attached to their old drilling plan. The government needs to ensure that it all flows cohesively in order to guarantee that it is a solid plan that will work properly.  At the bottom of the Arctic lies great potential for the oil industry.  If Shell can safely and effectively tap these reserves, there will be numerous benefits for the energy industry.


http://www.ft.com/cms/s/0/3c15baec-d4a6-11df-b230-00144feabdc0.html

The Most UnConcerned, Now Concerned?

Wal-Mart, yes Wal-Mart, is installing solar panels in California, Hawaii, and Puerto Rico. It has also announced plans to mount panels another 20 to 30 locations in California and Arizona. The panels will be sourced from MiaSolé and First Solar, both American companies. Wal-Mart will take advantage of their newer, more practical and cost-efficient type of panel called thin-film solar panels. This newer type is an alternative to the more pricey and bulky silicon panels with no significant comprise in terms of energy absorption. Besides being much cheaper, the thin-film panels work better in fog and smog and don’t interfere with skylights. Due to their thin and light nature, they are also much easier to handle and install. Like everything, this new technology is not perfect. Cold temperatures can affect the mixture and make it much less effective. Scientists are working are currently working on this problem.

Now, as it was explained latter in the article, Wal-Mart is most likely just doing this to save face. In a forum that I attended headed by Tyson Slocum, an alternative energy expert, he stated Wal-Mart is one of the biggest polluters if not the biggest polluter in the world because of the massive amounts of goods it sells, which are mostly made in China and then shipped half-way-around-the-world to the United States. Clearly by adding some solar panels on roofs of maybe 50 or so of its over 8,000 stores will not a save even the most stubborn bush from Wal-Mart’s eco-slaughter.

On the positive, I must acknowledge Wal-Marts’s effort. If Wal-Mart, IF WAL-MART, is going green, then maybe all of us should. Maybe all of us are behind. Wal-Mart’s initiative will also help the newly expanding thin-film solar panel sector.

http://www.alternative-energy-news.info/walmart-to-install-thin-film-solar-panels/

Barclays Pays $1.15 Billion for Natural Gas Production

A recent Wall Street Journal article reports that Barclays PLC has bought natural gas production in Texas from Chesapeake Energy Corporation, which was willing to sell it because of debt. Betting that natural gas prices will jump upward, Barclays purchased $1.15 billion in “Barnett shale natural-gas production,” from Chesapeake (WSJ). The Barnett shale is a massive natural gas reserve that covers over 5,000 square miles and 20 counties in Texas. It could contain as much as 40 trillion cubic feet of natural gas (BSEEC).

Chesapeake has been selling production like this to lower its debt load. This is all in hope of increasing investment in the company from the market. Ultimately, this move is still in recovery from the recession, which hit Chesapeake hard. The most interesting part of this article is that each company in the deal has a very different strategy. Barclays is betting that prices will rise or stay steady in order to sell at a profit. They hope that gas demand rebounds and that drillers slow so that supplies shrink and prices increase (WSJ). Chesapeake is trying to grow while the natural gas prices stay low. To demonstrate how low prices have gone for natural gas, Barclays paid 20% below the market price for this massive amount of gas. However, this price is still higher than the average market price this year for similar assets (WSJ). Overall, the price of natural gas has declined this year because of increased production.

This is a rather simple article, but I think it holds some interesting lessons. First, it shows how companies can be motivated to pursue a deal like this. Clearly, both Barclays and Chesapeake have different ideas about what the price of gas will do. It just goes to show how an acquisition, whether of a company or some sort of production mechanism, is just a bet. This article also demonstrates what we have been discussing in the blog: natural gas. It reinforces our convictions that prices of natural gas are currently low and that it is a growing industry. I do not have any problem with this deal at all. It just underscores our belief that natural gas is a growing industry.

"Facts About Barnett Shale." Barnett Shale Energy Education Council. Barnett Shale Energy Education Council. Web. 6 Oct 2010.

Day, Matt. "Barclays Makes Big Bet on Shale." Wall Street Journal (2010) Web. 6 Oct 2010. .

IBM Contributes to Energy

Two energy companies, Alstom and Ikerlan-Ik4, are investing in IBM’s high tech wind turbine control systems. These state of the art wind turbines consists of electronic sensors developed by IBM. The sensors play a key role in determining the wind direction, speed, temperature, and any other dynamics that contributes to the efficiency of the wind turbine. The central control systems keep track of each individual turbine and manages the power produced. They also record data from each turbine to have available. The central control system is also what attracts companies such as Alstom and Ikerlan-IK4 because it keeps them organized in what is going on with their power production. They also favor the turbine technology offered by IBM because they are able to customize the turbines according to the geographic location and climates.

I believe it is great that IMB is expanding their business in order to contribute to helping the Earth. Apple contributes by recycling electronics, but IBM contributes by applying their technological innovations to renewable energy. These innovations can really help in making alternative energy more effective and also help the world’s transition into renewable energy more quickly. Though I am impressed by IBM’s contribution, I am not surprised by this innovation. I had already believed that wind turbines in general were originally connected to a central system wirelessly. So this innovation does not surprise me, but it could just be a small step to something greater that IBM has in mind.

http://wind.energy-business-review.com/news/ibm-collaborates-on-wind-energy-technologies_061010

California to Get Two Solar Plants on U.S. Public Land

The world nowadays is looking for alternative energy sources to compensate the future oil shortfall. Oil peak is a theory predicting that oil will reach a point of maximum production, consecutively oil production will head for a steep downturn as the world's oil reserves are going to be consumed. Ventures nowadays are looking for several alternatives of oil including green energy sources with a minimal impact on the surrounding environment. If proved efficient, energy sources such as thermal, geothermal and solar will replace the dependance on oil as a main source of energy.

Chevron one of the leading oil corporations in association with the Irish green energy developer NTR PLC. proposed the construction of two solar power facilities in california on public land. Recently the U.S provided approval for this huge leap in the energy industry. Both facilities are the first to be approved by the U.S on public land. It is expected that both facilities will eventually double the solar power generation in the United states. Going deep, both facilities are solar and will apply the use of large curved mirror dishes which absorb energy and transmit it into a converter which transforms solar energy into electrical energy.

Both projects will be environmental friendly. In addition, the solar facilities will bring 1 billion dollars into the economy in California and will proved 950 jobs. Governor Arnold Schawarzenegger in a brief discussion said that both solar facilities will provide electricity for more than 500,000 homes. The federal reserve bank is providing energy companies financial grants for constructing alternative energy sources. This venture by the FRB will expire in one year. All of this aims to comply with the 2006 California climate law to cut down green house emissions.

Iraq's First Oil Reserves Report In A Decade

According to a recent WSJ article, Iraq has released its first report on it's oil reserves since 2001.  This report raises the estimate more than 24%, placing them as the number three reserve holder in the world (WSJ).  The number went from 115 billion barrels to 143.  However, this report raises many questions as to its legitimacy and purpose.  Some feel that the oil minister has inflated this number without having actual evidence to back it up.  These skeptics claim that they haven't had the time or resources to fully conduct surveys that would provide accurate numbers.  Another concern is that they put out such a high number to boost national confidence in the still unstable Iraqi government.  Despite these concerns, many international oil firms have made the investment in Iraq. These companies include BP, Exxon, Shell, and Lukoil (WSJ).  One of the main things that challenges this operation is that the country has been war-torn for the past decade and it's infrastructure is severely damaged.  However, the government has high hopes that with these international deals, it can boost it's output from 2.4 million barrels a day to 12 (WSJ).  It surely has the reserves for this but not the infrastructure, yet.  Regardless of all these obstacles, most feel that within a couple years the country can have this industry back in full swing, given new technologies and production techniques.

This will have a huge impact on the energy industry.  With this country having been a war zone for the past nine years,  it hasn't been able to produce on a level to compete with the world.  Now that the war is ending, many new opportunities are arising.  Not only is this an excellent way for them to rebuild their country, it is an excellent way for the investing companies to gain large profits and greatly expand their businesses.  The fact that these oil figures are questionable does not seem to be stopping giants like Shell and Exxon from getting involved.  Currently they are conducting research of their own and regardless of whether or not these numbers are inflated, there is money to be made on oil in Iraq. One fact that isn't questionable is that they have reserves greater than most countries in the world, so it will be a safe bet.  I am hoping that they truly use this opportunity to their advantage and use the profits to rebuild their country.  However this plays out, it is a huge sector of the oil industry that is being renovated here and it will doubtlessly have a severe impact on the energy industry.

http://online.wsj.com/article/SB10001424052748704631504575531513360536600.html?KEYWORDS=iraq+lifts+position+as+oil+player