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The Future of Big Oil? At Shell, It Is Not Oil

Published: 08:20 21 Jul 2016 BST

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The Future of Big Oil? At Shell, It Is Not Oil
Here is the opening of this interesting article from Bloomberg:

At Australia’s Curtis Island, you can see Big Oil morphing into Big Gas. Just off the continent’s rugged northeastern coast lies a 667-acre liquefied natural gas (LNG) terminal owned by Royal Dutch Shell, an engineering feat of staggering complexity. Gas from more than 2,500 wells travels hundreds of miles by pipeline to the island, where it’s chilled and pumped into 10-story-high tanks before being loaded onto massive ships. “We’re more a gas company than an oil company,” says Ben van Beurden, Shell’s chief executive officer. “If you have to place bets, which we have to, I’d rather place them there.”
Van Beurden is betting on gas projects such as Curtis Island to address the central challenge facing all oil giants: how to survive in a world moving ever faster toward new ways of producing and consuming energy. A crucial element of Shell’s pivot toward gas was its $54 billion takeover of BG Group. The deal, which closed in February, gave the company Curtis Island, other massive LNG plants, and gas fields from the U.S. to Kazakhstan. It now has a 20 percent share of the global LNG market, scores of giant gas tankers prowling the seas, and double the production capacity of its closest competitor, ExxonMobil.

David Fuller's view
People of my generation grew up with the seemingly secure ‘miracle’ of cheap and abundantly available crude oil.  However, from the mid-1970s onwards this vision faded into increasing anxiety over finite resources which were rapidly being depleted.  We were told by visionaries, energy experts, scientists, religious leaders, political parties and national governments that we faced a grim future in which the lights would go out against a background of declining GDP growth and economic collapse.  These views were still widely held beyond the turn of the century.   
This 20th century version of Malthusian catastrophe theory is no longer credible today, thanks to our accelerating rate of technological innovation which is arguably mankind’s greatest achievement.
 

Email of the day 1
On George Osborne and pensions:

Dear David Re: George Osborne Whatever else you may think about him, I and many others will be eternally grateful to him for abolishing the compulsory purchase of annuities at age 75. In 1998, when he was Shadow Chancellor, I wrote to him asking what his view was about compulsory purchase. I received a courteous reply saying it was his intention to abolish the requirement, which of course he did shortly after coming into office and just in time for my 75th birthday ! I wrote a similar letter to the then Chancellor, Ed Balls, and got no reply. But in a later speech he scornfully referred to it as a problem that only concerned "a few rich people" ( his exact words) !


David Fuller's view

Well, you are certainly one of my heroes for having had the foresight to write to George Osborne in 1998.  Many of our generation remember worrying about the insanity of compulsory purchase of annuities at the age of 75.  His reply was gracious and Labour Chancellor at the time, Ed Balls, replied in a manner all too familiar. 


Email of the day 2
On a missing PDF for Tuesday’s leader:

In yesterday's copy, the lead article on IMF growth forecast doesn't have the link to the full article mentioned by David in his opening comment. Is it possible to send it to me?
Many thanks.


David Fuller's view
My apologies, and thanks for letting me know.  The PDF for Tuesday’s leader article from The Telegraph has now been posted.

 

Britain Needs A Can-Do Attitude revolution, With Solutions Rather Than Whining
Here is a latter section of this inspired column by Allister Heath for The Telegraph:

The challenge for the optimists is to reunite the two Britains. They need to inspire and assuage the angry Remainers, showing all but the most die-hard that the future can be rosy; and they must reach out to those Leavers who feel that they haven’t benefited enough from globalisation.
All groups in society have a responsibility to take part in this project to rebuild Britain for a post-Brexit 21st century. Entrepreneurs and firms need to propose the reforms they believe are required to allow our economy to prosper outside of the EU: we need to hear solutions, not whining, from business. The same is true of other professionals, from university administrators to architects to the police forces, as well as from the charitable sector. Britain needs a “can‑do” revolution, with as many positive ideas as possible from all quarters and perspectives. The question is no longer whether or not to Brexit – it’s how to make it work as well as possible for the whole country.
The Government, for its part, needs to unveil a three-fold programme to woo the sceptics. The first pledge should be to turn Britain into the nation that is the most open to trade of any Western economy in five years’ time. To reach this target, the Government would seek to limit the reimposition of tariff or non-tariff barriers with the EU, while urgently pursuing as many free-trade deals as possible with faster-growing economies worldwide.
The second pledge should be to make the UK the most entrepreneur-friendly country in the West by 2020. This would include tearing up red tape, cutting tax, making it easy for tech firms to continue to hire skilled migrant talent, and encouraging universities to become incubators for start-ups.
Last but not least, the Government should make an explicit promise to Britain’s poorer groups and regions that their opportunities will drastically improve. The free school programme should be turbo-charged by allowing for-profit companies to open new ones, starting in the north of England and Wales before being rolled out nationally; new selective schools should be opened, as part of an extension of parent choice; much more land should be made available for building in the south of England; and expensive green energy rules should be ditched. Britain is also in desperate need of several low-tax, low-regulation new enterprise zones near universities in poor parts of the North and Wales, with a vision and management structure similar to London’s Canary Wharf.


David Fuller's view
Governance is Everything, as this service never tires of saying.  Britain is fortunate to have a Prime Minister as intelligent, experienced and increasingly respected as Theresa May.  There are also plenty of other successful leaders, some in Parliament and many more from all professions and backgrounds across the country.  Britain has a proud history of entrepreneurial spirit and will relish the independence that Brexit promises.   There is no external obstacle in the path of this country’s future success.
A PDF of Allister Heath's column is posted in the Subscriber's Area.

 

Brazil Real's Volatility Falls to One-Year Low on Temer Optimism
This article by Paula Sambo for Bloomberg may be of interest to subscribers. Here is a section:

Volatility in Brazil’s real dropped to the lowest level in a year as the central bank acts to limit gains in the world’s best-performing currency amid speculation that a new government will pull the nation from its deepest recession in a century.
Three-month implied volatility on the real declined 0.05 percentage point to 16.78 percent, the lowest level since July 22, 2015, at 12:25 p.m. in Sao Paulo. The currency advanced 0.3 percent to 3.2393 per dollar.
Brazilian assets have led gains globally this year amid speculation that Acting President Michel Temer will trim a budget deficit, end credit-rating downgrades and restore confidence. Concern that the currency’s rally would hamper exports at a time when Latin America’s largest economy already faces its worst recession in a century has led the central bank to sell almost $50 billion of reverse swaps to stem gains. While the offerings are unlikely to change the direction of the real, they can mute volatility, Morgan Stanley strategists led by Gordian Kemen wrote in a report published last week.
“The domestic reform narrative in Brazil is an important qualifier for the currency and for the decrease in its volatility," said Mike Moran, the head of economic research for the Americas at Standard Chartered PLC in New York.


Eoin Treacy's view
The Brazilian Real is the best performing currency this year; gaining over 30% year to date. The chronic mismanagement of the economy that prevailed under Dilma Rousseff’s administration is now in the past and the new government has the opportunity to introduce unpalatable reforms early in its tenure so that it might benefit from the results by the time the next election needs to be called. Whether that eventually translates into improving governance and a sustained reduction in corruption and graft is an altogether different question, but we can conclude that at least for now governance is improving from a low base.
 

TerraForm Global Rises amid Talks with SunEdison to Sell Stake
This article by Christopher Martin for Bloomberg may be of interest to subscribers. Here is a section:

TerraForm Global and SunEdison are in talks regarding “a jointly managed sales process and accompanying protocol for managing the marketing process,” according to a presentation posted on TerraForm Global’s website Tuesday. SunEdison is currently involved in the biggest ever sale of clean energy assets after filing for bankruptcy protection in April with $16.1 billion in liabilities. It has not announced a process for selling its controlling stake in TerraForm Global or its sister yieldco TerraForm Power Inc.
TerraForm Global, a yield company formed by SunEdison to buy clean power plants built by SunEdison outside of the U.S., owns 917 megawatts of solar and wind energy plants, mostly in southeast Asia and South America. The company had revenue of as much as $52 million in the first quarter, according to the presentation.
It also reported preliminary losses of as much as $350 million for the second half of last year, and a preliminary loss of as much as $8 million for the first quarter of this year.
TerraForm Global has not filed results since the third quarter because it relies on SunEdison for some accounting systems, and the parent company’s results are also delinquent.


Eoin Treacy's view
Financial engineering contributed to SunEdison’s demise because it divested itself of income producing assets while holding onto liabilities. That worked fine while oil prices were high, demand for solar plants was surging and credit was easy to come by. The decline in oil, natural gas and particularly coal prices questioned the profitability of solar plants and the share collapsed.

Email of the day on the Dollar and Yen
I very much enjoyed last Friday's and yesterday's audio recordings. I think too that we are close to entering the final phase for this bull run notwithstanding a potential pull-back first. The expected further liquidity injections by the global central banks has intensified the hunt for yield. Emerging markets should do well as they offer both yield and the potential for large capital gains. Incidentally, if as David suggests, the $ index (developed markets) rises towards 100 again, will the EM currencies also weaken? Or as they have already fallen substantially in recent years, the dollar's rise against the developed market currencies will not impact EMs much? Your thoughts would be appreciated. I'm also interested in your views on $/Yen on a medium term basis.


Eoin Treacy's view
Thank you for your kind words and I agree the strength of the Dollar is a major consideration in assessing the outlook for global markets.

It is worth considering that the Dollar Index is composed of Euro (57%), Yen (13.6%) and Pound (11.9%), none of which one is likely to consider a strong currency at present.


Eoin's personal portfolio: stop triggered in precious metal position


Eoin Treacy's view
Details of this trade are posted in the Subscriber's Area.


Email of the day on acronyms
I am a pre-subscriber, but wish to raise a point which I am sure will resonate with at least some of your regular subscribers. I get very frustrated when a jargon acronym is used in an article, and I cannot fathom out what it stands for. I don't really wish to be subjected to an IQ test (it is too embarrassing!). I realise that this is a topic that applies to financial and commercial sites generally, but as a highly-enlightened example of the genre, Fuller Treacy Money might be prepared to make some adjustments in this direction?! A recent example was AR, in an article extract on the latest video-gaming technology. It has me stumped. Perhaps a glossary might be provided? (I realise this would be (rightly) inaccessible to pre-subscribers). I remember in a "communications course" many years ago being told we should never ASSUME (prior knowledge in an audience or listener), as it makes an "ass" of "u" and "me"! (Please forgive the u/c, as it seems as if I am shouting - but I do not have the luxury of using italics for emphasis.) I have been reminded of that on so many occasions since. I am a private tutor, and it is very relevant in that area of work.


Eoin Treacy's view
Thank you for this note and we take a great deal of care to avoid acronyms in our own copy for exactly the reasons you outline. I hope you will understand that we post snippets from a wide variety of both institutional and retail sources and have no control over how they impart their information. Composing a glossary of all acronyms is beyond our capability I’m afraid but in this case AR stands for augmented reality while VR is virtual reality.

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