Biggest Losers of $100/bbl. Doubling Down on LNG. Teck Says “No” to Takeover.

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Today’s Key Takeaways:  Praise for Alaska’s leadership in Arctic/Energy issues. Asia’s developed economies stand to lose the most at $100 bbl. oil. Qatar doubles down on LNG. Teck says Glencore proposed takeover is “structurally flawed.”  On AK’s newest oil tax scheme “like Ford increasing the price of pickups by $15,000 and thinking it will sell the same number of trucks.”


Highlighting Alaska’s Energy Leadership in the Arctic
Heather Reams, Real Clear Energy, April 10, 2023

Those of us who live in the lower 48 states may not realize that the United States is an Arctic nation thanks to Alaska, and that the Arctic region is central to our country’s energy independence and national security.

Recently, I traveled to Anchorage to participate in the Arctic Encounter Symposium, the largest international gathering of domestic and international leaders with a focus on the opportunities and challenges of living and working in the Arctic Circle. 

As U.S. elected officials, allied diplomats, and energy leaders convened, the message was crystal clear: With Alaska’s leadership, we can continue to strengthen America’s energy independence, security, and economy. 

Throughout the Arctic Encounter, there was a strong emphasis on the nexus between Alaskan energy production and national security. Russia’s continued war against Ukraine threatens regional stability, but it also continues to sow uncertainty in global energy markets. Increased domestic energy production in places like Alaska, where the energy industry supports numerous rural and Native communities, can help restore market stability. 

The Biden Administration’s recent approval of the Willow Project on the North Slope of Alaska is significant for the state’s economy and shines a light on its energy leadership. Not only will this project create jobs and economic opportunity in remote communities, but it will ensure the United States can continue to help meet global energy demands. 

In addition to national security implications, energy production in the Last Frontier is some of the most carbon-efficient in the world, meaning the more energy we produce here at home that displaces imports, the more global emissions go down. In fact, a recent study by the U.S. Department of Energy found that exporting natural gas from the North Slope of Alaska would not increase greenhouse gas emissions at all, while still meeting energy demands.  



The Biggest Losers Of $100 Oil
Tsvetana Paraskova, OilPrice.Com, April 9, 2023

  • Oil at $90 and $100 will hit the economies of the large oil importers.
  • Triple-digit oil will complicate central bank efforts to quell inflation.
  • The biggest losers will be Asia’s developed economies heavily dependent on oil imports.

The world’s biggest oil exporters will benefit from the surprise OPEC+ production cut, but if oil prices move higher from here and reach $90 or even $100 a barrel, as some analysts predict, oil importers will start to feel the pain.

Brent Crude bounced back to $85, and WTI Crude hit $80 per barrel again, as the latest 1.66 million bpd of production cuts from nearly half of the OPEC+ members from May through December are expected to tighten the market in the second half of the year. Analysts, who had just slashed price forecasts in the wake of the banking sector jitters in mid-March, raised their price estimates, and started talking about $100 oil again.

Oil at $90 and $100 will hit the economies of the large oil importers. A renewed rise in energy prices could keep inflation in the U.S. and Europe stubbornly high and further complicate interest-rate policies of the central banks, which have just signaled that the end of the hike cycle may be near.

In terms of state finances, large oil importers will not be equally hit by higher oil prices.



Qatar doubles down on LNG amid energy market volatility
John Calabrese, Middle East Institute, April 10, 2023

The oil and gas sector has been the dominant driver of Qatar’s economy. Over the years, although that sector has remained the major focus of Qatari investments, the emphasis has increasingly shifted towards the expansion of the country’s gas production and liquid natural gas (LNG) export capacity.

Qatar’s North Field and its vast recoverable reserves of offshore gas have served as the engine of the country’s rapid economic transformation. Revenues from gas exports, which last year amounted to $132 billion, have turned Qatar into one of the world’s richest countries, with a GDP per capita of more than $84,000 at current prices; fueled the growth of the country’s sovereign wealth fund (SWF), which has ballooned to an estimated $450 billion; supported the growth of the private sector; and enhanced Doha’s ability to pursue its foreign policy goals.

While the construction boom ahead of the 2022 FIFA World Cup powered the Qatari economy in recent years, income generated by the expansion of the country’s LNG production and export capacity is likely to drive the economy for many years to come — both despite and partly because of the market turmoil caused by the fallout from Russia’s invasion of Ukraine in February 2022.



Teck Resources calls Glencore bid a “non-starter”
Cecilia Jamasmie, Mining.Com, April 10, 2023

Teck Resources (TSX: TECK.A, TECK.B)(NYSE:TECK) urged investors on Monday to support its plan for splitting into two companies at a vote later this month, adding that Glencore’s (LON: GLEN) proposed takeover was a structurally flawed deal and “a complete non-starter.”

Chief executive Jonathan Price, who took the company’s top job in September, said in a conference call that being acquired by Glencore would end up destroying value for the company’s shareholders.

The Swiss miner and commodities trader has proposed buying Canada’s largest diversified miner at a 20% premium to its market value. If Teck were to accept the $23-billion deal, Glencore plans to subsequently separate itself into two companies, with one unit holding assets in thermal and metallurgical coal, and the other its base-metals portfolio, along with its oil assets.

In an investor presentation published ahead of the conference call, Teck said the move would expose its shareholders to a larger thermal coal and oil trading portfolio, which is something many investors are trying to avoid in light of the global push to reach net zero emissions by 2050. 

Simultaneously, the deal would reduce the Vancouver-based miner’s shareholders’ exposure to copper and expose them to significant jurisdictional, ESG [environmental, social, and corporate governance] and execution risks, it said.

This makes Glencore an “unsuitable acquirer” because of the risks involved in its business, Teck noted.



Alaska oil tax debate must include effect on future industry investment
Roger Marks, Alaska Beacon, April 7th, 2023

A key provision of Senate Bill 114 would raise the oil production, or severance, tax by reducing the per barrel credit (PBC) by $3 per barrel. The administration calculates this would increase taxes $2.5 billion over the next 10 years but adds that the amount “does not include any changes in company behavior as a result of this proposal.” This is like Ford increasing the price of pickups by $15,000 and thinking it will sell the same number of trucks.

There has been no analysis as to how this would affect investment. Bill sponsors argue that Prudhoe Bay’s PBCs don’t correlate with investment there. But one’s field’s profits often are invested in another’s. You cannot simply extract that much money from investors and expect no reaction.

The credit is not a luxury where you can simply pluck out a few dollars without understanding how it operates within the larger structure of the fiscal system. The PBC does not operate as a normal “credit” in a traditional sense. It operates as a progressivity mechanism, to raise the effective tax rate as income increases. Initially there is a nominal 35% tax on net income. A 35% rate and no credit (coupled with the royalty, and property and state and federal income taxes), would not be economically viable at lower prices.

So, at lower prices there is a higher PBC, and at higher prices there is a lower PBC. It makes the effective tax rate increase as prices increase. This way it keeps the government’s share of pre-tax profits, “government take,” in line with national and international norms across a broad spectrum of prices.