(Image via Government of Alberta.)
As the oil battle between Russia and The Organization of Petroleum Exporting Countries (OPEC) began this week, the United States released some interesting news that could change their status as a force to contend with in this conflict.
The US Energy Information Administration (EIA) reported on March 6th that US net petroleum exports hit
a record high in February 2020. In September 2019, the US exported 89,000 barrels per day (bpd) more crude oil and petroleum products than it imported and has continued to do so since.
Four-Week Average US Net Imports of Crude Oil and Petroleum Products:
(Chart via the US Energy Information Administration.)
Thanks to a surge in foreign demand, coupled with a decline in domestic demand, mixed with a jump in local production, the EIA noted in its 2020 Annual Energy Outlook that the United States
will continue to be a net oil and oil product exporter throughout this year.
From the report: The United States continues to export more natural gas than it imports in the AEO2020 Reference case—
(Chart via the US Energy Information Administration.)
“US imports of natural gas from Canada, primarily from its prolific western region, continue to generally decline from historical levels. US exports of natural gas to eastern Canada continue to increase because of eastern Canada’s proximity to US natural gas resources in the Marcellus and Utica plays and new pipeline infrastructure. However, this export growth slows in the mid-2020s as Canada’s demand for natural gas begins to decline, particularly in the electric power sector, as Canada begins transitioning to more renewables in its generation mix.”
The EIA added that oil production would continue growing until at least 2025, reaching 14 million bpd by 2020, then it would plateau and stay flat until around 2045.
2045 and Beyond:
After that point, productive areas will become exhausted and producers will have to eventually move to less productive shale patch areas to continue to survive. How long this will last isn’t exactly known, but it is expected by the EIA to slow the overall growth rate of production.
Can the US survive a price war?
Analysts believe the world is “awash in oil”, as Saudi Arabia pushes for its own record-breaking production … pumping more oil could accelerate its collapse in price.
Energy-sector journalists Clifford Krauss and Stanley Reed noted in their March 9th
New York Times article,
“Oil Prices Dive as Saudi Arabia Takes Aim at Russian Production”, that an ongoing price collapse would only put more financial pressure on US oil companies, many of which are in heavy debt in an industry where many others have already gone out of business.
Development in the Canadian oil sands has also been lagging over the high cost of business and environmental concerns related to projects. The ripple effect of an economic slowdown could be felt as far as other countries that depend on oil, such as Nigeria, Angola and Brazil.
One of Canada’s major exports is oil and prices remained low on Tuesday, but posted an 8% rebound in arly trading. Prices fell to around $34 a barrel for Brent crude, the international benchmark, with West Texas Intermedia, the US brand, around $30. If the US raced to flood the market it could provoke discontent with the Russian and Saudi governments, continuing the price freefall as revenues deplete even further.
Next moves?
For investors nervously thumbing through their portfolios, now could be an ideal time to consider shares of alternative energy companies.
Traders often had to pay a premium to get in on natural gas game, but given the current state of the fossil fuel sector, shares of local gas distributors
are cheaper than electric utilities for the first time in a decade.
The renewable energy sector has been seeing immense growth in recent years and trends indicate this uptick will continue. Solar power is the second largest new energy contributor to the US behind natural gas. According to the IEA’s
2019 Renewables Report, around 38% of new energy came from solar producers.
The largest publicly-listed developer of wind and solar power in the world,
NextEra Energy Inc. (NYSE: NEE), has seen its stock rise 159% over the last five years.
(NEE Stockhouse chart: Mar 2015 – Mar 2020.)
NextEra Energy’s board recently
declared its quarterly dividend and reported that it is continuing its above-average targeted growth rate in dividends per share through at least 2022.
In addition to natural gas, wind and solar,
Natural Resources Canada defines renewable energy as including geothermal and ocean energy. It provides about 18.9% of the country’s energy supply, 59% of that from hydroelectricity, making Canada the second largest global hydro producer.
Polaris Infrastructure Inc. (TSX: PIF) is a Toronto-based company that develops renewable energy projects in Latin America. In December 2019, it had
completed construction of two hydroelectric facilities and began commercial operations soon after. PIF generated $71.2 million in revenue from energy sales during 2019.
Headquartered in Montreal, Québec,
5N Plus Inc. (TSX: VNP) is a global producer of engineered materials and specialty chemicals with integrated recycling and refining assets for a number of electronic applications. The company recently reported its financial Q4 2019 results, stating that nearly all of its core businesses
outperformed in 2019, compared to the previous year. This, despite a very difficult environment in the metal markets.
How has the recent market activity affected your portfolio? Has it driven you to alternatives? Let us know in the comments below.
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