Daily Archives: November 23, 2011
by Eric Platt
The dark clouds in the Federal Reserve’s 2012 annual stress test are keeping bankers up at night, as banks are being asked to imagine their balance sheet situation under some horrible economic scenarios.
Here are some of the key metrics, complete with headline numbers, for what would happen in the Fed’s worst scenario:
U.S. Real GDP:
- 4Q11: -4.84%
- 1Q12: -7.98%
- 2Q12: -4.23%
- 3Q12: -3.51%
- 4Q12: +0.00%
- 1Q13: +0.72%
- 2Q13: +2.21%
- 3Q13: +2.32%
- 4Q13: +3.45%
- 4Q11: 9.68%
- 1Q12: 10.58%
- 2Q12: 11.40%
- 3Q12: 12.16%
- 4Q12: 12.76%
- 1Q13: 13.00%
- 2Q13: 13.05%
- 3Q13: 12.96%
- 4Q13: 12.76%
U.S. 10-Year Treasury Yield:
- 4Q11: 2.07%
- 1Q12: 1.94%
- 2Q12: 1.76%
- 3Q12: 1.67%
- 4Q12: 1.76%
- 1Q13: 1.74%
- 2Q13: 1.84%
- 3Q13: 1.98%
- 4Q13: 1.97%
Dow Jones Industrial Average Price:
- 4Q11: 9,504.48
- 1Q12: 7,576.38
- 2Q12: 7,089.87
- 3Q12: 5,705.55
- 4Q12: 5,668.34
- 1Q13: 6,082.47
- 2Q13: 6,384.32
- 3Q13: 7,084.65
- 4Q13: 7,618.89
EU Real GDP:
- 4Q11: -1.03%
- 1Q12: -3.49%
- 2Q12: -5.40%
- 3Q12: -6.91%
- 4Q12: -4.92%
- 1Q13: -0.88%
- 2Q13: +0.35%
- 3Q13: +1.11%
- 4Q13: +1.50%
Remember, banks have less than two months to stress test their portfolios against these, and 21 other metrics. For a full list of scenario inputs visit the Federal Reserve’s site.
- The doomsday scenarios the Fed wants banks to test (business.financialpost.com)
- Fed Sets Jan 9 for New Round of Fin Inst Stress Tests (forexlive.com)
- The Fed’s Stress Tests: Too Little, Too Late (247wallst.com)
- Federal Reserve Board issues final rule on annual capital plans, launches 2012 review (bespacific.com)
- Top U.S. banks told to stress test against severe recession (business.financialpost.com)
- Federal Reserve Will Force 31 Banks To Stress Test Portfolios (GS, BAC, JPM, MS, WFC, MET, AXP) (businessinsider.com)
- Fed FAQ Re Fin Institution Stress Tests (forexlive.com)
- Fed Tells Top U.S. Banks to Submit Capital Plans (businessweek.com)
Pacific Drilling S.A. today provided an update on the status of its ultra-deepwater drillships. The Pacific Bora commenced its three year contract with a wholly owned Chevron subsidiary on August 26, 2011, and continues to operate in the Agbami Field in Nigeria. The rig has reached performance levels in line with industry expectations.
In addition, following previously announced repairs and upgrades, the Pacific Scirocco is mobilizing from quayside in Port Ngqura, South Africa, to Nigeria, where it is expected to commence a one year contract with Total E&P Nigeria Limited in December 2011.
The Pacific Santa Ana will complete upgrades prior to expected delivery in December 2011, before mobilizing to the US Gulf of Mexico for a five year contract with Chevron as the world’s first dual gradient drilling rig.
The Pacific Mistral arrived in Rio De Janeiro, Brazil, on November 21, 2011. The rig will now undergo regulatory approvals and acceptance testing with its client, Petrobras, prior to beginning operations, which are expected to start in December 2011.
- Dolphin Drilling to Provide Two Drillships for Anadarko’s Mozambique Operations (mb50.wordpress.com)
- Fred Olsen Wins Contract for Belford Dolphin and Newbuild Drillship (gcaptain.com)
- Ocean Rig Bidding to Rent 5 Drillships to Petrobras, Brazil (mb50.wordpress.com)
- Drillship animation in the Gulf of Mexico (video) (mb50.wordpress.com)
- South Korea: Naming Ceremony for Odfjell Drilling’s New UDW Drillship (mb50.wordpress.com)
- Inauguration of Noble Globetrotter I at Schiendam, the Netherlands (mb50.wordpress.com)
- Deepwater Millenium Drillship Not Moving to Brazil. Stays in Ghana (mb50.wordpress.com)
Government of Yement today informed Nexen that the company’s application to extend the Block 14 (Masila) Production Sharing Contract has not been accepted, and that a newly Yemen national company will take over the operatorship of the block upon the PSC expiry on December 17.
Marvin Romanow, Nexen’s President and CEO said: “While we’re disappointed we did not receive an extension, we’re proud of the accomplishments we’ve achieved there. Our operations at Masila have generated significant value for our company, enabling us to deploy the cash flow to build our current portfolio of legacy assets.”
Nexen explained on its website that decrease in the company’s all round production volumes as a result of the contract expiry will be reduced by the start-up of the Usan project, offshore Nigeria, which is expected to begin production in the first half of next year.
The Usan field was discovered in 2002 and is located some 100 kilometers offshore in water depths ranging from 750 to 850 meters. The field development plan includes a floating production, storage and offloading (FPSO) vessel with a storage capacity of two million barrels of oil.
- Nexen Inc. could see end of Yemeni operations – Calgary Herald (calgaryherald.com)
- Ship Photo Of The Week – FPSO Positioning (gcaptain.com)
- Yemen Crisis Situation Reports: Update 107 | Critical Threats (theromangate.wordpress.com)
- Nexen’s $3.3-billion North Sea project gets approved (calgaryherald.com)
- Nexen’s profit up slightly, cuts 2011 production (business.financialpost.com)
Abandoned wind farms in Hawaii dot the Islands.
According to recent estimates, there are currently 14,000 abandoned wind farms dotting the landscape in the U.S.
So, what happened? Well, first off, birds get killed by these huge machines and the PETA crowd goes insane. The Altamont site, for example, is shut down four months out of the year to protect migrating birds. Second, when government subsidies stop, the projects die. Third, wind power has proven to be unreliable as a consistent source of power. There’s either too little wind, too much wind, or it’s too cold to operate them.
In Britain, the energy industry admitted as long ago as 2008 that wind turbines are idle up to 30% of the time because of the unreliability of the wind. A report from the British Renewable Energy Foundation at the time describes the economically disastrous wind turbine industry.
It is unlikely that the Obama Administration will let facts get in the way of their war against fossil fuels and their love affair with solar and wind power. Expect more taxpayer dollars to be flushed down the rat hole of solar and wind boondoggles. Expect to see more abandoned wind farms in the future — as long as Obama remains in office and the EPA is run by the climate alarmist zealot Lisa Jackson.
- Dutch Are Falling Out Of Love With Wind Farm Subsidies
- Five Problems with Wind Power
- Wind Farm Project In Washington Killed Over Endangered Sea Bird
- Wind Farms Disrupting Radar, Scientists Say
- What Happens When Wind Farm Freaks Clash With Bat Freaks?
- Wind Power – Global Market Size, Turbine Market Share, Installation Prices, Regulations and Investment Analysis to 2020 (prnewswire.com)
- Wind farms blasted in Algoma District (windconcernsontario.wordpress.com)
- Wind Energy Update: Which Comes first? The Wind Farm or the Turbine? (prweb.com)
- Osage Nation Sues to Block Wind Farm (indiancountrytodaymedianetwork.com)
- Offshore Wind Industry – Growth Potential Hampered by Issues in Supply Chain and Financing (prnewswire.com)
- Wind farms are useless, says Duke of Edinburgh (telegraph.co.uk)
- Sustainability Update : ‘Wind farms are useless’, says Duke (environmentaleducationuk.wordpress.com)
- Don’t tell the Queen but the Duke of Edinburgh thinks wind turbines are useless (ricrx.wordpress.com)
- Wind power – observation from the road (michaelsrickert.wordpress.com)
- Trump to fund wind farm opponents (bbc.co.uk)
- Anne Murray protests proposed Pugwash wind farm (cbc.ca)
- More Golden Eagle Deaths At Tehachapi Wind Farm (naturalhistorywanderings.com)
- Donal Trump To Use Billions To Bankroll Anti-Wind Farm Campaign In Scotland (huffingtonpost.co.uk)
Soc Gen analyst Thierry Bros said in a report Tuesday that, with US Gulf Coast LNG expected to materialize in 2016, China will likely first look into a potential US LNG deal before signing a gas supply agreement with Gazprom.
The bank estimates the minimum breakeven cost for US Gulf Coast LNG delivered into China, taking shipping into account, would work out at around $11.6/MMBtu. This allows plenty of room for negotiations between companies selling US LNG and the Chinese from $13.50/MMBtu — which would allow a minimum of 15% return on investment — and $22/MMBtu — which takes into account full oil indexation — Societe Generale added.
“The $13.5 to $22/MMBtu negotiation range translates into a price of oil between $77/b and $133/b, or an oil-indexation formula with a slope between 0.10 and 0.17. This is large enough to match a Russian pipe-gas oil-index price,” Bros said.
As a result, Societe Generale believes China will prefer to look further into US LNG rather than rely on securing an agreement with Gazprom, which could further delay negotiations between Russia and China.
“Judging by the seeming lack of any progress in the gas pricing issue during [Russian Prime Minister Vladimir] Putin’s recent visit to China, it seems Beijing is in no particular hurry to sign the contract,” Bros said.
In 2006, Moscow and Beijing signed an initial agreement on gas supplies, when they agreed to construct two pipelines to transport a total of 68 billion cubic meters/year of gas from Russia to China over 30 years. Gazprom and China’s state-owned CNPC in 2010 subsequently signed a legally binding agreement on the supply of up to 30 Bcm/year.
Negotiations since then have not gone as smoothly and have been bogged down by pricing disagreements. Putin’s recent visit to Beijing in October didn’t resolve any of those issues although he said the parties were “on their way to the final stage of negotiations.”
The report published by Societe Generale comes in response to the latest agreement between Cheniere Energy Partners’ Sabine Pass Liquefaction unit in the US and Gas Natural Fenosa announced on Monday.
Under the LNG-sale-and purchase agreement, Gas Natural Fenosa would buy as much as 3.5 million mt/year of LNG. The deal is expected to help facilitate the construction of the first two liquefaction trains at the site, which would produce 9 million mt/year of LNG in the first phase. Construction of the two trains at Sabine Pass is estimated to begin in 2012.
- USA: Societe Generale Says Cheniere Can Make Sabine Pass Export Decision After Fenosa Deal (mb50.wordpress.com)
- Gas Natural Fenosa Deals with Cheniere Energy to Buy US Shale Gas Sourced LNG (mb50.wordpress.com)
- USA: Cheniere, BG Ink LNG Sale and Purchase Deal (mb50.wordpress.com)
- Cheniere Energy up on LNG export deal (marketwatch.com)
- USA: Cheniere Enters into Contract with Bechtel (mb50.wordpress.com)
- USA: Total Close to Sign Sabine Pass LNG Deal (mb50.wordpress.com)
While the green movement naively harbors hopes it will be able to shut down unconventional oil and gas development, in Saudi Arabia they are already contemplating a time when North American fossil fuel will replace their oil.
Looking past the din of protesters, state-owned oil giant Saudi Aramco is resigned to the fact that its influence will wane because of the massive unconventional fossil-fuel development underway in North America. As such, Saudi Arabia has no plans to raise its production output to 15 million barrels per day from 12 million, said Khalid Al-Falih, the powerful chief executive of Aramco.
“There is a new emphasis in the industry on unconventional liquids, and shale gas technologies are also being applied to shale oil,” Al-Falih, president and CEO of Saudi Aramco, warned a domestic audience in a speech in Riyadh Monday.
“Some are even talking about an era of ‘energy independence’ for the Americas, based on the immense conventional and unconventional hydrocarbon resources located there. While that might be stretching the point, it is clear that the abundance of resources and the more ‘balanced’ geographical distribution of unconventional’s have reduced the much-hyped concerns over ‘energy security’, which once served as the undercurrent driving energy policies and dominated the global energy debate.”
Aramco is the powerful state entity that manages the Kingdom’s nine million barrel-plus oil output. Saudi Arabia has long dominated oil markets by leveraging its spare oil capacity and, as the OPEC kingpin, striking a delicate balance between the interests of oil consumers and the exporter group.
But the oil chief’s remarks reveal Saudi fears that the market dynamics are changing and its dominance over energy markets is under threat by new unconventional finds.
OPEC estimated in a recent report that global reserves of tight oil could be as high as 300 billion barrels, above Saudi Arabia’s conventional reserves of 260 billion barrels, which are currently seen as the second-largest in the world after Venezuela.
Global output of non-conventional oil is set to rise 3.4 million bpd by 2015, still dominated by oil sands, to 5.8 million bpd by 2025 and to 8.4 million bpd by 2035, when tight oil would be playing a much bigger role. By 2035, the United States and Canada will still be dominating unconventional oil production with 6.6 million bpd, the group forecasts.
Last year, even as the world consumed nearly 30 billion barrels of oil, not only was the industry able to replace this production but global petroleum reserves actually increased by nearly seven billion barrels, as companies increasingly turned toward higher risk areas, Al-Falih noted.
Clearly, the Kingdom is preparing for new market realities as the discussion on energy has changed from scarcity to abundance, particularly due to the new finds that can be produced feasibly and economically.
In the past, Saudi Arabia, along with its OPEC allies, could drive prices down by opening the taps to ensure unconventional fossil fuels remained firmly buried in the ground. But most analysts now expect oil prices to remain high, at least over the medium term, thanks to tight supplies and continued demand from emerging markets. That’s great news for Canadian oil sands developers, which need prices around US$60 to US$70 per barrel to make their business models economically feasible.
Saudi Arabia’s own break-even oil price has also risen sharply in the past few years, making it less likely to pursue a strategy of lower prices. The Institute of International Finance estimates that Saudi Arabia’s break-even price has shot up US$20 over the past year to US$88, in part due to a generous spending package of US$130-billion announced this year to keep domestic unrest at bay.
The Saudis now find themselves between a shale rock and a hard place: While high crude prices mean the Saudis can maintain their excessive domestic subsidies for citizens, in the long run that means the world is developing new sources, making it less dependent on Saudi oil.
Although the Saudis have vigorously fought the Ethical Oil ads, which paint them in a negative light, they already know their oil is less welcome in the Americas – Saudi oil made up a mere 9.3% of U.S. oil imports last year, down from 11.2% five years ago, according to the U.S. Department of Energy.
But while Saudis would be cheering on the green groups with ‘No KXL’ signs, they don’t hold out much hope for renewable energies either. Calling them ‘green bubbles,’ Al-Falih says governments should stop focusing on unproven and expensive energy mix, as there is frankly no appetite for massive investments in expensive, ill thought-out energy policies and pet projects.
“The confluence of four new realities – increasing supplies of oil and gas, the failure of alternatives to gain traction, the inability of economies to foot the bill for expensive energy agendas, and shifting environmental priorities – have turned the terms of the global energy dialogue upside down. Therefore, we must recast our discussion in light of actual conditions rather than wishful thinking,” the pragmatic chief said.
Somebody should explain this wishful thinking to the green movement.
- New oil reserves seen reducing Saudi Arabias importance (theglobeandmail.com)
- Saudis worry over North American shale oil surge (business.financialpost.com)