Double E Pipeline Cancelled, Now WTI will be Cheap for Longer
created: 22 Aug 2011 08:29
tags: energy-transfer enterprise pipeline usa
I read some news that really shocked me over the weekend
Enterprise Products Partners L.P. (NYSE: EPD) today announced it will not be moving forward with a proposed joint venture with Energy Transfer Partners L.P. to develop and construct a 584-mile crude oil pipeline from Cushing, Oklahoma to Houston
We have an unprecedented spread between WTI and Brent, caused by a lack of transport infrastructure. If you could magically make a pipeline today, oil companies would happily pay $10 a barrel to shift their crude to the coast.
The Double E Pipeline Project, unlike its Keystone Pipeline rival can be completed pretty quickly, due to the use of existing pipelines for half of its length. It looks to me like the biggest no brainer in the history of pipelines. Yet it is not to be:
While the recently completed binding open commitment period generated significant shipper interest, agreements with the capacity and terms necessary to commercially support the project as planned were not sufficient.
Is there no appetite for risk in this business? Is there not a more entrepreneurial financing option? It would certainly be a project that I would be interested in, were I sufficiently endowed.
I had thought that this pipeline would go a long way towards solving the WTI problem in 2013. But now it seems we have to await Keystone, a project that faces problems on a much bigger scale.
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The Environmental Impact of Shale Gas
created: 12 Aug 2011 14:11
tags: environment gas shale usa
Shale gas has got a huge amount of bad publicity recently. Some of it might be warranted, but much of it seems to be detached from reality. Those whose allergy to fossil fuels is absolute, are dismayed at the possibility of significant reductions in CO2 emissions, without giving up on the devil's fuel.
So it is nice to see reports that take a more mature reflection of the reality.
The Shale Gas Subcommittee of the Secretary of Energy Advisory Board has published a report.
They come up with a number of recommendations about the sector which seem very sensible, including greater transparency and better communication between federal and state regulators. Encouraging best practise is also called for.
Its a recognition that Shale gas is important, and must be handled properly.
Meanwhile in answer to an earlier report that criticised the CO2 impact of Shale Gas, This Report from IOP Science, estimates the life cycle greenhouse gas (GHG) emissions from the production of Marcellus shale natural gas and compares its emissions with national average US natural gas emissions.
Their conclusion?
It represents an 11% increase in GHG emissions relative to average domestic gas (excluding combustion) and a 3% increase relative to the life cycle emissions when combustion is included.
Not the terrible monster reported by the press then
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Should BP Split itself Up
created: 02 Aug 2011 09:17
tags: bp conoco marathon
The Economist asks the ultimate questions about BP this week; Should BP split?. It quotes an analyst who claims that BP is currently $100 billion below its net asset value.
Of course it was Marathon Oil, that started this whole debate. Marathon is now trading as two separate companies. Following in their example was Conocophillips. The CEO stated the logic behind the deal as:
"Consistent with our strategy to create industry-leading shareholder value, we have concluded that two independent companies focused on their respective industries will be better positioned to pursue their individually focused business strategies,"
The Economist questions the wisdom of this approach, saying that splitting is difficult and would not solve the problems, rather they say:
Rather than splitting in two, a better bet would be to sell assets one by one to Asian or Russian oil firms with deep pockets and global aspirations.
However I think they miss the point entirely. Splitting is all about focus. There is little synergy between upstream and downstream, businesses that are fundamentally different and need completely different business cultures.
The number of Asian or Russian acquirers of downstream assets is limited and the supply of refiners potentially for sale is large. Selling under such conditions leads to low sale values. A focused management team would almost undoubtedly be able to generate greater value whether selling or operating the assets.
The only reason that companies have been so unwilling to go down this route is inertia. The strategic logic of vertical integration disappeared decades ago. Now if BP would just bite the bullet, they have $100 billion in value to unlock.
