American Shale to EU: No Help Coming // Hurt Me Plenty!: Inbound Oil Tanker Shortage? // Rail Strike On Hold

American Shale to EU: No Help Coming

Can the American shale industry bail out Europe this winter? Not according to them.

“It’s not like the US can pump a bunch more. Our production is what it is,” Wil VanLoh, head of private equity group Quantum Energy Partners, one of the shale patch’s biggest investors, told the Financial Times.

“There’s no bailout coming,” said VanLoh. “Not on the oil side, not on the gas side.”

Why not?

The industry isn't adding new rigs. As shown below in the Conversation Starters, America's operating rig count has finally risen above pre-pandemic levels. But we won't get much more than that. The industry took on huge debt in the 2010s, effectively subsidizing America's recovery from the 2008 financial crisis. Now owners want to break even.

Moreover, the Biden administration has been sending the industry mixed messages for months. Biden ran on ending fossil fuels but has also demanded the industry ramp up its production. What firm would lay out capital for an expensive project only to have it forcibly shuttered before it turns a profit?

Ben Dell, chief executive of private equity group Kimmeridge Energy, put it this way: “Investors generally don’t want shale companies to pursue a growth model. The capital availability is extremely limited.”

The majors--Exxon, Chevron, and a few others--are increasing production, but it's not enough to stem the tide. And not since Truman has a president leased fewer federal acres to the oil and gas industry.

This is tough news for Europe. Germany's in such bad shape it's considering nationalizing its major gas companies: Uniper, VNG, and SEFE. Berlin is looking to oil-fire "power ships" to survive the winter. Meanwhile, France, which is normally an exporter of electricity, is now looking to the UK for winter imports as the UK turns to them for the same. 

Hurt Me Plenty!: Inbound Oil Tanker Shortage?

Everyone's talking about energy these days, but what about how it gets to where it's going? Well, we've got bad news rolling in on that front too. 

"Demand for tankers has been on the rise since the European Union slapped sanctions on Russia in the spring, and this trend is only going to intensify in the coming months as the EU embargo on Russian oil and fuels enters into effect," writes Irina Slav.

Shipping firms have been snatching up icebreaker ships to move oil left and right in anticipation of the embargo, set to take effect in December. "European Union sanctions are about to make Russia’s crude and fuel exports harder because almost all of the bloc, which is still a major buyer, will no longer be able to import seaborne cargoes," reports Bloomberg. The market will tighten as ships strain to move farther than the Baltic Sea, which is home to Russia's major terminals.

“It will likely become a very, very tight market during the winter,” Jens Christophersen, an executive vice president at Hafnia Ltd, one of the world’s biggest owners of oil product tankers told Bloomberg. “The severity of winter will dictate the extent of the season, but in general, ice-classed tankers will be required during the first quarter.”

Worse yet, the tank shipbuilding industry has seen sluggish growth over the last few years. "Indeed, in early August, Bloomberg again reported that the global tanker market was seeing the strongest demand in more than two decades. Citing data from Clarkson Research Services, the report said the average profit for an oil product tanker in the two weeks to August 8 had jumped to $400,000 - the highest since 1997," writes Slav.

It's doubtful that number's the ceiling. Throw in the expected increases in fuel prices and the increasing entropy as the global oil market recalibrates in the wake of the embargo and we can expect a fair bit of chop come December.

Rail Strike On Hold

Crisis averted--for now. The rail companies and industry unions have reached a tentative agreement that has forestalled a strike that would wreak havoc on the American economy. At the eleventh hour, as labor secretary Marty Walsh brokered negotiations, a tentative deal was struck.

“This agreement is a big win for America,” President Biden said. “And this is a great deal for both sides, in my view.”

"The deal was praised by both freight companies and union leadership, reflecting a key compromise on issues of improved working conditions for rail workers, which had been the biggest sticking point in the talks," the New York Times reports. "Unions won the right to attend medical appointments without penalty, among other measures meant to ease the burdens of rigorous scheduling. Still, in a win for the companies, workers will have to take unpaid leave to attend those appointments."

Rank and file might not feel the same as union leadership, as this Tweet from Labor Notes reporter Jonah Furman reveals. The BMWE is the Brotherhood of Maintenance and Way Employees.

Or these comments:

"We owe it to our people to give them the contract that they deserve. They missed birthdays, they missed weddings, they worked their asses off. So we’re not going to accept less," Ken Edwards, an Indiana locomotive engineer, told Stike Wave.

Ratification of the deal is now up for a vote amongst the unions, which cannot strike during this period. To learn about what the strike could mean for the American electric grid, read our exclusive report with Radiant Energy Group here. 

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Conversation Starters

1. Renewable energy advocate and professor Mark Z. Jacobson is in hot water. Jacobson published a paper that said a 100% renewable grid was possible. One of his assumptions, 10x-ing hydro, was impossible. When a group of academics pointed this out, he sued the publishing journal for $10 million for defamation and then retracted the suit. Now he's on the hook for $428,000 of the journal's legal fees based on an anti-SLAPP suit. He's currently appealing the fees. Jacobson's work is often cited in major news outlets.

2. The Department of Energy just released a report on repowering retiring coal plants with nuclear reactors. "The team found that 80% of the potential sites, with over 250 GW of generating capacity, are suitable for hosting advanced nuclear power plants. These nuclear power plants vary in size and type and could be deployed to match the size of the site being converted," reads the report. 

3. The count of operating natural gas rigs has bounced back since the pandemic. On January 31, America had 112 operating natural gas rigs. "The number of natural gas-directed rigs continued to fall in the first half of 2020, reaching a low of 68 rigs on July 24, 2020, the fewest in Baker Hughes’s historical data, dating back to 1987. Since then, the natural gas rig count has generally been increasing, returning to pre-pandemic levels in January 2022. On September 9, Baker Hughes reported that 166 natural gas rigs were operating in the United States, 54 more than at the outset of the pandemic in the United States," reports the Energy Information Administration. 

Crom's Blessing