Week Recap: OPEC Shifts, LNG Approval, and Global Energy Politics

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Video Transcription edited for grammar. We disavow any errors unless they make us look better or smarter.

Michael Tanner: [00:00:09] What’s going on? Everybody welcome in into a special September 7th, 2024 edition of the Daily Energy News beat. Stand up. We made it through the week, Stu. Holy smoke! [00:00:19][9.5]

Stuart Turley: [00:00:20] Oh, it was a short, long week. How does that happen? [00:00:22][2.6]

Michael Tanner: [00:00:23] It really was. We had Monday off, but man, it it feels like, you know, I don’t know how we’re going to do next week, but we appreciate everybody sticking with us. Excellent show this week. Oil prices just took an absolute tumble OPEC coming out saying they’re not going to they’re going to cut production now. They’re not going to cut production. We saw a nice M&A deal here on Thursday. And my oh my there’s just much more coming down the pike. [00:00:45][22.1]

Speaker 2: [00:00:46] Unbelievable. what a day to be in trading. [00:00:48][2.9]

Michael Tanner: [00:00:49] Absolutely. So all right guys. Well as always the staff picks out some of our top stories throughout the week. So I will go ahead and turn it over to them. But first guys as always, all the news and analysis that you heard is brought to you by Energy newsbeat.com. The best place for all your energy and oil and gas news. Doing the team again. Always do a tremendous job making sure that website stays up to speed. Everything you need to know to be the tip of the spear when it comes to the energy and the oil and gas business. Hit that description below for all the links to the timestamps, links to the articles and, you know, just again, if you want to hit us up on Substack, the energy news, beat, the energy news, beat.substack.com. You can also hit invest in oil dot energy news, Beat.Com. For exclusive access to our direct working interest prospect that we are partnering up with, Pecos country operating our friends over there on a great opportunity. But we’re going to the guys. Hope you have a great weekend. Enjoy the weekly recap. I’m going to go ahead, turn it over to the team and we will see you on Monday. [00:01:44][54.2]

Stuart Turley: [00:01:44] Saudi Arabia expected to cut its oil prices to Asia for October. Michael, I have always said I’ve applauded the Saudis for taking care of Saudi Aramco first in Saudi Arabia first. You know, if every country watched out for themselves, it’d be a better world. Saudi Aramco, the world’s top crude oil exporter, is expected to cut the official selling price. OSP Michael official selling prices in OSP. I love that acronym that it’s like wow. Oh SC what the hell was an OSP official selling price of all its crude grades to Asia in October, including the survey of five refining services sources. Three of these, Reuters expects to the flagship Saudi grade Arab light to be a 50 to 70 barrel lower than the September. Pretty amazing when you sit back and take a look where this is also playing out is you’re seeing Russia. I am shocked is applying and they are looking at their production numbers to match the OPEC plus production cut. I’m like, whoa. Excuse me. Russia’s going to try to play in man and beam in and follow the production cut. No way. [00:03:03][79.1]

Michael Tanner: [00:03:04] Well it’s because it’s being clear that sanctions don’t work and they don’t need to abide by whatever the sanctions are because they can just they’re getting whatever the market price is. So we’ll leave that at its be. Yeah. I mean this is pretty expected for October. It looks like demand is coming in slightly weaker than we would have thought. Obviously there’s still a demand. Demand is growing on a month over month basis. But we’re not seeing the growth the margins on the margins. It’s going a little bit down. So you know it’s only a 50 to 70% cut I or a 50 to 70% cut. So I wouldn’t read too much into that. Obviously this has a little bit do with the fact that some of these other countries are it’s being widely acknowledged now, not just in the inner circles like this podcast and other ethers out there, but now it’s being officially mentioned by OPEC that people really are following the, you know, output quotas that OPEC has put out there. There’s something to be said. And and talk about rumor, the rumor mill spicing up still. I mean, there’s a lot of interesting analysis out there saying that Saudis getting ready to actually turn the taps back on, which would be great for the consumer. We’d see oil prices go down, precipitously. It would be devastating to the US shale business, obviously, as they’ve basically slowly. [00:04:12][68.3]

Stuart Turley: [00:04:13] An African state joins BRICs Bank. If they were going to let’s put a little conspiracy theory hat on, Michael. And you love you know, I love a good conspiracy theory. [00:04:22][9.8]

Michael Tanner: [00:04:23] I wait you you’re putting the hat on. I figured you you hadn’t you haven’t taken it off in months. [00:04:26][3.8]

Stuart Turley: [00:04:27] Oh no, I know the you putting the hat on. [00:04:30][2.8]

Michael Tanner: [00:04:30] I mean, I’ll put it on. I’ll put the conspiracy hat on. [00:04:32][2.0]

Stuart Turley: [00:04:32] And and we’ll take a look at BRICs. African state joins Bric Bay Algeria says its admission to a significant step to further integration of the global financial system. This is huge because guess who else has stepped up? And as applied to this Turkey. Turkey is absolutely a mess. And, you know, with them being in NATO and all of the problems that Turkey is problem in, this is a major thing. So the conspiracy theory would say is if the U.S., if Saudi Arabia wants to mess with. The U.S. dollar. Once these other countries pile in the BRICs monetary system and they plunge the oil market. Oh, what is it going to do? It’s going to really hurt the U.S. dollar. [00:05:23][50.2]

Michael Tanner: [00:05:23] Yeah. Now, I mean, on on the back side of this, you know, Algeria, as this article points out, is a is a long standing, has a long standing alliance with Russia. So I can imagine a lot of what’s the quote unquote, new economic development that’s going on in Algeria is really their close ties with your friend Putin in the Kremlin up there. [00:05:43][19.3]

Stuart Turley: [00:05:43] Oh, absolutely. Russia is is all over Africa like we should be. Putin is a better political leader than the United States. Do I agree? [00:05:53][10.1]

Michael Tanner: [00:05:53] Well, we disagree on that one. But. [00:05:55][1.9]

Stuart Turley: [00:05:56] Who’s winning countries in mind? Russia. [00:06:00][3.4]

Michael Tanner: [00:06:00] I don’t know if you know, I don’t know. I don’t know if anybody should be. Countries should be allowed to govern for themselves, not influenced by other countries. [00:06:07][6.7]

Stuart Turley: [00:06:08] But he is selling Russian products to Africa on unbelievable volumes. [00:06:14][6.0]

Michael Tanner: [00:06:15] And China is just building infrastructure around the around the globe to be nice. I mean, come on, everything comes with an attachment. [00:06:22][6.8]

Stuart Turley: [00:06:23] It does. And we’re not doing anything other than messing with people. [00:06:28][4.3]

Michael Tanner: [00:06:28] I’m not saying we’re I’m not saying we don’t put, you know, you know, military bases for free and other countries just for the sake of it. I’m saying, you know, when we talk about who’s winning the global influence, I mean, that’s like a catch 22. It’s like, who’s murdering the most people? It’s like, I don’t know, I wish nobody was doing any of it. [00:06:45][17.2]

Stuart Turley: [00:06:45] I couldn’t agree more. You and I are in 300% agreement. Let’s go to the oil rigs or where they were around Covid. This one is from Jeff criminal. I really like Jeff. Jeff is a cool cat. I found this article on his LinkedIn. We’ve got his LinkedIn in the article in the show notes. Let’s go through some of these numbers. U.S. drilling rig counts where they were nearly three years ago. Rig counts today are where they were in late 2021. They climbed 33% to the end of 20 from the end of 2021 to the end of 2022. Then they fell 20% and then they’ve fallen another 6%. And if you look at the chart, you can go over there and look at that first up and go, well, there’s Covid. [00:07:33][47.5]

Michael Tanner: [00:07:34] It’s really interesting. And you take a look at where prices were relative to where when Covid was happening and centered around where where, you know, prices were going to go relative to where Covid was to where they are now. It’s pretty unbelievable. You know, it’s I love this article that I love this image that he points out U.S. rig counts are going nowhere while the rest of the economy continues to progress. I mean, you talk about the stock price of both ConocoPhillips. You cut us nonfarm payrolls, GDP, dry gas production, U.S. crude oil production all up from a percentage standpoint, while U.S. rig count is absolutely zero now we’ve seen it rise and currently fall. I just think it’s super fast. This again goes to show the dynamics of what’s going on. The oil and gas industry is is is tight inflation, I think is the big driver of this because inflation hit service companies the most because he’s an operator. Your goal is efficiency, efficiency, efficiency. You want to make sure that that your cost is as low as possible. Problem is, when the cost of materials and specifically the cost of labor has gone up tremendously. And we can that’s where another discussion, where we talk about where the cost of labor was, where it is now, and why some of that has happened, is that when labor. And so let’s not even go into if that’s good or bad that labor has gone up. We you could we could bring on people that to talk about both sides of that equation. I’m generally in favor of people getting paid more than last. So not just, you know, but the problem is that cost of labor generally gets immediately passed on to the oil companies. Okay. So now all of a sudden the prices have moved slightly, which they have. They’ve obviously gone up. But if the overall inflationary environment has gone up, that means the overall cost to drill a well has gone up. I can I can speak to it extremely cogently. Just having looked at fees, have you seen higher fees over the last, let’s just say four years. And to, to to condense it down the same two mile lateral has basically gone up 30 to 35%, sometimes in the range of almost 50% year ranges by 30 to 40% on the top end. It’s almost gone up 50% from a cost. The problem is there’s if, if, if on average tier one assets are getting drilled up and there’s less and less availability for the average company, let’s just take out the Exxon’s of the world. The Chevron’s, the Eog’s the world. They’ve got enough tier one, quote unquote, inventory to last themselves. If now all of a sudden you’re trying to take 50% higher AFI costs and 25% less productive oil and gas wells on average, remember, that’s on an average basis. You’re always going to have wells that perform above type curve you. Always going to have well to perform below type. So now all of a sudden, if you’re averaging a lower type curve with a 50% higher cost, you’re going to be less incentivized to drill until I would say the stars align. And there’s a lot of reasons why you would drill a less productive well at a higher rate if cost. You know, at some point it’s what you do as an oil and gas company. You have to you have to do something. But it’s part it’s also partly why you’ve seen M&A action pick up over the last two years, because on average, it’s cheaper to buy producing assets and just buy the production, then try to add it via drilling. And and there’s a lot of different reason for that. So I think it’s a convolution of the things I think inflation driving up labor cost was kind of the start of this whole shift, where oil companies have kind of found themselves right now. And and you could see it, oil prices are up almost 1,000% relative to I mean, they were negative at one point. So they’re up infinitely relative to where they were at negative prices. But you haven’t seen rig counts move that much. And I think it’s a it there’s a lot of underlying guinea pigs. But I think it all goes back to underlying inflation in service. Companies are really hurting themselves. And you know shout out to connection crew and JP Warren. He hosted these great get togethers. I was at one in Fort Worth last week and we were talking specifically about the role. The conversation was really he does these kind of guided discussions. Before dinner, we were really talking about private equity and how things have changed within that business around the oil, but that really wasn’t interesting. I was having a conversation afterwards with, I’ll leave the company out of it because I don’t want to out them. But it was it was a director of sales at a leading service company, and he was having a conversation. Two weeks ago, he was telling me with the CEO and owner of this company and, you know, oil companies use these service companies as piggy banks. All of these companies provide the service up front and then send you an invoice. Right? Well, you don’t pay the invoice. That company, that service companies got to pay the labor. It’s got to pay the cost. And you’re not paying an interest rate on that. You wait 90, 120 days to pay your invoice. You basically got in free service. You’ve allowed the cash to sit in either your bank to accrue interest rates. And he was like the management team was just complaining. The companies are using them as a piggy bank, and. [00:12:24][290.1]

Stuart Turley: [00:12:24] BHP was one of the worst ones on the planet. I will go on record because there’s that working at a small company, and we were putting in 1800 pads here and another hundred, you know, thousand pads there. And then they would say they sent a note and said, oh, by the way, we are now going from 60 day paid and 90 day pay. And it’s great. If you have a change order, it adds the clock starts again. You’re like, what? [00:12:49][24.2]

Michael Tanner: [00:12:50] And as as that type of company, what do you what’s the recourse for a service company to. There is none I mean Halliburton, unless you’re Halliburton and you have a diversification of customers. But let’s be clear, most service companies have 2 or 3 companies that they do the majority of the work for. If 90% of your business comes from and I’m just picking a company, I’m not saying this company is right. Let’s just say 90% of your business comes from oxy, and oxy decides to go from 60 day to 90 day billing, and that means they’re really not paying for 120 days. Exactly. To oxy. They they have choice in who they go from. You might not relative to where you’re inventory where all your your people are. It’s less harder for you to go find new customers than it is for a service or for an operator to go find new vendors. So there is this idea of kind of operator capture in that these vendors have really no choice but to play. Operators know this and chugging along. Ironically, one of the things he was saying is the smaller companies, you know, the non Publix or the really the smaller family, mom and pop shops absolutely are the better customers to work for because they pay on time. The problem is there isn’t enough volume. And that’s where you get this. You know, the larger service companies like working with the smaller companies because they’ll pay on time, but the volume isn’t high enough, especially if you’re a public service company to satisfy the capital market. So you’re in this constant tug and war. It was a really interesting conversation. [00:14:08][78.9]

Stuart Turley: [00:14:09] And project management and documentation and change orders. I lived and died by that. If you didn’t have it all in line, you didn’t get paid. [00:14:19][9.8]

Michael Tanner: [00:14:20] No, absolutely. And nil. And they’ll fight you because again, they had they have choice. [00:14:24][4.2]

Stuart Turley: [00:14:24] That’s right. Biden grants first new LNG approval since freezing permits on my bingo card this morning Michael. So no, I did not know. Fortress energy receives a five year license to sell LNG. But here’s where it gets dicey. Their climate groups got upset. Holy smokes. They were like, what is going on? The USDA Department of Energy granted a five year license Tuesday to West Eden’s company, New Fortress Energy, which is developing small scale LNG export known as fast LNG onshore near Altair Mira Mexico, is key for U.S. LNG. Here’s a quote it’s free. Diculous that the Department of Energy would issue this license despite the administration’s ongoing incomplete public interest review of such exports, said Mitch Jones, a managing director of Food and Water Watch or Progressive Environmental Group. The department is now under no obligation to approve these ill advised proposals, now or ever. I got a message for you there, Mr. Mitch Jones. You’re welcome on the podcast any time. Let’s talk about how much LNG can actually save the planet in CO2 emissions by getting this out there, instead of having your expertise in food and water, which is a waiter, I think, I’m not sure. But if you’re a waiter and you’re an expert in LNG or carbon, please, I want you on this podcast. How’s that? [00:16:07][102.1]

Michael Tanner: [00:16:07] I’m sorry sir. [00:16:08][0.8]

Stuart Turley: [00:16:08] Waiter. Oh, yes. Just by reading his bio, it was like, dude, you never graduated college and you’re a waiter and you’re trying to say, do you know how much carbon the LNG markets are saving because they’re putting coal plants out of business? [00:16:24][16.1]

Michael Tanner: [00:16:25] Yeah, I mean, it’s I couldn’t have said it better. I, you know, all I’ll add to this is that it is kind of crazy to see the Biden administration’s complete 180 on LNG export. You wonder if, you know, you wonder if it has anything to do with the fact that he’s now a lame duck and he’s actually, you know, ironically, reading the facts or somebody in his administration is reading the facts. I mean, he got to give credit where credit’s due. [00:16:47][21.9]

Stuart Turley: [00:16:47] I’m going to take it and say, yeah, I did have to give him a shout out just because he was a waiter. I was a waiter and I was a great waiter. But when you sit back and take a look at this, Michael, I think that they did improve it only because of the Chevron deference that it has been going on. They’re having to appeal it. And so they this was one of those they just threw it out there to shut. [00:17:09][22.1]

Michael Tanner: [00:17:09] People up while hey, hey the way credit where credit’s due will take this the. [00:17:14][4.5]

Stuart Turley: [00:17:14] Taxpayer funded illusion of cheap renewable energy. I gotta hand it out to an ex again. I just said, can you create a picture of cheap renewable energy? And I expect to see unicorns. And, you know, fairy dust in this picture is pretty cool looking picture. But anyway, let’s go on to the story here. Germany, U.K., California, and now new Jersey and New York or consumer electric prices are double to triple the U.S. average. But what the difference are they’re raised to convert wind and solar. Here’s where the numbers come in. Important. Later on down in here it says South Dakota as is number one says renewable supply 95% of the demand. Yet the state is ninth lowest energy price. Do duplicity do publicly available data back that up? No, they don’t look at coal’s 36%. There’s a numbers game problem going on. They’ve got large hydro there. So on the wind provided 55% of it and they’ve got wind. So according to 77 South Dakota generation not the 95%. They kind of like excluded the coal. [00:18:32][77.5]

Michael Tanner: [00:18:32] Yeah I mean it’s. [00:18:33][1.1]

Stuart Turley: [00:18:34] If you don’t like it you won’t see this coal plant. You don’t. [00:18:37][2.8]

Michael Tanner: [00:18:37] See anything. It’s one of the penguins from. What’s that movie I forget. [00:18:42][4.4]

Stuart Turley: [00:18:42] Oh the Madagascar. [00:18:43][0.9]

Michael Tanner: [00:18:44] Yes. Madagascar. You don’t see anything. It is really true. Again, I love this quote. The influential academic says renewables alone can hold the climate crisis. Wind, water and solar can provide rentable, plentiful and cheap power, he argues, ending carbon emissions that driving climate crisis. I mean, I mean, some of these people, these people just say things that there’s no basis to be able to even make that quote. [00:19:08][24.4]

Stuart Turley: [00:19:09] Exactly. If it and I think it’s because of who they are, they’re getting paid by. And it’s almost like everybody that is out there saying they’re climate alarmists are being paid by somebody. [00:19:19][10.6]

Michael Tanner: [00:19:20] They definitely are being paid by somebody, OPEC. [00:19:22][2.1]

Stuart Turley: [00:19:23] Michael, this has been fun. The Bulls and the bears have been running amuck. You know who’s going to win. On whether or not OPEC is going to happen I saw this one OPEC plus close to delaying the oil supply. At the time of recording this oil has been hammered pretty brutally. The group had scheduled for October production boost or increase of 180,000 barrels. But now they’re rethinking it because of the data from China. I thought that was pretty interesting. Here is a quote from Bob McNally. OPEC is facing a binary choice between delaying, tapering and enduring a disorderly crude price rout, said Bob McNally, president and consultant of Wrap in Energy Group A. White House official, it appears to be leaning toward the former, as he’s always cautioned it would be the case. [00:20:15][52.3]

Michael Tanner: [00:20:16] Yeah, it’s I mean, we’ve kind of seen the 180 on this. I think it’s because they saw Brant oil prices. You know, as we as we sit here, Brant oil prices have dipped to to pretty low. I mean you’re talking about $73 Brant which is not nearly what they need now. I think the entire break even oil price charade that Saudi gas they need higher oil prices. They can also just rollback a lot of their spending, which people don’t know about. [00:20:40][23.9]

Stuart Turley: [00:20:40] Right? You bet. And so now Ananias has been saying that that’s the sweet spot. So it’s kind of funny that they’re rolling right on in the sweet spot. [00:20:49][9.3]

Michael Tanner: [00:20:50] Yeah. But you know, the 180 I think comes is which obviously they would like higher prices. I think, you know, it’s it clearly shows that the market is on a little bit more of a tenuous situation than I think anybody wants to admit. So it’ll be interesting to see how this plays out. And we will be watching very closely this next OPEC meeting coming up. [00:21:10][19.7]

Stuart Turley: [00:21:10] Oh, absolutely. Four years ago, do you remember the OPEC you and I were pretending we were at. That was a funny video that we we made where we were like all in there on the zoom. [00:21:18][8.5]

Michael Tanner: [00:21:19] And we know that was great. [00:21:20][0.9]

Stuart Turley: [00:21:20] Anyway, that was that was some of the old fun days a rare metals price surges China restricts exports. Now Michael this is in the critical minerals area. You being a mines guy antimony is not what you pay after you get divorced. Antimony is actually what they use for military, automotive and solar applications, with China producing nearly half of the global supply. Michael, that is not. Now they’re going to say this is quote from London. It’s a sign of the times. Military uses of SB antimony are now the tail side, the tail that wags the dog. Everyone needs it for armament, so it’s better to hang on to it then sell it. You don’t want your other your opponents having it. [00:22:10][50.3]

Michael Tanner: [00:22:11] No, absolutely. I mean I love first off this this article is titled correctly, Rare metals not critical metals because right. There’s there’s a difference. There is it’s really critical minerals versus metals per se. But you know, it’s it’s absolutely going to be pretty crazy when China and now Russia who have both gone in to all of these countries, including now Afghanistan and hoovered up all of the critical mineral minerals and metals that are needed to make EVs and selling it to us as a premium. And then we all turn around and say, look how green we are. [00:22:44][33.5]

Stuart Turley: [00:22:45] And we’re not used to this. Last year, China issued three batches of rare earth output quotas, the first time it issued more that more than the many quotas in a single year since it started the quota system. It’s pretty nuts. Yeah, and it just means that if we don’t get our regulatory issues, we our regulatory issues cost us over $1 trillion this year, because if we don’t get our regulatory mining issues under control, we won’t have an energy transition. [00:23:18][33.3]

Michael Tanner: [00:23:19] Yep. I was listening to a podcast this morning with Cash Patel, who’s advisor to President Trump and somebody who is a former chief of staff to the secretary of defense. And he said, it’s the modern, you know, these minerals, lithium, cobalt, and they’re all the modern day blood diamonds. [00:23:33][14.1]

Stuart Turley: [00:23:34] It’s exactly right. And but you gotta have it for energy. [00:23:37][2.8]

Michael Tanner: [00:23:37] Because it’s necessary, don’t get me. [00:23:39][1.7]

Stuart Turley: [00:23:39] Wrong. But and you’re not going to grow the grid twice. I mean, we’re supposed to double the the Texas grid in five years. Without this, it takes 20 to get a mine open. It ain’t gonna happen. [00:23:39][0.0][1379.5]

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