It seems that the Alaskan Wilderness has defeated Big Oil’s attempts to tap its oil potential. Big players ConocoPhilips and Royal Dutch Shell Plc have recently opted to release the majority of their claims in the Chukchi Sea. They are far from the only companies to be doing so.
Oil Companies were hopeful that drilling in the Chukchi Sea would be profitable
They were, in fact, so convinced it would prove beneficial that they took out many leases on the rights to drill for oil and natural gas. Unfortunately, that profit has yet to materialize, and the attempt has led to significant losses for Shell in particular.
The leases of the Chukchi Sea cost an estimated $2.6 billion dollars. Worse, the companies just gave up nearly 80% of those leases, effectively eating the leases’ costs. Clearly, big oil is on its way out of the Arctic, possibly for good.
The question is, why?
Oil costs are down almost as far as they were in the 1990’s
With the price of crude oil so low, money is, to say the least, tight for the oil companies. One of the places they can afford to cut costs is in exploration. They are now doing so by giving up their Alaskan leases.
Drilling in the Chukchi Sea has already proven costly for Shell.
In 2015, Shell spent $7 billion dollars over the course of seven years only to turn up a dry well in Alaska. With the market being what it is, they cannot afford more such failed explorations. This is another likely reason why they are pulling out.
Drilling in the Chukchi Sea involves strict regulations
Royal Dutch Shell is required to have equipment that can shut down their well if spills happen, thus preventing another disaster similar to BP’s. This equipment must be functional before the reserves are tapped. Therefore, it is another added exploration expense to take into consideration.
Drilling also poses a danger to walrus habitats. To mitigate this issue, regulations require that a minimum distance of 15 miles must be maintained between drilling sites. This effectively limits the usable area to be explored.
Worse, these oil regulations continue to evolve. Richard Ranger of the American Petroleum Institute believes that uncertain future regulations are one factor that turns oil companies away from the Arctic as a source of oil.
The environment itself is not conducive to drilling
Then, of course, there is the weather in the Arctic. The area is prone to extremely low temperatures and volatile storms. Ice forms in the sea itself, complicating potential oil spills. Additionally, there are icebergs, which pose a serious threat to drilling machinery.
All in all, Big Oil seems to think that drilling in Alaska is dangerous, too heavily regulated, and too expensive to be supported by the current price of oil.
Some companies that are abandoning leases in the Arctic
- ConocoPhillips released 61 Chukchi Sea leases.
- Statoil relinquished 16 Chukchi Sea leases, indicating that they were no longer worth keeping from a business standpoint.
- Iona Energy, Inc. gave up its single lease in the Chukchi Sea.
- Italy’s Eni Spa released four leases in the Chukchi Sea.
- Shell gave up a staggering 274 Chukchi Sea leases. It kept the parcel that it spent $7 billion drilling, however. It can then keep valuable information about the site private from the government for a few more years.
Speaking of government, the Federal Government is not planning on auctioning new leases for years, if it ever does so again.
It is not merely that is there is currently extremely low interest in future leases on the oil companies’ parts. The Obama administration is also under pressure from environmental activists to never lease Chukchi Sea rights to drillers again.
Oceana’s Michael LeVine feels that the mere fact that Big Oil gave up the leases to begin with shows that there’s no reason to bother leasing them again. Cindy Shogan of the Alaska Wilderness League concurs and hopes Obama is convinced to never schedule new leases.
Representative Jared Huffman (D-CA) wants to see the oil stay in the ground where he feels it belongs. He believes that further drilling only contributes to global warming as the oil is processed and used for fuel. He states that leaving the oil alone would be more in line with our commitment to climate change efforts than mining it.
What is good news for the environment may be bad news for Alaska’s economy
Alaska Governor Bill Walker expresses disappointment with Shell’s decision to drop their leases. He cites a $4 billion budget deficit and says that the Alaskan pipeline is three-quarters empty. He opines that finding more oil is imperative both to bringing revenue to Alaska and creating jobs.
However, whichever side of the issue you fall on, it appears that Big Oil is done with Alaska for the time being.
Gold Prices Reach Historic High, Breach $2,000 Level
For the first time ever, gold prices reach a historic high level of $2,000 today, even reaching a high of $2,049.18. Judging from the way the markets are still active, there are signs it’s still going up. Buoyed by a week dollar, low Treasury yields, and fiscal stimulus, gold keeps rising. On Monday, worldwide holdings in gold ETFs totaled 3,365 tons, and prices have surged more than 30% YTD. As prices rise during the day, there are yet no indicators that the bull market for gold is ending soon.
Related Article: How To Buy Gold For Your Investment Portfolio
Along with government securities, dollars, and others, gold is a safe haven investment. Safe havens are assets that investors turn to during market turmoil. investors turn to during market turmoil. These stocks usually keep, or even gain value during periods of hardship. As they aren’t correlated with the economy, safe haven value can rise in value in a market crash.
While the gold prices reach historic high. Gold has profited from the pandemic and its resulting economic downturn. While US Treasury yields have dropped to below-inflation levels, lowering their value. Gold meanwhile, does not pay an income. In a booming economy, interest levels go high, which means higher yields for bonds or securities. For gold, the lack of yields makes it strong when the market crashes.
The Fed’s earlier decision to lower interest rates to near-zero pushed investors to look into gold. It serves as an insurance asset in case stock prices go down. With the depreciation of the dollar, gold is the current safe haven choice for investors. With a weaker dollar, other currencies rush to buy gold, hence the historic highs. According to Rhona O’ Connell of StoneX Group: “Gold is a haven. It doesn’t have anyone else’s political or financial risk associated with it.”
Other factors contributing to the rise in gold prices are international in nature. The tension between China and the United States over trade issues is one. Lately, some analysts think that the recent Lebanon explosion also pushed prices higher.
Stimulus plans also have an effect on prices. Some see the rising stock prices on news of a new stimulus package as a signal. It means stimulus money is powering the stock rally, and might not be sustainable. This also leads investors to turn to gold instead.
Market strategist Margaret Yang believes the rise will continue in the next months. She said today’s low-interest rates and fiscal stimulus makes gold bullish for the mid and long term. And with the elections in November, gold prices may swing further depending on the winner. Analysts think that gold can breach the next psychological barrier of $2,500 within the year.
Pushing Precious Metals
Gold isn’t the only precious metal winner lately. Silver prices have also spiked to more than 30% year to date. Some analysts even believe that silver has the potential to outperform gold. Once the world economy recovers, industrial consumption will return. This in turn will spur demand for silver, which many industries use. Already, the gradual reopening of industries has increased demand for silver. Its increasing applications in the medical and telecommunications fields helped with the demand. Apart from silver, platinum and palladium are also enjoying high prices this year.
Watch this video as the gold prices reach a historic high level of $2,000:
Latest Update On Oil – Expected to Settle Between $45 and…
“Oil is going to a new price point because of the revolution in production,” said Bill Perkins, chief investment officer of energy-focused hedge fund firm Skylar Capital Management. Perkins believes the price of crude could fall as low as $45 a barrel. He is personally short, a bet that the price of the commodity will drop. He believes oil will settle between $45 and $80 a barrel in the next year.
“Companies are harnessing amazing new technology to destroy the traditional energy value chain,” Perkins said. “There’s a lot of money to be made on that.” “U.S. energy names remain a significant net exposure for equity long/short managers who added longs and cut shorts after October’s trough,” the report said. “If pressed, one could interpret this positioning as bullish for energy stocks.”
Andurand thinks crude might hit $50 a barrel within the half-moon of 2015 and so rebound to a high of $70 within the fourth quarter. He also said the oil market is oversupplied by between 1.5 and a couple of million barrels per day, given weak demand, low disruptions to produce and enhanced production by nations that do not belong to the Organization of the oil mercantilism Countries.
“OPEC is not the swing producer anymore. U.S. shale oil producers are, but will take more time to react to prices than OPEC—it is a game changer that will lead to more volatile prices and bigger price ranges,” he added.
Morgan Stanley aforesaid the worth would wish to fall as low as $35 or $40 a barrel to prevent production and rebalance provides.
Still, the bank noted that the worth can doubtless rise eventually.
“Oversupply is probably going exaggerated and therefore the market is also content regarding side risks,” the report aforesaid.
Investing in Energy Markets Part 2: Oil, Gas and Energy
It’s no secret that the energy industry is very profitable, with oil and gas making up 80% of the market.
Thus, these two resources attract the most people. They are the best energy investment resources due to high demand and wide range of options. However, with energy scares fresh in our recent memory and the climate change movement greatly affecting energy policy, new alternatives are constantly being sought.
Everything that we do requires some type of energy. As a result, the price of energy affects the going rate for other commodities as well. When the price of oil increases, the price of transporting goods goes up as well.
That is why the cost of milk fluctuates and why your favorite imported coffee beans are more expensive than Folgers. Factors that contribute to these prices include geopolitics and natural disasters, but can never truly be accounted for in full. That is one of the underlying points to understand and accept about energy markets. Something can always go wrong. Typically, it doesn’t, but when it does things can get hairy and fast.
TYPES OF ENERGY SECTORS: That could affect your Household
Nuclear Nuclear power actually produces 1/10th of the world’s power, without emitting carbon. The United States and China have roughly 75% of the world’s nuclear plants with India and Russia also tapping into the market.
“Green” and renewable energy companies You can invest in different companies that place an emphasis on renewable resources by using the stock market. This option is optimal for investors who like the idea of green technology but do not now want to run the risk of investing in developing companies directly. This market has always been tricky from an investment perspective due to volatility. If you have an appetite for risk, however, this is a good place to look.
Modern Energy (solar, wind, geothermal, transportation, efficiency) Modern energy is made up of three major components or categories. They are wind, solar and biomass. The renewable sector is expanding at a rapid rate. We have witnessed a steady employment increase in the energy sector since 2011 with no end in sight. All types of investors and speculators are flocking to the natural resource markets in attempts to get out ahead of the renewable energy trend that could be the way of the future.
Big Oil In 2010, the world market for oil witnessed an incredible increase of 32%, to over $2,100 billion. According to estimations of oil segment professionals, the market’s value will hit $2,683 billion in 2015. The competitiveness of the global market of the crude oil is explained by its limited resources and mankind’s insatiable appetite for growth. This factor should not be disregarded easily. Our desire for more explains the majority of the energy marketplace.
Gas sector The market of natural gas reached $18.5 billion by the end of 2011. Demand for gas has recovered to match and surpass pre-recession levels. The US prices for gas are half of those in Asian countries and the EU. Gas demand decreased 3% in 2009, but at present is on the rise.
Electricity Buying the stock of electricity companies is the preferred way of entering this marketplace. The majority of the participation in electricity markets, however, takes place in the futures markets. Since power companies are constantly projecting and calibrating their loads, the futures market is the only place where investors with this sort of risk profile will feel that they belong.
Coal Many non-coal energy sectors directly depend on the performance of coal because burning coal has been proven to produce enough energy to support high demand. Due to recent regulations in the US by the Environmental Protection Agency, coal has taken a minor hit, but until a massive, institutionalized adoption of newer technology, it is highly unlikely coal will be going anywhere for the foreseeable future. In other words, coal is very much a barometer for this market. Though it is unlikely to happen any time soon, a massive dip in coal production would likely signal the emergence of a new viable energy source.
Hydro Hydropower energy is still very limited but there has been over $75 billion in investments pledged to R&D before the year 2020. There are some companies worth checking into, but for now this is very much a long term play.
Energy Funds These funds are established with companies related to the energy field. Be aware that some energy funds are more successful than others and produce a higher return than others. Often times, the energy funds are established to diversify various portfolios and minimize risk.
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