China disrupts the oil and gas industry–again

You wouldn’t think that anybody, especially an anybody as savvy as ExxonMobil (XOM), could overlook China.

But that may be exactly what ExxonMobil did in formulating its plan to pin the company’s growth on natural gas—and in particular on liquefied natural gas (LNG).

According to U.K. oil and gas consulting company Wood Mackenzie, China looks like it will need only half as much additional liquefied natural gas in the decade beginning in 2020 than big oil companies such as Royal Dutch Shell (RDS), BP (BP), Chevron (CVX), and, yes, ExxonMobil had projected. 

Projects such as ExxonMobil’s Qatargas Trains 4 and 5, RasGas, Al Khaleej Gas, the South Hook liquefied natural gas terminal, and the Golden Pass LNG terminal—and this is only a partial list of ExxonMobil’s planned investments in LNG in 2009 and 2010–that made investment sense when it looked like China would be importing an additional 16 million tons of LNG annually in the coming decade now face a scenario in which China will need to add only half as much to its annual imports.

 That will hit all the international oil companies hard but it will hit ExxonMobil especially strongly because the company has based its investing strategy on natural gas in general and liquefied natural gas in particular.

 What’s changed since, say, March 2010 when ExxonMobil announced that it will increase capital spending by 4% in 2010 to almost $28 billion in a big bet on natural gas on top of its purchase of U.S. natural gas producer XTO Energy for $28 billion? Read more

Deciding which company pays what in the Gulf disaster just got a little harder

A setback today for Anadarko Petroleum (APC) in its efforts to get out from under the costs of the Deepwater Horizon disaster. The company is a 25% partner with majority stakeholder BP (BP) and minority partner Mitsui (10%) in the Macondo well that continues to spew oil into the waters of the Gulf of Mexico.

Anadarko will be on the hook for a share of the costs proportionate to its ownership in the project—unless a court finds BP guilty of gross negligence in the design and/or operation of the well. With BP putting $20 billion into escrow to cover claims, the negligence/no negligence question is of intense interest to the $18 billion (market capitalization) Anadarko and its investors.

The distribution of costs will also have a huge effect on which companies can afford to keep exploring in the Gulf. If Anadarko winds up picking up its 25% share of the costs, it will deter smaller oil companies from operating in the region. And that will mean that the globe’s biggest oil companies will be able to buy assets in the Gulf at very reasonable prices. (For more on how the Deepwater Horizon disaster will reshuffle oil assets in the Gulf see my post http://jubakpicks.com/2010/06/24/oil-company-buyers-and-sellers-in-the-deepwater-gulf-of-mexico-after-bp/ )

The task of winning a finding of gross negligence against BP got a little harder today, June 30, when both BP and Anadarko confirmed to the Financial Times that Anadarko was aware of the design choices that contributed so much to the disaster. Read more

And now the spill in the Gulf is changing oil drilling in Norway–the effects really are global

The ripples from the Deepwater Horizon disaster in the Gulf of Mexico have reached Norway.

Norwegian opponents to opening the fragile ecosystems around the Lofoten Island with their critical spawning grounds for cod to oil drilling are arguing that Norway needs to delay any decision until the country fully considers the lessons from uncontrolled oil release off the coast of Louisiana.

The oil industry estimates that there are 1.3 billion barrels of oil in the reserves around the islands. Production from those reserves will help offset declining production from Norway’s mature North Sea fields.

More is at stake that just those 1.3 billion barrels. Read more

You knew this was coming once BP (BP) admitted that the top kill effort to stop the flow of oil in the Gulf of Mexico had failed.

On Tuesday June 1 U.S. Attorney General announced that the Justice Department has opened a civil and criminal investigation into BP and other companies involved in the Deepwater Horizon disaster. Holder’s announcement came just hours after President Barack Obama promised in a 10-minute White House address to prosecute any parties found to have broken the law.

What comes next? More politicians who can tell which way the wind is blowing and feel that they need to do something before the storm blows them away. I think the need to be seen doing something might even result in action in Washington to move the country away, even if only so slightly, from its dependence on oil.

Stranger things have happened when politicians are running scared.

There’s no quick end in sight to the flow into the Gulf. BP doesn’t have a real solution—the oil company is next going to try a new version of the containment dome that failed to work before the top kill failed to work. And the truth is that the federal government is completely dependent on the oil company and its service and drilling contractors for any equipment that might stop the flow.

But that hasn’t stopped the buildup of political pressure on the Obama administration and other elected officials in Washington to do something—or at least to sound like it is doing something. So an angry President Obama, sounding like a prosecutor himself, said “My solemn pledge is that we will bring those responsible to justice.”

The potential consequences for BP are huge. Read more

Buy Total (TOT)

  I’m sure this one is going to be popular. (Yeah, right.)

Today, May 28, I’m adding Total (TOT) to the Jubak Dividend Income portfolio.

 That’s right a European (gasp) oil (shudder) stock.

 Total’s shares have dropped from $65 at the beginning of 2010 to $45 now. That’s driven the yield up to 6.5%, considerably above the yields for U.S.-based oil companies such as Chevron (CVX) at 3.8%. Read more