Our Aussie energy consultant friend today observes that "The Economist" predictions of today match incorrect predictions of 1999.  Read here….

Our Mid Atlantic energy consultant friend today provides us with, "the best in the way of a positive note that we can come up with to clear the inbox for the weekend."

Seeking Alpha.  Ontario Premier Wynne gives tentative backing of TransCanada's (TRP +4.8%) $15.7B Energy East pipeline, offering Alberta Premier Notley some support a day after Montreal-area mayors expressed opposition to Energy East and the Alberta government’s pipeline strategy.

In a joint news conference in Toronto, Wynne praised Notley for Alberta’s climate change plan, and "appreciate(s) that there is a need for a way to get Canadian oil, that is allowed under Alberta’s new emission cap, to overseas markets."

At the news conference, Notley criticized Montreal Mayor Coderre as short-sighted and touted the pan-Canadian economic benefits of Energy East, adding that "a pipeline is the safest way, the most efficient way" to ship oil.

Seeking Alpha.  Kinder Morgan’s (KMI +10.6%) proposed Trans Mountain pipeline expansion isset to face another regulatory hurdle when Prime Minister Trudeau's government moves to strengthen environmental review laws and give new marching orders to the National Energy Board in the coming weeks.

The regulatory overhaul leaves timelines for the $5.4B project in limbo; hearings resumed for the project this week and an NEB decision is due in May under the old review system, and no one quite knows the meaning of the review process when changes are in the offing.

The plans effectively would add regulatory requirements on proposed projects already under review in Canada, such as Trans Mountain and TransCanada's (TRP +5%) Energy East pipeline, to meet an unannounced higher standard favored by Trudeau without restarting the process entirely.

An extended regulatory process would be another setback for KMI, which first proposed its pipeline expansion in 2013 and already has faced two delays.

 

Our Mid Atlantic, anonymous energy analyst tells us this friday that:

There is consensus among analysts that E&Ps will (finally have to) spend very close to their cash flows in 2016. But the general feeling is that this will drop capex about 35-50% from a very contracted 2015 spending level.  Attached, and summarized below, is a note this week from Raymond James indicating that this requirement to live within cash flows will drop spending by up to 70% in 2016.  Applying the old adage, “The cure for low prices is low prices”, RJR sees this spending washout as providing the platform for a better recovery in 2017 than also being posited by the analyst class.

We are not sure we buy the recovery as being as robust as they project, as we believe the cost of capital will stay absurdly low, keeping a lot of cash ready to jump in, so that any large recovery might be temporary. Also, there are too many global moving pieces to think reduced spending in North America will have that much influence on global oil prices. But we do feel their case for a steeper spending cut than has been projected in the consensus is possible.  Greater pain, greater gain and all that rot.

This is the best in the way of a positive note that we can come up with to clear the inbox for the weekend.

 

Today’s Blog – Friday 22nd January 2016

Please pass this blog onto others who may like to read it

Introduction

Bells ring at the bottom and tops of markets only in hindsight.  Many now consider that The Economist’s call on its front page in March 1999 that the world is “Drowning in Oil” was the tolling of a bell that then set off a 15 year bull market in crude.

This week we have heard two more calls that the world is again “drowning in oil” – from the lead editorial in today’s edition of The Economist and also as we quoted from the IEA earlier in the week.

Bells ringing anyone?  Read much more here!