Today is the Alliance's Meet Alaska Conference in Anchorage


Will The Keystone XL Ever Be Built?

(See Senator Murkowski's Release Today)

by

James R. Halloran, Independent Energy Analyst

James Halloran, energy analystMost of the readers know we deal with trends, not forecasts. We have only made three forecasts that involved “a rate and a date” in fifteen years; our record is 2-1, and would be perfect if natural gas had moved $0.10 higher in 2013. However, we have gone out on a bit of a limb with two forecasts recently. The first one is well known:The Keystone XL Pipeline, at least the five feet that crosses the US/Canadian border, will not get built. Ignore the headlines coming out of the Beltway these days; they are just smoke and puffery. Save the time otherwise spent on that topic for something more rewarding. Our position is stated here:

With Overwhelming Citizen Support, Keystone XL Can Be Approved
 
by
 
Dave Harbour
 
Our esteemed friend, reader and energy expert, Jim Halloran, has presented a logical view of the future of Keystone, assuming the President believes he can get away with continuing to block the future of that pipeline / lifeline (Yes, it could be an economic lifeline to tens of thousands who need good jobs).
 
President Obama will deliver the 2015 State of the Union Address on Tuesday, January 20, 2015.  He will likely try to tout economic improvements which are more due to the oil and gas shale phenomenon (on mostly private property), than on his leadership.
 
The Consumer Energy Alliance urges its members — as we urge our readers — to call U.S. House of Representatives Members TODAY in support of H.R. 3, “The Keystone XL Pipeline Act.” The bill will give congressional approval of the Alberta-to-Texas, crude oil Keystone XL pipeline that has been under review for more than six years. The U.S. House of Representatives is expected to vote on the legislation TODAY, January 9, 2015.

Yesterday, the Consumer Energy Alliance (CEA) sent a letter to House Leadership expressing support for the legislation. Please refer to CEA’s letter for assistance in helping to draft your own letter to members of the House of Representatives.  Also, refer to BuildKXLNow.org, for more information.

You might also be interested in the Senate's action on Keystone yesterday.  Scroll down to the 1-8-15 page for the video review of Senator Lisa Murkowski's Energy Committee Business Meeting.

Halloran (left) believes that if Obama approves Xl, "the Greens would then take over in court…."  To combat this obstructionism, the Congress could guarantee expedited judicial review and pass enabling legislation somewhat like the Alaska Natural Gas Pipeline Act of 2004 and the Alaska Natural Gas Transportation Act of 1976.

With a lot of bipartisan support from Congress, the President will find it harder to continue blocking Keystone XL.  

 
We may not be able to change his mind, but a strong show of support could certainly put pressure on democrat candidates for 2016 elections to urge White House approval.
 
And if, even then, we fail, we would at least have done our best.
 
Thank you for your column, Jim; truly, it is a wake up call of what is likely to happen absent overwhelming citizen action!     -dh

“Will the northern portion of the XL project get built any time soon?” The answer, in our opinion, is decidedly NO. 

The environmental lobby (in England this amorphous set of interest groups is referred to as the “Green Blob”) has drawn a line in the sand to keep this pipeline from ever seeing the light of day. Fighting XL has become a Line of Business for many of them, with its own ongoing fund-raising group. They have a great playbook ready to go, to tie XL up with litigation and the aid of various government agency rules. The game is to tie it up as long as it takes to defeat it. This effort reinforces future “lines of business” when the Green Blob decides to take a stand. It is highly likely they can tie it up for a further seven years or so, by which time the market will have found ways to deal around its absence.

But we also believe Obama will never approve it, part of his “legacy” (most would call it narcissistic petulance). He would not have time to do so, anyway, between golf games, schmoozing with billionaires, and screwing up foreign policy. But even if he were to approve it, the Greens would then take over in court, and it will not get built.

The second forecast is known by fewer people, but I have a record of it with certain people (Nick and John, you are the source for the truth). I went on record in early December that the Energy sector of the market, as represented by the XLE, would hit its cycle bottom on December 15, 2014. There is an historical reason for the date, which I will share later if this works out. So far, the forecast is holding. The second part of the forecast is to be overweight energy in 2015. Looking back on the markets over the years, energy has occasionally finished last among the sectors, but it has never done it two years in a row. That does not mean it bolted to the head of the pack the following year, but it made out well in the trailing year, except for 1998-99 (the Dot-com Era). After that exception, it took off for several years in row.

Energy was last in 2014 even before crude oil tanked in the fourth quarter; cutting the price in half was just the cherry on the sundae. See the chart below for commodity behavior.  

(Graph is being reformatted for insertion here….)

Attached is a note from Sanford Bernstein about the market rebounds for the Energy sector over the years. Take a look at Exhibit 2, which shows that it has been a long time since Energy has been this small a relative component of the market (below 10%). As a bet on a rebound, it has a least good set of odds in its favor.

What does this mean for oil prices? That is a subject for other notes. But on “follow the money” basis, we like the possibility that enough trends have spotted by observers that they will form a decent recovery over the next 18-24 months (the market is generally about nine months ahead of an actual recovery in business operations).

The Bottom Line: We do not know where oil (and natural gas) will bottom out. But we suspect that the market is telling us the seeds of a shake out of the weak is underway, which will help a decent rebound.

The flows into Energy are getting ahead of the price increase; see the note below.

Oil investors pour most money into funds in 4 years

Investors betting oil will rebound from the lowest prices in 5 1/2-years poured the most money in more than four years into funds that track crude.

The four biggest oil exchange-traded products listed in the U.S. received a combined $1.23 billion in December, the most since May 2010, according to data compiled by Bloomberg. Another $109.9 million was added this month through Jan. 5.

Investors are piling into oil ETFs even after West Texas Intermediate crude, the U.S. benchmark, tumbled the most since 2008 last year amid signs of rising supply and weak demand. Shares outstanding of the four funds surged to the highest since 2009.

Oil Prices

“Commodity investors can be contrarian investors,” said Matt Hougan, president of San Francisco-based research firm ETF.com. “There are a lot of true believers in the commodity space. A lot of people are attached to the idea that oil’s natural price should be $100, not $50.”

The U.S. Oil Fund, the biggest oil ETF, attracted $629.9 million in December and $100.4 million so far this month. The fund, which follows WTI prices, added 1.8 percent to $18.369 yesterday on the New York Stock Exchange.

The number of U.S. Oil Fund shares on loan to short sellers was 3.93 million on Jan. 5, down from as high as 9.53 million last month, data compiled by Markit and Bloomberg show.

Money is pouring into oil ETFs even as commodity-linked index liquidations surged to a record $17 billion in the first 11 months of last year, Barclays Plc said in a report yesterday. Total commodity assets under management fell to $276 billion in November, the lowest since early 2010, according to the bank.

Shares Outstanding

The four funds also include ProShares Ultra Bloomberg Crude Oil, iPath S&P GSCI Crude Oil Total Return Index ETN and PowerShares DB Oil Fund. They had 171.6 million shares outstanding as of Jan. 6, the highest since March 2009, according to exchange data compiled by Bloomberg.

WTI futures slid below $50 a barrel for the first time since April 2009 earlier this week. The benchmark, which tumbled 46 percent in 2014, climbed 39 cents, or 0.8 percent, to $49.04 in electronic trading on the New York Mercantile Exchange at 2:19 p.m. Singapore time.

Oil has slumped as U.S. production grew to the highest in more than three decades and the Organization of Petroleum Exporting Countries kept its output above quota for a seventh month in December. OPEC, which pumps about 40 percent of the world’s oil, decided to maintain its output target at 30 million barrels a day at a Nov. 27 meeting in Vienna.

The CBOE Crude Oil Volatility Index, which measures oil price fluctuations using options of the U.S. Oil Fund, dropped to 53.25 yesterday after reaching 57.67 on Jan. 5, the highest since October 2011.

James R. Halloran, Independent Energy Analyst  


Keystone XL Status Release From Senator Murkowski's Office Today:

Nebraska Supreme Court Decision Removes Last Excuse for Delay

WASHINGTON, D.C. – U.S. Sen. Lisa Murkowski, R-Alaska, today issued the following statement on the Nebraska Supreme Court ruling upholding the state’s approval of the current Keystone XL pipeline route through the state.

“Today’s court decision wipes out President Obama’s last excuse,” Murkowski said. “He’s had six years to approve a project that will increase U.S. energy supplies and create closer ties with our nearest ally and neighbor, and he’s refused to act. Regardless of whatever new excuse he may come up with, Congress is moving forward.”

Murkowski, chairman of the Senate Energy and Natural Resources Committee, moved bipartisanlegislation out of the committee on Thursday approving the Keystone XL pipeline.

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