Friday Morning Links

• The anxiety of today’s parents and kids, which exacerbates the problem of achieving independence through practices like helicopter parenting, can be seen as a rational reaction to on-the-ground economic facts. The immature orientation of many people in their 20s, of bringing their parents to job interviews and the like, can be interpreted as basic biology. In times of perceived scarcity, young animals retain juvenile behaviors longer to signal their need for resources from the providing parent. [The Tom File]
• It used to be, of course, that the lower and middle classes were stuffy and constrained by social convention while the freethinkers at universities and in the ruling class got to experiment with unconventional ideas. If their experimenting got enough success, then it might eventually filter down to ordinary people. (The sexual revolution worked this way, more or less). But now it’s our ruling class that is hidebound by political correctness, and it takes movement by the masses to give it permission to express a controversial view. That’s a major change, and it’s one that the ruling class isn’t likely to appreciate much. But it’s good for the country. Preference falsification is undemocratic, and it makes a nation stupid. If people are taught to parrot slogans instead of to discuss, debate, and report on what’s actually happening, bad decisions get made. [Glenn Harlan Reynolds]
  
• Benzene leak. Hopefully, the EPA is contacted again. Serves them right for using a bunch of low-paid, out-of-state workers that aren't familiar with that refinery and don't have proper training to do the work. Those fuckers are going to get someone killed again like they did in Toledo by using cheap workers that don't know what the hell they're doing. [r/Lima]
• Tortoise Midstream Energy Fund, Inc. (NYSE: NTG) and Tortoise Energy Infrastructure Corp. (NYSE: TYG) will merge, with TYG emerging as the continuing fund, with combined total assets under management (AUM) on a pro forma basis of $1.1 billion as of Nov. 29, 2024. TYG will retain its original investment strategy and objective, becoming Tortoise Capital's flagship closed-end fund solution for investors seeking this structure. Tortoise Capital is announcing a change in the frequency of TYG distributions from quarterly to monthly. The monthly distribution declared by TYG will be $0.365 per share, which represents a 40% increase. [Tortoise Capital]
• Suncor's 2025 capital program is a balance between investments in sustaining its business, while selectively investing in high value economic opportunities. Major economic investments planned or continuing in 2025 include the replacement of the Upgrader 1 coke drums at Base Plant, the development of the Mildred Lake West Mine Extension and West White Rose projects, and the execution of our Petro-Canada retail network improvement plan. Suncor's lower cash operating costs per barrel continue to reflect progress on its initiatives to reduce its corporate WTI breakeven by US$10 per bbl versus 2023. [Suncor Energy Inc.] 
• There's some value to being able to say you're an investor in SpaceX, and it's at least a little rude to reply by asking "since when?" or "at what price?" The social convention appears to be: if you say "I've owned SpaceX since their Series B," that's true, and if you say "I own some SpaceX," it probably means you invested in an SPV at a higher valuation than actual shares have ever traded. Not every time; some people are modest, but there's a narrow band of modesty that requires namechecking the company but doesn't entail providing such details. [The Diff]
• Her Nigerian heritage often comes up in conversations about her straight-talking style. But she says this misses the point. ‘I find it interesting that everybody defines me as being Nigerian. I identify less with the country than with the specific ethnicity [Yoruba]. That’s what I really am. I have nothing in common with the people from the north of the country, the Boko Haram where the Islamism is, those were our ethnic enemies and yet you end up being lumped in with those people.’ [The Spectator]
• A weird side effect of venture capital is that you never get to see the counterfactual on growth. So a lot of times, your company is growing for some reason, probably inherent to the product or something like that. But because you've taken all this venture capital, you have to spend it, you can't just leave it in your bank account. And so you'll hire a bunch of people or spend a bunch of money on dumb stuff and then you will falsely attribute that spending to the growth, but in fact, it was not at all related. And what's funny about this is you can never run the counterfactual because of the venture capital dynamic and so it's really hard for people to believe. [Jeremy Giffon]
  

Friday Morning Links

• Global oil consumption has rebounded to all-time highs and increasing natural gas demand is being driven by LNG growth, coal to gas switching and the rapid increase in electric power demand stemming from new datacenter developments. Enbridge's incumbent footprint across its four core businesses puts the Company in an unparalleled position to meet increasing conventional and new energy demand in North America and beyond. As the world navigates a dynamically shifting macro backdrop, Enbridge will continue to play a leading role delivering safe, reliable and affordable energy. Our 2025 guidance, once again, reflects the predictability embedded across our businesses. We expect to generate EBITDA between $19.4 and $20.0 billion. This represents a 9% increase from the midpoint of our 2024 recast guidance and is 17% higher than our original 2024 guidance, driven by a full year of contributions from our U.S. gas utilities acquisitions, the roughly $5 billion of secured projects we're on track to place into service in 2024 and continued strong expected utilization of our assets. [Enbridge Inc.]
• US oil supermajor Chevron will cut capital spending next year for the first time since the pandemic oil crash, dialling back its shale expansion plans just as Donald Trump enters office with a pledge to “drill, baby, drill”. America’s second-biggest oil producer on Thursday announced a capex budget of $14.5bn-$15.5bn for 2025, down from $15.5bn-$16.5bn this year. It is the first time Chevron has lowered spending since 2021, when producers were reeling from a pandemic-induced collapse in energy demand, and comes as oil prices retreat on fears of oversupply in the global market. The Opec cartel announced on Thursday it would continue to hold back supplies, in another sign of producer concern about the oil market’s health. [FT]
  
• The US runs 6% deficits (let’s see what Musk and Trump are going to do about it, fixing this could happening, but I think we must wait for results), which means in the midterm inflation is coming back (and even now it is here!). This (financial repression) is a bit worse now (not as bad as in the 1940s), but this (financial repression) is always the case: if you are not invested in hard assets, inflation is going to (at least) pressure you. So, working hard is not going to cut it. The combination that cuts it is: work hard + think 1h about money once a week! Have a look at upper class families (mostly aristocrats, their investing is grained in their culture) that are around over 1000 years (yes, such families exist). What do they own? Fertile Land (hard asset), Gold (hard asset), Quality Stocks (hard asset), Quality Real Estate (hard asset). They do not invest in anything close to paper money (Bonds, money market funds) strategically. And they do not care about volatility because it does not matter if you own 2 billion, then 1 billion and then 3 billion 20 years later. Volatility is the problem of the middle class: this is the nut we need to crack. [Andreas Himmelreich] 
  
• Once reserved for granola-loving hippies, the term has been embraced by a range of women who are pursuing a more natural way of life. That could mean avoiding chemical cleaning products, cutting down on single-use plastics and opting for organic and unprocessed foods. For some, the lifestyle extends to health and medical decisions, such as protesting water fluoridation and choosing not to vaccinate their children. Many of these women, who cut across partisan lines, say they’ve found a champion in Robert F. Kennedy Jr., the medical skeptic who is poised to lead the Department of Health and Human Services. [WSJ]
• For the second time in about two years, Wisconsin utilities are extending the life of one of the state’s largest coal-fired power plants and possibly converting it to run on natural gas, saying the change is necessary to ensure grid reliability. Plant co-owners Alliant Energy, Madison Gas and Electric and Wisconsin Public Service said in a statement that the 1,100-megawatt Columbia Energy Center would continue to operate through the end of the decade to allow for the evaluation of converting one of the plant’s two units to natural gas. The companies said the extension doesn’t affect their goals to achieve carbon emissions goals and existing commitments to eliminate coal as a fuel source. The plant in south-central Wisconsin was initially slated for closure this year. [E&E News]
•  The Trump administration will be in charge of the United States Quarter Millennial celebrations in 2026. Herman Kahn was excited about America's bicentennial, and he wrote his best book in 1976 with his predictions for the next two centuries. Kahn thought these occasions were a big deal, an opportunity to set a tone and mood for the country, which he obviously thought should be Determinate Optimism to use Thiel's term. Sadly, he could not get dopey Gerald Ford interested in the bicentennial. Kahn would be excited about a presidential administration where the SpaceX founder has a front row seat. [CBS]
  

Cenovus Energy Thoughts ($CVE)

Looking at Cenovus' results for the third quarter of 2024. 

Their upstream segment earned $1.9 billion of operating margin during the third quarter compared with $2.4 billion the prior year. The downstream segment had operating margin of negative $229 million during the third quarter compared with a positive $655 million the prior year.

Upstream capital expenditures were up 29% year-over-year, to $811 million for the third quarter. Upstream production volumes of liquids were 631k boe/d, down 3.4% year-over-year.

Cash from operations for the quarter was $1.76 billion and total capital expenditures were $956 million. That puts free cash flow at $804 million, for an annualized yield of 9.5% on the enterprise value of $34 billion.

During the third quarter, Cenovus spent $234 million on common share dividends and $520 million on share repurchases. The $754 million returned to shareholders is a shareholder yield of 10.4% on the current market capitalization of $29 billion (at a $16 share price). 

Here is where the math is going to be tricky for the fourth quarter, though:

During the third quarter, the price of WTI crude averaged $75/bbl and the 3-2-1 crack spread averaged around $19. With oil now at $70 and crack spreads at $16, results for Cenovus are going to be worse.

At 600k bbl/d of oil production, a -$5 per barrel decrease in the oil price will reduce revenue and free cash flow by $270 million per quarter or $1.08 billion per year. At 643k bbl/d of refining throughput, having crack spreads $3/bbl worse could cost $174 million per quarter or $694 million per year. [This calculations are both a bit fuzzy because things like crown royalties and input costs should go down with the oil price down.]

Assuming a hit of $1.08 billion on oil and $694 million on refining, Cenovus' annualized free cash flow would drop from $3.22 billion to $1.4 billion, which would only be a 4.2% yield on the enterprise value.

Cenovus' high cost refining (losing money when the crack spread is $19) is dragging down the results. The other major Canadian oil companies (Canadian Natural Resources, Suncor, and Imperial) generate much more earnings per barrel than Cenovus. 

We see others who are still bullish Cenovus. One of those pieces begins, "Assuming that management can improve the company's downstream performance..." Cenovus broke even in the third quarter in Canadian refining; the losses were in U.S. refining. Cenovus seems to have problems with the Lima (Ohio) refinery that came with its acquisition of Husky Energy in 2020.

Sometimes these things can't really be fixed. If you are running an airline with old, inefficient planes, you would never have results as good as a competitor with newer, more efficient planes. The more expensive jet fuel gets the worse you'll do in comparison. 

Amazingly, the Lima Refinery was opened in 1886 and is the oldest refinery in the United States. Cenovus got it in the acquisition of Husky Energy, and Husky bought it from Valero in 2007. Valero got it when they acquired a company called Premcor in 2005. Interesting that they sold it so soon afterwards.

Tuesday Morning Links

• Before heading to the Chamartín high-speed rail station this morning I took a nice walk down to the Royal Palace. As a frequent traveler to continental Europe, I am always impressed with the cleanliness and order of many European cities. I saw municipal workers sweeping up leaves and cigarette butts (no leaf blowers). The other striking feature is the absence of homeless people. Like most of its EU partners, Spain is a liberal democracy; yet its streets are free of the homeless and the associated litter and human waste matter. There’s something terribly wrong with the governance of most US cities. It’s not fair to ascribe this to liberal leadership; rather, it’s what I call “abdicationism”, the willful refusal to police the existing laws, thus making life miserable for law-abiding citizens. [Curated Carlos]
• Murkowski is often described as one of the Senate's most moderate Republicans and as a crucial swing vote. According to CQ Roll Call, she voted with President Barack Obama's position 72.3% of the time in 2013; she was one of only two Republicans to vote with Obama over 70% of the time. She opposed Brett Kavanaugh's Supreme Court nomination in 2018 and supported Ketanji Brown Jackson's Supreme Court nomination in 2022. In 2021, she was one of seven Republican senators to vote to convict Donald Trump of incitement of insurrection in his second impeachment trial; she was censured by the Alaska Republican Party for casting this vote. [Lisa Murkowski]
• The company benefits from two network effects. The first occurs at the exchanges themselves, which are global, two-sided networks that connect buyers and sellers of futures and options contracts and provide them with unrivaled liquidity. This two-sided network effect is further strengthened by the nature of the futures contracts traded on the exchanges. For most assets, traders have no restrictions on where they can buy and sell them. For instance, if a trader buys Microsoft stock on the NASDAQ, he or she can subsequently sell it on any number of exchanges or on increasingly popular alternative trading systems (ATS) such as dark pools and electronic communication networks (ECN). In fact, ATS platforms have become so popular that, as of April 2019, traders chose to execute nearly 39% of all their U.S. stock trades on them. Futures contracts are different. Futures contracts opened on one exchange cannot be closed at another exchange, making it much harder for competitors to successfully develop alternative sources of liquidity for futures buyers and sellers. [YCG Investments]
• Clinton claimed that the protesters simply didn’t want to know the facts, as evidenced by the vehemence of their clamor: “They won’t hush. When someone won’t hush and listen, that ain’t democracy. They’re afraid of the truth. Don’t be afraid of the truth.” Of course, one could perhaps take issue with Clinton’s equation of hushing and democracy (“Hush and Listen” sounding like the official slogan of a folksy police state run by bayou Stalinists). [Jacobin]
• An American economist, I think it was, once remarked that a single servant is worth a household full of appliances; in my experience, he was absolutely right. To be relieved of the tedium of looking after oneself, and of the day-to-day tasks that can make life such a trial and a bore, is to enter a state of near-bliss. One of the reasons that some of our polymathic ancestors were able to achieve so much was that they never had to do anything for themselves. But there are also difficulties with servants. No man, said Napoleon, is a hero to his valet; and a servant is inclined to know more about you than you might wish him (or anyone else) to know. [The New Criterion]
• It’s not that people don’t like dogs anymore, but the unwavering loyalty toward dogs (especially juxtaposed with a so-called Karen) has come to an end. People may still like dogs, but not all dogs, and certainly not all dog owners. A couple ignoring trail rules to bring an emotional support dog on their hike is no longer the default good guy. The vibe shift against dogs is here—and it’s not just about dogs. It’s about society, families, and what constitutes “order.” I’ve noticed this shift myself. I’ve never been a Dog Person, but I’ve always appreciated dogs from afar. I grew up with a dog I loved. I don’t want to own a dog, but if a friend has a dog I’m happy to interact with it. I think most dog owners are good people who follow the rules. But rules that relate to dogs—barring them from specific locations, or requiring leashes—exist for a reason. And society seems to be getting a bit collectively annoyed by the small but very visible group of dog owners who think these rules don’t apply to them. [Cartoons Hate Her]
• Mortgage rates have soared in recent years, and new mortgage initiations have plunged and stagnated. Very few can afford to buy homes given sky-high prices coupled with nearly 7% interest rates on mortgages. At the same time, very few homeowners want to sell, since it would mean giving up their 3% mortgages. This is an unstable situation that will eventually be resolved by falling home prices and/or falling mortgage rates. [Scott Grannis]
• I've written several times about my admiration for Argentina's Javier Milei (see MAGA down south). Many called him crazy, but he, like Trump, overcame seemingly insurmountable odds to beat the candidate of the ruling party. Argentina was teetering on the precipice of an economic collapse, and now, after just one year of Milei's ministrations, inflation has been radically downsized, from 25.5% per month when he assumed office a year ago to only 2.7% last month, and the economy is once again growing, with some projecting real GDP growth of almost 10% in the coming year. Confirming the dramatic improvement in the outlook, the free market peso (the "Blue" dollar) has been almost unchanged over the past year (see Chart #1), and the Argentine stock market (using ARGT as a proxy) has surged by almost 75% in the past year in dollar terms. [Scott Grannis]
  

Commodity Investments Under Cornucopianism

If someone who lived before the Industrial Revolution could visit our world today, what would surprise them the most is that no one is hungry anymore. Food has never been cheaper in human history than it is today. The real price of wheat peaked about two centuries ago and has been falling ever since.

The 12th largest company in the world (LLY) sells treatments for type 2 diabetes, caused by overeating. The 19th largest company (NVO) found a peptide hormone in Gila monster venom that helps people reduce their food intake by lowering appetite and slowing down digestion. 

Let's imagine four possible wheat-related business models over the time period since the price of wheat peaked:

- buying and storing physical wheat
- renting land and growing wheat
- owning land and growing wheat
- owning land and renting to a farmer (perhaps for a percentage of his harvest)

Storing wheat would have had a strongly negative return. Not only has the real price of wheat fallen, but the cost of storing grain is something like 25 cents per bushel per year (not counting the cost of extra drying and handling that is required) which would be a further several hundred basis points deducted from the annual return. Clearly this business model would not be a winner.

The farmer renting land has a business model that is analogous to an oil or gas producer, selling commodity outputs and buying mostly commodity inputs, and doing the transformation on rented land. (Although the farmer sometimes uses premium inputs, like patented seeds and such.) The farmer on rented land rarely has a great year. He needs the wheat price to be above his cost to make an economic profit. That can happen occasionally on a random basis if, for example, other farmers' crops get wiped out by pests or weather, while his survive. This business model cannot be expected to result in economic profit over time, although the farmer can make a living at it. (Pardee Resources made the mistake of investing in two agricultural investments in 2016 and they are finding out that the farmer's economics are not good.)

On the other end of the spectrum, the landowner renting to a farmer for a percentage of his harvest has the a business model analogous to the mineral royalty owner. The farmer would be responsible for the capital expenses, the operating expenses, and the working capital investment. Something noteworthy is that the landowner's percentage rent figure would be always positive, never negative.

The relative outcome of these other three business models would have depended on the price of land and other variables. Theoretically, the market prices and rents could have been such that the superiority of the royalty model was priced-in, but practically we would bet that the landowner's return would have been the best by far. Surprisingly, even as the real price of agricultural commodities has fallen, the real value of agricultural land has risen. Over such a long time period, the landowner might also have benefited from the conversion of agricultural land to higher and better uses.

Conventional U.S. oil production peaked in 1970, which was what Marion King Hubbert (1903-1989) predicted in 1956. The price of crude oil exploded higher and energy scarcity became a major concern. At least for most: Herman Kahn was sanguine about it. In his book The Next Two Hundred Years (written in 1976), he predicted that the energy crisis would subside because people would either find a way to produce more oil or else they would use what they did have more efficiently.

And that is what happened. He specifically anticipated that people might eventually figure out how to extract oil from source rock instead of reservoir rock formations. Now the production of this "tight" oil using horizontal wells and hydraulic fracturing has surpassed conventional oil production in the U.S. One consequence of this is that the real price of oil (WTI crude, deflated by the producer price index) is now lower than it was twenty years ago, when Twilight in the Desert was written. (See chart and longer view from 1946 to 2013.)

Historically, the production of oil was limited by the requirement of finding oil that had been trapped in a porous and permeable layer of reservoir rock. A conventional, vertical oil well can only produce oil from rock of sufficient porosity. For the oil to get there required a conjunctive set of events over millions of years: burial of organic matter, "cooking" this material into hydrocarbons at a sufficient depth and pressure, migration from the source rock layer (e.g. shale) to a reservoir layer, and trapping the hydrocarbons geologically in that layer with something like an anticline, fault, or salt layer.

It stands to reason that there is far more oil in the source rocks than what migrated to reservoir rocks and happened to be contained by geological traps. The horizontal drilling and fracturing of the source rocks is more expensive than conventional production, but maybe by a factor of 2-3 (i.e. less than an order of magnitude). It also seems as though the producers have gotten better at this process: a typical learning curve effect.

This makes shale producers the highest cost producers of oil. There are still large amounts of cheaper supply out there, such as the Saudi conventional oil fields (still producing almost 10 million barrels per day), Canadian oil sands, and deepwater fields.

When the price of crude oil is above the marginal cost of shale production, the shale producers respond by drilling more wells. This quickly drives the price of oil back down to the shale producers' marginal cost, which is below their full-cycle breakeven cost. This causes the business to consume capital over time instead of generating a return on capital. Shale production has the economics of the farmer or rancher on rented land, or of an Uber driver. Being the highest cost producer of a commodity is a bad business model that consumes investors' capital.

As we have noted in the past, the mineral owners have done much better since they benefit from the uneconomic drilling by the producers. The Dorchester Minerals partnership (DMLP) has compounded at 10% per year (total return) since the price of oil peaked in June 2008.

The S&P Oil & Gas Exploration & Production ETF (XOP) has made about 1.15% per year (total return) since inception in June 2006, and it includes a number of companies that are not shale producers or even E&Ps, such as Texas Pacific Land. (It also gives exposure to diversifying business segments such as the refining and conventional production of the major integrated companies.) Investors in shale producers have done much worse than the XOP index and have almost certainly lost money even in nominal terms.

What we have come to think is that shale is a cornucopian bounty, and the producers do not make money because they are in a classic bad business (resource extraction), not because there is something unsustainable about producing oil from the source formations. Being the highest cost producer of a commodity is just a constant tale of woe punctuated by occasional profitable times. The good times keep people - both managements and investors - chasing the dream.

The shipping industry is like this. As we noted a decade ago, shipping is a bad business. The price per ton mile continually falls in real terms. As soon as you take delivery of a new ship, your competitors order ones that are bigger, faster, and more fuel efficient.

Ships are lottery ticket investments that attract gamblers. The distribution of shipping rates and ship values has skew that attracts gamblers, because the supply of shipping capacity (tonnage-miles) is inelastic enough (although not perfectly inelastic) that the rates an owner can charge will have huge swings. This is particularly attractive to agents who are buying ships with other people's money.

The Haynesville Shale natural gas producer Comstock Resources is a perfect illustration of high cost commodity producer economics.

During the most recent quarter, Comstock sold 133 billion cubic feet of natural gas for an average price of $1.90 per thousand cubic feet. As you can see in the results above, this was not enough for Comstock to have positive free cash flow. But if they could have sold their natural gas for about $0.50/mcf more, that would have been enough additional revenue to be about breakeven on free cash flow.

Jerral Wayne ("Jerry") Jones is the 82 year old owner of the Dallas Cowboys and the majority owner of Comstock. Earlier this year he plugged another $100 million into the equity. As long as he is willing to produce natural gas for a loss, the price will be slightly lower than it might otherwise be. (Comstock is producing ~1.6% of U.S. natural gas.)

Comstock is owned by Jones and by index funds: various funds like the iShares Core S&P Smallcap ETF, the Vanguard Total Stock Market Index Fund, the iShares Russell 2000 ETF, and of course the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) own most of the float.

A funny side effect of index investing is that a slice of those investors' capital is invested in the most inferior oil and gas business model (the shale producers), while investments in the best business models (the royalties and the pipelines) are mostly off-limits to the passive investors, because they are structured as partnerships or trusts, or they are heavily insider owned, or private.

Implications

• If there is many times more hydrocarbons in the source rock than there were in the reservoir formations and you can get the natural gas out for under $3/mcf (and the oil for under $100/bbl), the future is pretty cornucopian.
• Investing in the high cost producers of commodities (e.g. shale in oil & gas) is not going to work well if cornucopianism is right. Those who are most bullish on the commodity price like these because of "torque" (leverage) if the commodity price goes up, but our hypothesis should be that the high cost producers are lottery tickets attracting gamblers because of the skew.
• If the highest cost producers are generating significant free cash flow, then the commodity is overpriced. We should have realized this when the frackers were paying off debt and buying back stock with high oil prices in 2022 and 2023. Buffett's favorite Occidental Petroleum (OXY) is below where it was in March 2022. On the other hand, the royalties, lower cost producers, and pipelines are all up. One idea would be to short the highest producers against these superior business models. 
  
• Land has always been a building block of a first class fortune. Land is perpetual and land has many possible uses. It is particularly interesting when we find a mineral royalty investment that is still coupled to the surface because then we have the possibility of alternative energy, data centers, and development for commercial, residential, or industrial purposes.
  

Monday Afternoon Links

• Economic sectors reach their peak salience when the industry is either at peak valuation or just starting to decline, and they don't get thought of much after that. (At one time, the most-watched episode of television in history was Who Shot J.R.?, a soap opera episode about the murder of an oil baron. In the 2020s, oil just isn't synonymous with money, and for a similar punch your show would have to be about someone in tech, or just maybe finance.)  [Byrne Hobart]
  
• Their explanation for our doldrums is simple: we’re more risk averse, and we don’t care as much about the future. Risk aversion means stagnation, because any attempt to make things better involves risk: it could also make things worse, or it could fail and turn out to be a waste of time and money. Trying to invent a crazy new technology is risky, going into consulting or finance is safe. Investing in unproven startups or speculative bets is risky, investing in index funds is safe. Trying to overturn the scientific consensus is risky, keeping your head down and publishing papers that don’t say anything is safe. Producing challenging new art is risky, spewing an endless stream of Marvel superhero capeshit is safe. Even if, in every case, the safe option is the “rational” choice for an individual actor in maximin expected value terms, the sum total of these individually rational choices is a catastrophe for society. [Mr. and Mrs. Psmith’s Bookshelf]
• Fundamental to our approach to energy markets at RBN is a view that natural gas, crude oil and NGLs have become much more interdependent than in the days before shale. What happens in gas impacts NGLs, which influences crude oil, which loops back to the natural gas market. There was a time when you could live out your career in the gas business, or the NGL business, or the crude business and get by with knowing very little about the other hydrocarbon markets. Those days are gone forever. For example, today’s gas prices make no sense unless you understand the economics associated with NGLs and associated gas production. Production of condensates from crude wells directly compete with natural gasoline, the highest margin NGL for gas processors. Natural gasoline prices are being boosted by its use as a diluent for Canadian bitumen crude oil. Low prices for ethane result in rejection of ethane molecules back into the natural gas tailgate stream of gas processing plants. These examples and many more typify today’s highly integrated liquids and gas hydrocarbons markets. [RBN Energy]
• Its nature owes to the fact that it is an island, surrounded by stormy seas. Too small to grow all their own food, the British had to use those seas. Their merchant marine and their navy became huge and skillful. This affected fundamentally the governance of Britain. On the Continent, kings had big armies, which made them strong against their parliaments (Churchill’s word for legislatures), and they became more absolute. Britain had a big navy, and the king had trouble getting money from Parliament even for that—and much more trouble for the army. Navies are not so handy for oppression at home. Britain became freer, power more divided. Once the British had conquered the stormy seas near Britain, they could go anywhere in the world. And they did. [The New Criterion]
• At the conclusion of the war two years later, Hussein found himself buried under nearly $80 billion in debt owed mostly to the Gulf states, a massive reconstruction project to repair the damage done by eight years of war at an estimated cost of $230 billion and a standing army of more than one million he could neither afford to pay nor release into the devastated economy. Hussein required oil prices to be raised to a minimum of $25 a barrel to remedy his situation. Instead prices fell from $20.50 a barrel in early 1990 to $13.60 in the summer due to continued overproduction by Saudis and Kuwaitis, each dollar taking a billion dollar toll on Iraqi revenues. To add insult to injury, Kuwait was allegedly slant-drilling along its border with Iraq into the Iraqi side of the Rumaila oil field, causing an additional loss of $2.5 billion. Saddam claimed "The oil quota violators have stabbed Iraq with a poison dagger," issuing the ominous warning that "Iraqis will not forget the saying that cutting necks is better than cutting means of living." [link]
• The 2020 election forced everyone’s eyes wide open for vote rigging, but far fewer have paid attention to the corruption of the last United States Census, conducted in one of the worst years in human history, 2020. This isn’t me spit balling, here.  The Census Bureau came out and admitted that they botched that census.  Just like every pipe burst, power loss, machine failure, extension, or batch of found ballots always favors the Democrat candidate, who do you think the census botch favored? [Seth Keshel]
• “I know the Americans have increased production pretty dramatically in the last 10 years, but it might not always be that way,” she said, speaking after her province joined the recently established Governors’ Coalition for Energy Security as the first non-US state member. “They need to know that if they’re looking for additional supply, they shouldn’t be looking to Iran or Venezuela. They should be looking to their friend up north.” [Bloomberg]
  

Sunday Night Links

• And it’s undeniable that Republicans created a really powerful message: “She’s for they/them, and Trump is for you.” That was, I think, our cycle’s version of “where’s the beef?” or “I knew Jack Kennedy, and you’re no Jack Kennedy.” That kept hitting again and again and again and again for 10s of millions of dollars. It had an ear worm quality. And I’m not surprised that that resonated. [John Fetterman]
• I am unfortunately a Democrat, but as someone who lives in a place that is governed very badly by Democrats, I can easily understand why “can you imagine what incompetent, lunatic shit those people will do if they get control of the government?” would fall flat as an argument against Republicans. It doesn’t surprise me that the very largest swings away from Democrats in this post-COVID, post-George Floyd, post-inflation election occurred in blue states. The gap between Democrats’ promise of better living through better government and their failure to actually deliver better government has been a national political problem. So when Republicans made a pitch for change from all this (or even burn-it-all-down), it didn’t fall flat. [Josh Barro]
• And I believe that that's what this election is saying to the world and to this country is that the majority of Americans still believe in our country. They still believe that we should have law and order. They still believe that if you want to come to this country, it's a simple process. You just go through the legal process and you can enter. But when you have an administration that is, for all practical purposes, doing everything they can to allow tens of millions of people to come into this country over the last four years, when many of them probably are coming in are good people that just want the American dream. But look what's come with them, look at all the drugs and the gangs and everything, and they're doing it for one reason, for political power. And just how insane and how sick is that, that one of our parties is so enraged for political power they are willing to create safety issues for our country. So, anyway, parlay that into the oil and gas industry and just the attack that we've had in the last four years, what a breadth of fresh at the Trump administration is going to bring. [Energy Transfer (ET) Q3 2024 Earnings Call] 
• On Tuesday, Trump became the first GOP presidential candidate since William Howard Taft in 1912 to win Webb. It’s perhaps the most impressive jewel Trump has collected in his stunning crusade through what was once deep blue South Texas. Webb’s population is more than 95 percent Latino, and, like other Mexican American counties across the region, it shifted hard right in the 2020 election. Trump almost quadrupled his turnout that year relative to 2016, but the Democrats’ advantage was strong enough that the party still managed to beat him handily, sending Biden 61 percent of the vote. This year Trump won with 51 percent, flipping Webb and almost every other heavily Latino border county in Texas. Hidalgo County, home of McAllen, which Hillary Clinton once carried with 69 percent of the vote, went to Trump with 51 percent; Cameron County, home to Brownsville, gave Clinton 65 percent of the votes in 2016 and Trump 52.5 percent this year. [Texas Monthly]
• U.S. exports of ethane and ethane-based petrochemicals reached an all-time high of 21.6 million metric tons (MMmt) in 2023, up 135% since the United States began exporting ethane in 2014 and 17% more than in 2022, according to data from the U.S. Census Bureau. The rapid expansion of U.S. ethane and ethane-based petrochemical exports has been fueled by the growth in domestic ethane production, which has increased with the country’s natural gas production and the buildout of export and production infrastructure. Ethane is a natural gas liquid that’s primarily extracted from raw natural gas during processing. It’s mainly used as a feedstock for ethylene production, one of the most important building blocks in the petrochemical industry. Ethylene is a gas used to produce a wide range of products, including plastics, resins, and synthetic rubber. [EIA]
• Toyota Motor Corp.’s North American chief operating officer criticized US policies promoting speedy adoption of electric vehicles, calling them “de facto mandates” out of sync with consumer demand. Noting government support for EVs has been a hotly debated issue in the US presidential election, Toyota North America COO Jack Hollis said sales of all-electric vehicles should grow organically, without rules penalizing gas-powered car sales. [link]
• Solar panels are a revolutionary technology, one in which manufacturing creates energy as an output not merely an input. Inert glass rectangles that, placed on the ground, print out wealth, at roughly 100x the rate of the best farm land. We should deploy as many as we can! [Casey Handmer]
• Every muscle fiber wants to be exactly as rich in creatine as achieved with creatine supplementation. All of your cells want to be rich in creatine. Your brain is dying to be this rich in creatine. Your muscles are starving to be this rich in creatine. It is completely natural to be this rich in creatine, yet most of us in the modern era who don’t supplement just aren’t that optimized. The creatine we require to be optimized is likely etched deep into our beings by our ancestral consumption of one to two pounds of meat per day. When red and rare, one pound can give the dose that saturates tissue stores. When white and well done, two pounds may be required. [Chris Masterjohn]