ESG Issues + Market Update
What is ESG?
With the environmental, social and governance movement becoming mainstream the last few years, it seems like you can’t read an investor presentation anymore without seeing a section on “ESG Initiatives.”
When asking different management teams and investors what ESG is, odds are you are going to get a lot of different answers. This is a problem. Given how much importance has been put on “ESG Rankings,” the ambiguity and subjectivity around the topic makes for a serious issue when trying to navigate the new world of being ESG compliant.
Take for example the video that went viral today around social media showing open pit mining for cobalt used in EV batteries and consumer electronics.
This mine is selling cobalt to Chinese battery manufacturers that supply parts for companies claiming to be ESG compliant.
Other companies like Pepsi are consistently ranked high on the ESG rankings while their products are known to cause issues related to diabetes and heart disease.
This week’s episode of the Talk Energy podcast #138: “ESG’s Dirty Secrets” had guest Mark Neuman who is the founder of Constrained Capital. Mark talks in depth about the issues around ESG rankings and how it is creating artificial constraints and opportunities in the public equities markets.
Market Update
Crude Oil
At the time of the newsletter, WTI was trading at $93.97/bbl, $2.04 higher on the session. The prompt month contract north of $94 prior to the release of significant weekly storage build (+5.5mm bbls) by the EIA.
OPEC+ had previously announced plans to increase production output by 100,000 bpd in September. The IEA stated this Thursday that the planned increase will likely end up being a production cut due to lack of spare capacity. OPEC+ was 2.7mm bbls per day short of their announced production output.
President Biden announced plans to release the next round of Strategic Petroleum Reserve release of 20 mm bbls. They also announced plans for crude buy back to refill the SPR, which will provide additional price support for out months.
The EIA Petroleum Status Report for the week ending August 5th, 2022 reflected a crude inventory increase of 5.46 mm bbls. Domestic crude production increased slightly to 12.2 mm bbls. Refinery run rates increased by 3% from the prior week and continue to run at max rates at 94% utilization. Jet fuel supplied increased by 0.3mm bbls.
www.eia.gov/petroleum/supply/weekly
Natural Gas
While Nat Gas futures have remained steady for most of the week, in the high $7 range, this morning’s trading has prices crossing the $8 barrier and bouncing around the mid-$8 in early trading. With the news that Europe plans to ration natural gas this winter, many are questioning the planned 15% lowering of demand and its effect on supply as the uncertainty of winter temperatures will certainly play a role. US production looks to continue rising as 4 more rigs have been added, pushing the total US rig count over 160, surpassing the highest total since the fall of 2019. Although heat remains in the south, as we head into September cooler temps and shorter days are on the horizon. Time will tell if September can keep riding the bullish trend.
Midcon has seen an uptick in local demand while total inflows have fallen short as gas from the Rockies and Southwest Texas both dropped. A rise in gas production to 8.8 Bcf followed by an increase in supplies to 20 Bcf will both look to offset the declining inflows. While total demand dropped to 15.7 Bcf and power demand saw consecutive day declines down to 5.9 Bcf, residential/commercial demand was up to 7.7 Bcf, according to S&P Global Commodity Insights. Midcon prices have settled in the high $7 range as ANR-OK comes in $.22 off Henry Hub this morning at $7.67 while NGPL-Midcon follows closely behind at $7.60.
The EIA released storage numbers this morning, coming in at 2,457 Bcf, representing a net +41 Bcf increase from the previous week. This increase was slightly above marketplace expectations +37 Bcf. Stocks were 268 Bcf higher this time last year, however, this week’s levels are still within the 5 yr. historical range of 2,794 Bcf.
Natural Gas Liquids (NGLs)
All products in both Mont Belvieu and Conway were down week-on-week, except for MB Ethane, which stayed flat. The biggest MB loser was propane, falling 6% while N. Gasoline at Conway dropped the same. All other products were off across the board between 2-5%.
Rig Count Update: The U.S. oil and natural gas rig count added another seven as of last week to 863, its highest total since November 2019 per Enverus. The Eagle Ford saw the biggest bump, adding four to 85 and sits at its highest total in over three years. The Permian adding a couple, marking its highest level in two plus years (April 2020). STACK-SCOOP saw no changes again, sitting at 44 in the combined area.
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Do you happen to have a link to that video? It looks like this is just a screenshot. Much appreciated!