Oil

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Through the Crystal Ball Part 2

Last week we speculated on what the future might hold for fossil fuels and renewable energy. Now, the P4Capital executive team concludes that discussion with this week’s round table discussion.

Stay tuned.

Transcript


Amanda: And we’re back! Here is part two of through the crystal ball: the future of oil.

Jeremy: So that immediately suggests again that demand for oil will drop due to a technology shift. In fact, if one actually looks at the history of oil as a technology driver it’s less than 100 years old. In most economies it’s less than 75 years old. Which, that breakthrough that Shaheerah noted right now, will change the composition and make up of most trading markets around the world instantaneously as that becomes a commercialized venue for fuel.

Shaheerah: I also wanted to mention some predictions that scientists have made. So currently right now we are in 2015. By 10 years from now, scientists predict that by 2025, methods of converting and storing solar energy will be so advanced that solar energy is actually going to become the primary source of energy on the planet. A company called Tesla has predicted that by 2025, electric vehicles will take over the traditional vehicles we have. Batteries will store more energy in 2025, and batteries will recharge 10 times faster, resulting in electric vehicle fleets that can be used both on the ground and in the air. And so, small-scale commercial aircraft will be powered by light lithium ion batteries. This will actually be the preferred way of short-haul flights.

Jim: And again as a supplements to Shaheerah’s point right now, Tesla is a fine, fine automobile. There are no fossil fuels in Tesla what-so-ever. So how long will it be that one can drive your car from here to 500 km away without worrying about any refuelling. I think that day is within the next year.

Amanda: On a side note here, a car called the Strati is hoping to hit the roads later this year, that’s in 2015. This is a 3D printed car. It takes 24 hours from conception to finished product.

Jim: And when had I talked about the smart manufacturing that in fact is exactly prime example A of what smart manufacturing is. You walk in, you work with a 3D cartographer, and you’re able to come back the next day for your finished product. Mind blowing, is it not?

Archana: It sure seems like we’re living in exciting times, all the data that Shaheerah and Jim just provided to us, I mean it just seems like the amount of technological advances that we’ve made. Obviously, oil is going to become less and less relevant over the coming years. But a recent study by a US government backed energy information administration actually estimated that only about 11% of the world market energy consumption at the moment comes from renewable energy sources, which includes your geothermal, your hydro power, your solar, wind and other sources. BP actually puts this at 9% of world-wide energy consumption in 2013. So just about 9% of worldwide energy consumption was attributed to renewable energy resources in 2013. By estimates, they put this number by, 2040 at 15% of global energy needs coming from renewable energy sources. All these technology advances does make me wonder why has the adoption been so slow. One of the reasons that I, while I was researching this subject, that I can across was the cost of production, storage and the transportation of these bio fuels still remains very high.

Jeremy: There’s another point to be made here about how the future of manufacturing is dependent on oil. To look at it from a different angle that we have, and to quote the movie The Graduate, plastics – the future is plastics.

Jim: Again, somewhat interesting commentary by Jeremy. P4Capital is dedicated to the women and men who work within the trading systems; all sorts of products and monies as they’re being trading. This change in the way fuel is developed into the overall economy will mean dramatic, systematic shifts in the way money is moved around the world. I’m wondering if today’s technologies in the capital markets, and those that have invested in their wealth management portfolios, are quite aware of what’s going on in these changing times.


 

That concludes the P4Capital teams discussion on the future of fossil fuels.  To listen to part one, or just check out some of our other round table discussions, check out our website  at http://www.planet4it.com or follow us @p4capital. Thanks and see you next time.

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Looking through the Crystal Ball: Oil – Part 1

How important is oil to our future? Will prices continue to decline as new sources of power take their place, or will they sky rocket as world economies continue to shake. In the first of a two part series, the P4Capital executive team speculates on what the future holds.

Stay tuned.

 

Transcript


Amanda: Last week CEO Jim Carlson speculated on looking through the crystal ball to see the future of oil. In the first of a two part series, the P4Capital executive team does just that. Join us as we speculate on the future of renewable energy, the economy, and if fossil fuels will become fossils themselves.

Jim: Today’s topic is, is oil relevent for the next 20 – 30 years? We examine the impact of the recent price decrease in oil as a natural resource, and some of the findings that have been published as new manufacturing direction under industry 4.0, which is basically to paraphrase: a smart factory.

Shaheerah: Okay, just to recap a little bit from our last Podcast, demand is low because of weak economic activity, increased efficiency, and a growing switch to other fuels instead of oil. America has become the world’s largest oil producer. Although ti does not export crude oil, it imports much less. And so that’s creating a spare supply. Saudi’s and their Gulf allies have decided not to sacrifice their own market share of oil, so they decided not to lower their production supply. Countries that they don’t like, like Iran and Russia would benefit from that so, they don’t want to give up their market share. Saudi Arabia can actually tolerate lower prices quite easily. They have 900 billion dollars in reserves, and their own oil costs only 5 – 6 dollars per barrel to get out of the ground.

Amanda: That’s Saudi Arabia, right? Do you know anything about Dubai?

Jeremy: Well, it’s interesting that you bring up Dubai Amanda. I don’t know what their cost of oil production are, I image they’re similar to Saudi’s same general area of the world, but if we’re betting on the future of oil it looks like United Arab Emirates and Dubai in particular, have been trying to diversify their economy and kind of position themselves as a modern-day Disney World for adults. That where they see oil going.

Jim: Coming back to market share as Shaheerah pointed out, Iran and Russia obviously see the benefits of being a net exporter of oil. The other nations that are being analyzed right now is North America itself. The oil sands coming out of Alberta and regardless of when the pipeline will be commissioned into operations, that will give North America a complete footprint from the ground into pump, where the need for importing of oil will be dramatically reduced. Therefore what you’ve done is you’ve taken the appetite from oil and now said to the major oil producers, I really don’t need your oil to come across the seas as it is right now. I can produce my own.

Archana: Talking about Alberta, yes I mean, it is a very oil dependent economy, but there is a major push in fact on Alberta’s premiere to make it more resistant to these oil shocks. When the economy is so dependent on oil and the sustenance of the economy depends on upheavals that are going on in the market, it can be quite a volatile situation. So there is a major push in Alberta to diversify and to look at other avenues as well. Also, another thing to be noted is that this week, Canada’s top banks are expected to bring out their results this week, and it is expected that the results would show a major decline in investment banking profits, primarily due to the oil prices.

Jim: The crystal ball of the future, which is not too much in the future, says smart manufacturing is going to be the way the, quote unquote western economies will be headed, and they are in fact headed their right now. Which is a heavy adaptation of technology with the use of breakthroughs, and the internet of everything, cybernetics, etc. Currently, if one looks at global manufacturing, the engine is China, and China has to import all its fuel to keep its manufacturing plants up and running. And the interesting part about what China does, is they do first and secondary manufacturing, but finishing manufacturing normally goes back to the domiciled country. So therefore, manufactured parts have got to be, the raw materials have got to be shipped to China, and to the semi-finished parts have to be shipped to another country. That requires a huge amount of fossil fuels to make that happen right now. As I mentioned int he crystal ball, that model is now under attack primarily from the western based economies saying “Wait a minute, if I can manufacture at a lower cost than I can currently right now, I don’t have to rely on China and I don’t have to rely on the price of fossil fuels in my overall manufacturing price, so that’s what’s happening right now – as we speak, in the technology fields.

Jeremy: Now I’m no geologist, I don’t know what you guys heard, but how does China – a country that’s almost as big in terms of land mass as Canada or the United States, fourth biggest in the world, how do they not have a major domestic oil production of their own?

Jim: If you’re asking me the question becomes rhetorical, because I have no idea of what the answer is.

Amanda: It should be noted that P4Capital is capital experts, not necessarily geographers.

Shaheerah: I also wanted to mention some recent advances in technology and science. Last year in April, the US navy scientists actually found a way to turn sea water into fuel. This new fuel is initially expected to cost around 3 – 6 dollars per gallon, according to the US naval research laboratory. They have actually already flown a model aircraft on that as well. So the scientists found a way to extract carbon dioxide and hydrogen gas from sea water, and then these gases are then turned into a fuel by a gas process with the help of catalytic converters.


 

That was the P4Capital team discussing the future of oil and what could replace it. Want to know more? Stay tuned for part two next week, or check out our website  at http://www.planet4it.com or follow us @p4capital. Thanks and see you next time.

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Black Gold

Black gold; oil; the cause of wars, peace and anarchy. What do we do when we have too much of it? The P4Capital team speculates on the future of the economy when oil prices are bottoming out.

Stay tuned.

Transcript


Amanda: The world runs on oil. Until it doesn’t. For the first time in a long while, the world’s demand for oil is less than what we can produce. What happens to the global economy when we have too much oil? The P4Capital team investigates in this weeks round table discussion.

Jim: Today’s topic is about the falling oil prices in Canada, and how that will affect our economy.

Shaheerah: Oil prices were really high since 2010, and that was because of all the demand from China.  But then these high prices made the US and Canadian companies search for new to hard to extract crude oil. And now oil demand is actually falling because of all the weakening economies such as the ones in Europe. And so by late 2014, there was an over-supply of oil and the price started to fall. And then at the OPEC meeting, Saudi Arabia refused to cut production, and so that made the price drop even more.

Jeremy: David Rosenburg from the financial post wrote an interesting article, outlining different predictions initially at $100 per barrel, which we were looking at the beginning of the year, compared to $50 per barrel, which is roughly the current price. At $100 a barrel, stocks on the TSX, their earnings per share were forecasted 15% growth, whereas at $50 a barrel we’re actually looking at a projected 10% decline at earnings per share. The effects to your portfolio are probably going to be seen.

Jim: Just a bit of clarity Jeremy, are you saying on the overall basket of TSX stocks, or does it pertain to each individual stock holding.

Jeremy: Well, no I think that would be projected across the basket of holdings in the TSX index. And welcome back Jim.

Jim: Thank you, it’s great to be here.

Archana: Oil, in my opinion is obviously the biggest driving force behind all financial markets, and just like Shaheerah pointed out first, it was an oversupply situation – supply greater than demand. And now it’s the global slowing down of economies that we’re currently facing, as well as the uncertainy in Europe and the unrest in the middle east as well, which is all adding to the decline in oil prices.

Amanda: It’s interesting to me, over the last few years in Canada, Alberta has always been in the news for having a thriving economy because of their oil sands. I wonder how the decline in oil prices, and as Jeremy said the overabundance of oil supply in the world is going to affect the Alberta oil sands. Any comments?

Shaheerah: Yeah, so let’s talk about how this is going to effect the Canadian economy. So the oil and gas sector makes up 11% of Canada’s GDP, and the oil price per barrel dipped to below 50 bucks in January, and this is the lowest level it’s been since April 2009. And now that oil prices are dropping, Canada’s energy sector is cutting back. Now CIBC bank is actually giving a warning that Alberta, which is Canada’s biggest oil and gas exporter, is going to face a mild and temporary recession. And similarly  to that, JP Morgans were that the oil collapse means there will be blood. Alberta’s economy is going to shrink by 0.3% and as well unemployment is going to be going up 6.8% according to the chief economist Avery Shenfeld. And this is not because of the production cut backs, but rather it’s because of all the Canadian oil companies that have been cutting back on their budgets and laying off all of their workers.

Jeremy: Yeah, to further on Shahherah’s point, the process of extracting gas from the oil sands is a pretty costly production. It only works at a certain price level. So at the prices where oil is at these days, you’re not going to find many new projects being greenlighted, so the existing ones are going to run their course, but there’s not going to be new ones underway which is going to affect the whole economy, specifically the banking sector which provides the funding on a lot of these new digs.

Archana: The situation in Alberta might actually be a go do thing for us here in Toronto, which traditionally has been a manufacturing hub. Activity might actually pick up here in Toronto; the contribution of the manufacturing sector to the overall economy might actually go up in the coming times.

Jim: The consumer price index is going to be very interesting to watch as the year goes on, because as cost per litre at the gas station has fallen so dramatically it’s actually putting hard dollars; green dollars back into the consumer market place. Those green dollars, one of two things is going to happen to them: either A Canadian’s will pay down more debt or B they will buy more things along the way. So for the hardships that Alberta is going to be facing, specifically the ones that are wildcatting, looking for new opportunities in the oil and gas sector, they’re going to be hit very hard. The existing production facilities, it’s more a function of the keystone pipeline going to be approved, yes or no? But it’s the CPI and the non-prairie provinces that I’m going to be very very interested in seeing.

Amanda: What do you mean by Wildcatting?

Jim: Wildcatting is exploring.

Jeremy: Probably not a great time to be selling your house in Alberta right now, especially in the Fort McMurray area.

Amanda: It might be a good time to buy a house though.

Jeremy: If you can afford it with oil at these prices.

Archana: Just like Jeremy had pointed out, oil extraction, the process itself, is quite expensive. Companies are obviously looking at other alternate products right from national gas to propane, and shale production in the US is also topping numerous lists. And overall, we’ve in fact seen a reduction in US oil dependence. From 2007, there’s been about 41% reduction in imports in the US.

Jim: That will probably lead to our next topic in our upcoming Podcast. “Is the overall global economy requiring less oil for its manufacturing and auto engines. It’s quite interesting to put your eyes into the crystal ball and say “Hmm, that in fact could be a game changer.”


 

That was the P4Capital team discussing the decline of oil and what it means for the Canadian economy. How much oil is too much? Want to know more? Check out our website  and previous posts about Bitcoin at http://www.planet4it.com or follow us @p4capital. Thanks and see you next time.