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Wednesday, November 12, 2008

Since we are living in interesting times we need perhaps to look at possible outcomes of this retest that we seem to be experiencing today. Dow down 256 and MLPS down over 4 and under 200. Markets are barometers and a successful retest of 7880 would be a sign that we could at least begin a long basing period. But what if that breaks. What are the implications? I believe a severe recession is being priced in. A break of that level and a trip to 7000 or 6000 or 5000? Depression!

1 to 2 point losses litter the screen with Copano (CPNO) Atlas Pipeline (APL) Natural Resource (NRP) Breitburn (BBEP) Alliance Resource (ARLP) Holly Partners (HEP) Enbridge (EEP) etc etc etc all down 1 point or more. When you look at prices these shares the idea of distribution cuts seems to be taking hold. You will know when the damage is over...and thats when they stop going down on the prospect of cuts...or actually rise on the news of a cut. Unfortunately we have 3 long months to wait for this.

Markwest (MWE) is up 40 cents right now among the few gainers.

19 comments:

Anonymous said...

AP
Energy agency warns of supply crunch
Wednesday November 12, 10:30 am ET
By Jane Wardell, AP Business Writer
International Energy Agency calls for more investment in new projects to avoid supply crunch

LONDON (AP) -- The International Energy Agency on Wednesday called for massive investment in producing more oil to prevent a supply squeeze in coming years, saying energy demand will rise 1.6 percent a year on average between 2006 and 2030.
The IEA's base scenario for energy demand has fallen due to the global economic slowdown and higher oil prices, but the agency stressed that a delay in spending on new projects due to the credit crisis could lead to a "supply crunch that could choke economic recovery."

But project delays -- and cancellations in some cases -- is precisely what's happening as producers and refiners, large and small, adjust to oil prices that have fallen more than 60 percent since peaking above $147 in July.

Many companies have slashed their capital spending budgets for at least the coming year. Just last week, ConocoPhillips and the state-run Saudi Arabian Oil Co. said they've postponed construction of a multibillion-dollar refinery in Saudi Arabia because of the uncertain economy.

The IEA expects demand for oil to rise from 85 million barrels per day currently to 106 million barrels per day in 2030 -- 10 million barrels per day less than projected last year.

China and India continue to be the main drivers, accounting for more than half of incremental energy demand to 2030, but the Middle East, a longtime supplier, also emerges as a major new demand center.

The agency said that these trends call for energy supply investment of $26.3 trillion to 2030, or more than $1 trillion a year, but it noted that tight credit conditions could delay spending.

"While the situation facing the world is critical, it is vital we keep our eye on the medium to long term target of a sustainable energy future," Nobuo Tanaka, the Paris-based agency's executive director, told reporters at the release of its annual World Energy Outlook report in London.

The IEA is a policy advisor to 28 member countries, mostly industrialized oil consumers.

Last year, Platts, the energy information arm of McGraw-Hill Cos., said companies that produce, refine and transport oil and natural gas will need as much as $21.4 trillion in capital expenditures through 2030 to meet the world's energy demands.

However, Platts also noted the industry already was falling behind the spending curve, in part from limited access to new potential reserves for the major multinational oil companies.

The Organization of the Petroleum Exporting Countries, which pumps around 40 percent of the world's oil, cut output by 1.5 million barrels per day from Nov. 1 to counter a recent fall in the price of crude from a high of $147 in July to under $59 on Wednesday.

OPEC has also warned that crucial downstream investment -- in refining and distribution -- will be curtailed if the oil price is not maintained at a reasonable level.

Those curtailments are already happening. In addition to the postponement by ConocoPhillips and Saudi Aramco, North American refining giant Valero Energy Corp. has said it will curtail capital spending for the rest of 2008 and 2009. Also, Marathon Oil Co. said it's delayed expansion of a gasoline refinery in Detroit "due to current market conditions."

The IEA has nearly doubled its forecast for the price of oil over the next twenty years, because of rising demand in the developing world as well as surging costs of production as oil needs to be sourced from more expensive offshore fields and state-run companies.

It hiked its forecast for the price of a barrel of oil in 2030 to just over US$200 in nominal terms, compared to its forecast last year of US$108 a barrel. Measured in constant dollars, it pegs oil at US$120 a barrel in 2030, up from last year's forecast of US$62.

Over 2008 to 2015, it predicts the price to average $100.

Tanaka said that "while market imbalances will feed instability, the era of cheap oil is over." He said that a fundamental change was under way in the upstream oil and gas industry -- exploration and extraction -- with international oil companies facing dwindling opportunities to increase their reserves and production.

In contrast, national oil companies are expected to account for 80 percent of the increase in both oil and gas production to 2030.

However, Tanaka said it was "far from certain" those companies would be willing to make the necessary investment themselves or to attract sufficient capital to keep up the necessary pace of investment."

The report also highlighted the expected rapid growth of renewable energy resources. It predicts that world renewables-based electricity generation -- mostly hydro and wind power -- will overtake gas to become the second-largest source of electricity, behind coal, before 2015.

AP Energy Writer John Porretto contributed to this report from Houston.

Bruce

joewxman said...

"THE ERA OF CHEAP OIL IS OVER"


Not if we have a depression first!

Crude is at 56 a barrell and gasoline futures are heading for 1.25!

Anonymous said...

Yeah and we all know midstream energy assets are worth scrap value!

Anonymous said...

Although another poster accused me of being a Pollyanna (which is fair because I think many of you make Chicken Little look macho), I really do think all the Depression references are grossly overdone. Part of the problem is that many investors have known only a long-term bull market and don't have memories of something as recent as '80-'82 (double dip with 10% national unemployment and much higher numbers in certain areas) or '73-'74.

We WILL get through this. And for those of you who are convinced that MLPs are one-way tickets to oblivion, may I respectfully suggest that you just sell your positions and move on to something else that you think has a better risk/reward profile. No one is forcing you to own them.

Bruce

Anonymous said...

The pathetic thing about the G&P MLPs is that they did not participate in the crude/natgas ramp earlier in the year, but now they seem to disintegrate on every natgas downtick.

Just another brutal day in the neighborhood.

And yes Bruce you are a Pollyanna...

Anonymous said...

If these things were really as cheap as we say they are two things would be happening:

1. Insiders would be buying with both hands.

2. Consolidation would be taking place. The only thing we have had so far was the BGH takeunder.

So the cheap argument thus far holds no water.

Anonymous said...

Why should I own LINE at 10% instead of PFE at 8% or VZ at 6%?

The latter examples have no commodity exposure (directly anyway), are more liquid and arguably have as good or better change at capital appreciation in a market upturn.

As the poster above said, MLPs dont seem to gain much at high energy prices but are affected by lower prices. Not a great situation to be involved in.

joewxman said...

"Insiders would be buying with both hands."

Insiders have been buying for months now including today's 20000 share insider purchase at DCP Midstream. As far as i'm concerned they have little credibility.

Anonymous said...

"And yes Bruce you are a Pollyanna..."

Perhaps. Time will tell.

But why don't those of you are so convinced that MLPs are heading to zero, sell now? It makes no sense to ride them all the way down.

I think they call that putting your money where your mouth is.

Or do you just enjoy whining and playing the victim?

Bruce

Anonymous said...

Buying Pfizer for the yield has risks too. Ask anyone who's owned it over the last decade.

Anonymous said...

Bruce, I like your long-term perspective and am pleased with my recent purchases of KMP and LINE, and anticipate being pleased (long-term) with additional MLP purchases I intend to make. I am, however, holding off on those additional purchases until the market has a successful test of its 10 Oct S&P 500 low of 839.80 (meaning the market does not go below 839.80). JCarr

Anonymous said...

Bruce,

For the first time, since WW2, a deflationary depression is a real possibility.

I'd give it a 50% chance.

If somehow we escape a depression, then we face a stiff and deep deflationary recession.

The 80-82 recession was caused by Volcker's interest rate hikes.( fed funds peaked at 20%)

Once inflation was beaten, fed funds were lowered and we came out of recession.


This recession is caused by the colapse of a credit bubble.

It's unclear right now that the actions of the Fed and the Treasury (so far) are powerful enough to lead us out of this mess.


HS

joewxman said...

There is not a single asset class you could have put your money into and be standing around happy right now.

Ag stocks? Energy Stocks? Drugs? Tech? Retail? Anywhere and everywhere you look you would have lost money. Banks...lots of money lost there! Bear markets eat everyone and eveything around them and the mistake made here was that this was going to be like the 2000-2002 recession where what few mlps were around that time went up. But that recession did have to deal with the complete destruction of the financial system.

Bruce is correct. No one has a gun to ones head to hold mlps here or to add to positions. When this is over there will be survivors that will quickly double or even triple in price. But that's not happening tomorrow or next week..or next month..or maybe not next year. Right now we have to view someday in the context of a Disney fairytale. "Someday your dreams will come true"

Anonymous said...

We are in a depression, who gives a f*ck what the experts call it? Look around: layoffs, bankruptcies, equity markets -40% ytd, banks that refuse to do business, foreclosures,
$4 trillion in govt bailouts, etc, etc. What do you call this?

We have already blasted through recession. Its semantics.

Anonymous said...

HS,

I assume that you are 100% in cash. I certainly would be if I shared your views.

Bruce

Anonymous said...

Bruce,

I'm 75% in (CD's), 10% in corporate bonds, 10% in Munis and 5% in stocks.

I used to be 100% in stocks.

I still have 800 shares CPNO, 700 shares FR, 1200 shares EP, + some reit preferreds.

HS

Anonymous said...

looks like the entire G&P industry is going to zero.

Anonymous said...

The interesting thing will be Friday when everybody receives all these big pay checks. If by then nothing jumps - and I mean really jumps that is 25%-50% - then we are into serious trouble. The question is: What suckers are selling at these prices? Taking the 1% FED interest as a benchmark and looking at the hedges especially for the Upstream MLPs you have to believe that there will never ever be any kind of demand for oil and gas anymore. Doesn´t make sense and we all know that it didn´t make sense already a long long way back. At todays prices the 25% yield of BBEP enables you to buy 6% of the Co just using the divi on Friday.

Let´s make a little game: 50% of all shareholders intend to sell and 50% intend to buy but have no more money. On Friday they have. And this means? They can buy 6% of the sellers stake and this is pretty huge if you monitor shares traded and shares outstanding. Normally you can turn a stock around easily by just taking off 5-10% of the market. So I really don´t know what idiots are selling today. But I am looking for Friday investing my divis well below book value and I suggest the lone buyers with me do the same.

But what if we don´t have 50% real sellers at these insane prices?

Should produce a nice, nice short squeeze.

Oggo

Anonymous said...

Some of us live on our distributions, so we don't reinvest them. You'd better factor me out of that equation... Maybe some others, too. With reductions, implemented or planned, I'm holding onto to all my cash.