In order to generate cash and improve liquidity, commodity trader Noble Group Ltd. Inked a deal to purchase its American energy business to US power generation company Calpine Corporation for $1.05 billion.
The deal is the latest action in a series of undertakings designed to lower its debt as well as improve its reputation. Shares of Noble have staggered badly since February 2015, when an anonymous research group accused it of questionable accounting methods. Noble insists it did nothing wrong, and even accelerated disclosures. Poor showing of commodity prices did not help the poor earnings experienced by the company.
Therefore, in order to create cash and ease liquidity, Noble announced a series of sales of assets and reduced expenditures.
In a statement released to the Singapore Exchange, Noble announced that it will receive $800 million for Noble Americas Energy Solutions. It will be paid an additional $248 million for the US unit’s working capital.
Calpine describes itself as America’s largest generator of electricity from natural gas and geothermal resources. In July it its third quarterly loss in a row.
In order to comply with legislation enacted ten years ago, the US Environmental Protection Agency ordered a small increase in the amount of renewable fuels blended into gasoline. Neither oil producers nor biofuel producers are happy with the percentages.
This year’s gasoline supply will have to have 16.93 billion gallons of corn-based ethanol and other renewable fuels mixed into it; while the 2016 supply will have to include 18.11 billion gallons of renewable fuel. Too much for big oil, but not enough for ethanol farmers.
The numbers are a compromise; they are above the levels proposed by the EPA in May, but are substantially lower than the amounts mandated by law, which refiners have said are “unrealistic.”
“With today’s final rule, and as Congress intended, EPA is establishing volumes that go beyond historic levels and grow the amount of biofuel in the market over time,” announced Janet McCabe, the acting assistant administrator for EPA’s Office of Air and Radiation. She added that the final rule will “provide for ambitious, achievable growth.”
In 2005 Congress initiated a program to slowly but steadily increase the percentage of biofuels to be blended into the US gasoline supply. The law was enacted with two goals in mind: to help free the US from its dependence on foreign sources of oil for gasoline, and to also reduce the carbon footprint of gasoline emissions. The fight over amounts of biofuels to be mixed in has pitted oil companies against farmers in the mid-west, where corn is grown to be the source for ethanol, and important biofuel.
The price of crude oil futures climbed a bit on Monday as demand from Asia and the US edged up as well.
Brent crude surged by 2 cents a barrel to $65.39 at 03:12 GMT. US crude showed a steeper climb, leaving it a bit below Brent crude, at $59.86 per barrel.
Energy Aspects, a London-based publication which discusses the energy markets, commented on the increased price of oil:
“Global oil demand continues to surprise to the upside, with April data showing no signs of slowdown despite a pick-up in prices.”
Japan’s Ministry of Finance said that crude oil imports to Japan increased by 9.1 percent to 3.62 million barrels per day in April, compared to one year earlier. China hit a new record of crude imports, reaching 7.4 million barrels per day in April. That surge is despite China’s slowing economy which is offset by vigorous car sales.
“We expect Chinese imports to be high in H2 15, potentially averaging 7.5 million barrels per day. This is due to the start-up of 39 mb (million barrels) of commercial storage, five SPR (strategic petroleum reserve) sites and linefill for Kunming refinery—buying for which is ongoing we believe, even though the refinery won’t start up till early 2016,” Energy Aspects said.
On the other side of the globe the United States is now entering its peak season for driving with the Memorial Day weekend just coming to an end. According to the American Automobile Association, road travel in the US is expected to reach a ten-year high over the weekend, tightly correlated with higher oil use.
President Obama spoke at a Wal-Mart last week in Mountain View, California, to highlight the huge retailer’s role in advancing the cause of solar power. Wal-Mart is already the largest commercial customer of solar energy, according to the Solar Energy Industry Association and the U.S. Environmental Protection Associations, and plans on doubling the number of projects which generate this renewable energy source within the next six years. They hope to produce about seven billion kilowatt/hours of solar sourced power by 2020.
Obama said that there are over 300 companies and state and local governments who have already promised to make solar power a major source of energy. Obama also announced projects the White House is planning to undertake to improve energy efficiency with the main goal being to lower the US dependence on carbon-based fuels.
“The commitments we’re announcing today prove that there are cost-effective ways to tackle climate change and create jobs at the same time,” Obama stated in front of the giant Wal-Mart store, which gets 15 per cent of its power from solar.
According to Wal-Mart CEO Bill Simon renewable energy lowers expenses.
“We know from experience that investing in energy innovation allows us to save money, reduce carbon pollution, and create jobs. Every day, millions of Americans depend on us to watch every penny so that we can provide the best prices on products they love. Our customers can feel good that we’re watching out for both their wallets and their children’s future,” Simon said.
With more companies committing to the use of solar power every day, marketplace risk is reduced and initial costs drop. In a press release Wal-Mart stated that its greenhouse gas emissions have hardly gone up over recent years despite the fact that the company has continued to grow.
There are varying opinions about the next step for the oil business in America. David Bird explained his position in the Wall Street Journal:
“The U.S. is on track to reach records for crude-oil production by 2016, as hydraulic fracturing and horizontal drilling techniques continue to unlock oil in shale rock. The renaissance in the oil sector feeds into the debate of whether the U.S. should allow crude oil to be exported freely. The U.S. has kept a lid on oil exports since 1973, when the Organization of the Petroleum Exporting Countries stopped selling crude to the U.S. in retaliation for its support of Israel in a war with Egypt and Syria.”
Head of Citigroup’s Commodity Research, Ed Morse said that the increasing American production will have a large impact on oil prices. In the next few years the international benchmark price is likely to be around $15 a barrel less than its current price or even lower “if the shale revolution continues around the world,” which is anticipated. Due to this abundance, oil producers are asking that restrictions on exports be lifted. Ernest Moniz, Energy Secretary said that now might be the time for the government to review its oil exports policy, given that it shipped around 56,000 barrels of oil per day in October, approximately 1 percent less than the 7.7m barrels a day energy companies in America produced
Daniel J. Graeber in an article in Oil Price wrote:
“U.S. oil production last month reached its highest monthly total in 25 years. South of the border, the story is different, though Mexico’s decision to end a state oil monopoly in place for 75 years may consolidate the America’s supremacy over the international energy market.”
Alexander Kwiatkowski expressed his pessimism over the business of US oil in Bloomberg:
“Surging U.S. crude output is making Latin American oil cheaper than supplies from the Middle East, spurring Asian refiners to accelerate their purchases from Venezuela, Mexico and Colombia. Mexico will end 75 years of government control of its vast oil reserves after Congress approved the nation’s most significant economic reform since the North American Free Trade Agreement.”