Big Oil Needs to Borrow to Cover Dividends and Share Buybacks
Big Oil Needs to Borrow to Finance Own Share Buybacks
– Oil majors have been reporting lower Q3 profits, suggesting that the era of windfall revenues is coming to an end, with the average quarter-on-quarter dip for the five leading companies averaging 12%.
– ExxonMobil, Chevron, Shell, TotalEnergies, and BP will earn a combined $24.4 billion in Q3, which leaves all companies except Shell unable to cover their dividends and share buybacks with free cash flow.
– The need to borrow in order to cover buybacks isn’t necessarily a problem for US oil majors whose debt-to-capital ratios are well below historical averages, with ExxonMobil and Chevron posting 13.5% and 12.6%, respectively.
– BP, on the other hand, is on the other side of the spectrum, being the worst-performing Big Oil stock of the year with a 15% decline in 2024 alone as its debt-to-capital ratio stands at a whopping 44.4%.
Not Since Germany’s Reunification Was Its Energy Demand This Weak
– Germany’s energy consumption this year is set to drop to the lowest level since the two Germanies reunited in 1990 even though Europe’s leading economy avoided a technical recession in Q3.
– German energy demand is set to decline again by 1.7% year-over-year to 2,904 TWh produced, as manufacturing struggles to recover amidst rising natural gas prices (up 25% in 2024 so far) and subsequently higher power prices, too.
– Since Germany shut down its last nuclear power plant,…
Big Oil Needs to Borrow to Finance Own Share Buybacks
– Oil majors have been reporting lower Q3 profits, suggesting that the era of windfall revenues is coming to an end, with the average quarter-on-quarter dip for the five leading companies averaging 12%.
– ExxonMobil, Chevron, Shell, TotalEnergies, and BP will earn a combined $24.4 billion in Q3, which leaves all companies except Shell unable to cover their dividends and share buybacks with free cash flow.
– The need to borrow in order to cover buybacks isn’t necessarily a problem for US oil majors whose debt-to-capital ratios are well below historical averages, with ExxonMobil and Chevron posting 13.5% and 12.6%, respectively.
– BP, on the other hand, is on the other side of the spectrum, being the worst-performing Big Oil stock of the year with a 15% decline in 2024 alone as its debt-to-capital ratio stands at a whopping 44.4%.
Not Since Germany’s Reunification Was Its Energy Demand This Weak
– Germany’s energy consumption this year is set to drop to the lowest level since the two Germanies reunited in 1990 even though Europe’s leading economy avoided a technical recession in Q3.
– German energy demand is set to decline again by 1.7% year-over-year to 2,904 TWh produced, as manufacturing struggles to recover amidst rising natural gas prices (up 25% in 2024 so far) and subsequently higher power prices, too.
– Since Germany shut down its last nuclear power plant, coal has been the biggest laggard, with coal and lignite plunging by 15% in January-September 2024, squeezed out by higher renewable generation.
– Described by German’s Economy Minister Robert Habeck as a ‘ray of hope’, the German economy expanded by 0.2% in Q3, mostly driven by government and household spending, whilst inflation resurged to 2.4%.
US’ Clean Energy Spurt Hampered by Hydro Weakness
– Scorching heat across much of the western United States has brought US hydropower generation to a 23-year low this year so far, prompting grid operators to deploy record volumes of natural gas to balance system requirements.
– Total US hydro generation in January-August amounted to 171.046 GW, a 3% drop year-over-year, with most of the productive capacity concentrated in just three western states – California, Oregon, and Washington.
– The share of hydropower dropped to its lowest this century as now it only represents 5.2% of national electricity production, with droughts aggravated by changes in the patterns of water use.
– Whilst wind and solar energy remain on a growing trajectory across the US, clean dispatchable energy that is not intermittent and could be rapidly throttled up is declining.
European Gas Market Turns Jittery on Ukraine Transit Speculation
– European natural gas prices have been seesawing in spectacular fashion recently, as traders gauge the probability of Ukraine, Russia, and the European Union settling a new transit deal that would involve Azerbaijani swapped volumes.
– Europe’s benchmark TTF futures contract shed almost 10% this week amidst intense speculation about the transit deal, with the December 24 contract now trading slightly above €39 per MWh.
– At the same time, expectations for an improving supply and demand balance in 2025 are being pushed back further down the road amidst LNG project delays, with summer 2025 TTF contracts surging to a rare premium over winter 2025-2026.
– Hedge funds have benefitted from Europe’s gas volatility, first by ramping up their net long positions to a record high of 268 TWh in early September, then selling it off over the upcoming weeks.
Europe Unleashes Fierce Fight for EV Markets
– Joining the Biden administration which slapped a 100% tariff on Chinese electric vehicles, the European Union raised tariffs on China-built EVs to as much as 45.3%, citing government subsidies.
– As the costs of imported vehicles have been pushed up, Chinese carmakers lost ground in Europe for the third straight month, capturing only 8.5% of EV sales across the Old Continent.
– The declines in Chinese EV sales dovetail perfectly with the EU’s introduction of provisional duties, with state-owned SAIC seeing the largest drop in sales as its flagship MG brand dropped 42% year-over-year.
– All EVs produced in China would be subject to the European tariff, including those made by Western brands, explaining why Germany was one of the rare EU countries to vote against the tariff escalation.
India Set to Become the New Engine of Gas Demand Growth
– Buoyed by 8% annual economic growth and a booming population, India will become the new focus of natural gas markets as its consumption of the fuel is set to double from 65 bcm last year to almost 115 bcm by 2040.
– India has sought to boost its domestic gas production to mitigate its import needs, with some success thanks to a 51% jump in output since 2020, taking the national tally just a tad south of 37 bcm by 2025.
– The Indian government is ramping up urea production to be used as fertilizer, which would require sizable amounts of natural gas, whilst Delhi’s ongoing drive to become self-reliant on petrochemical feedstock would also raise the country’s gas needs.
– Known for its dislike of long-term contracts, India would nevertheless need to lock in LNG volumes soon if it doesn’t want to miss out and would also need to improve its grid – underdeveloped infrastructure remains a key roadblock domestically with most terminals located in western regions.
Depressed Lithium Prices See Chinese Producers Bleed Cash
– China’s lithium industry is firmly loss-making in 2024 as the country’s leading producers published their Q3 results, seeing the world’s largest hard-rock lithium miner Tianqi Lithium post a net $70 million loss.
– Lithium prices are now 88% cheaper than at their peak in 2022, with lithium carbonate selling for ¥72,000-74,000 per metric tonne (just north of $10,000/mt), back to levels last seen in early 2021.
– Chinese lithium producers are hoping for supply growth to fade out in other regions, most notably in Australia where regional producer Pilbara Minerals announced this week that it would halt production at its Ngungaju site.
– In China itself, lithium miners are the first to cut output as current pricing is above breakeven levels for lepidolite mining and spodumene hasn’t seen a widespread output curb only because its pricing mechanisms are based on formulae.