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Simon Watkins

Simon Watkins is a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for…

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Saudi Arabia’s oil and gas giant, Aramco, has been given the go-ahead to launch the Jafurah shale gas field project, which will be the biggest shale gas development outside the U.S. The official reason is that the project will boost domestic gas supply and end the burning of oil at its power generation plants. The first reason is true by dint of the fact that it is a simple truism whilst the second is only partly true. It is extraordinarily unlikely to end Saudi Arabia’s oil burning at its power generation plants – given Saudi Arabia’s history of lying in this regard – but it may possibly reduce it. The core element that Saudi did not mention in its official comments on this issue is that the Kingdom will desperately need another primary energy source in the relatively near future because it has nowhere near the amount of oil remaining that it has stated since the early 1970s. So, will Saudi Arabia’s further comments that the Jafurah field will be a key part of the Kingdom becoming a significant gas exporter in ‘the near future’ also turn out to be nonsense?

If the provenance of these comments – Saudi Oil Minister Prince Abdulaziz bin Salman – is anything to go by, then the global energy markets would be better off reading the latest Harry Potter book as guidance to what Saudi Arabia may achieve in the years to come. This is the individual who said at the time of the 14 September attacks against two of Saudi Arabia’s key oil facilities that “the Kingdom plans to restore its production capacity to 11 million bpd by the end of September and recover its full capacity of 12 million bpd two months later.” Bearing in mind that he was Oil Minister at the time, it was surprising to see that both figures were wrong. In reality, from 1973 to the end of 2020, Saudi Arabia has averaged crude oil production of just 8.151 barrels per day (bpd) and had never averaged anywhere near 11 million bpd until it finally did so in November 2018 (11.093 bpd, to be precise, and only briefly) because U.S. President Donald Trump had expressly told King Salman to get the oil price down ‘or else’ Related: Oil Prices In Freefall As Pandemic Fears Grow

The reality as well is that Saudi Arabia’s long-stated ‘spare capacity’ of between 2.0-2.5 million bpd, based on the assumption of a 10 million bpd crude oil production average, is, and has always been, highly exaggerated. Quite aside from the actual mathematics involved, it is fair to assume that if the Saudis had been in possession of anything near 12 million bpd capacity, the absolute number one occasion to have pumped it on a sustained basis would have been in 2014 when it had just embarked on the neo-existential strategy of trying to destroy the then-nascent U.S. shale oil industry by dumping prices through overproduction.  Additionally, the EIA defines spare capacity specifically as production that can be brought online within 30 days and sustained for at least 90 days. In a rare moment of reality a couple of years ago, even Saudi Arabia admitted that it would need at least 90 days to move rigs to drill new wells and raise production to the mythical 12 million bpd or 12.5 million bpd level.

At the same time, of course, Saudi Arabia’s reserves numbers appear to be of the Hans Christian Andersen school of economics, as highlighted in my latest book on the global oil markets. At the beginning of 1989, Saudi Arabia claimed proven oil reserves of 170 billion barrels but only a year later, and without the discovery of any major new oil fields, the official reserves estimate somehow grew by 51.2 percent, to 257 billion barrels. Relatively shortly thereafter, it increased again to the longstanding 266 ‘or so’ billion barrels level. Bewilderingly – and a mathematical impossibility – Saudi Arabia’s proven oil reserves figure has stayed at around the same level for nearly 30 years, despite Saudi pumping an average of nearly three billion barrels of oil every year from 1973 to the end of 2017 – totalling 132 billion barrels – with, again, no new significant oil finds being made during that period.

So, Saudi Arabia really needs Jafurah to work and, to this effect, announced that it is to spend at least US$110 billion on the project, with the intention being as well that it will become the world’s third largest gas producer by 2030, after the U.S., and Russia. As even Aramco has noticed that Saudi Arabia does not have abundant freshwater supplies – Aramco chief executive officer, Amin Nasser, highlighted this shrewd observation last week (“we are not rich with water”) – Aramco is apparently going to use seawater instead for the fracking process. Unsurprisingly, there is no shortage of U.S. companies keen to provide their fracking technology and engineering services to Aramco, a situation dripping in irony as the U.S. shale players are now in a position to screw Saudi Arabia to the wall in terms of extreme pricing for their services just as Saudi wanted to completely destroy them from 2014 to 2016. Precisely how screwed Saudi Arabia is going to be will be evident when Aramco holds its bidding rounds for the work, technology, engineering, and chemicals on the fields in the coming weeks. Related: Shale Decline Inevitable As Oil Prices Crash

So, is this project likely to make Saudi Arabia a major gas exporter by 2030? No, is the short answer, and here is why. According to the aforementioned weaver of fairy tales – Prince Abdulaziz bin Salman – the Jafurah field has an estimated 200 trillion cubic feet of gas (TcF), a figure that should be taken in context of all other Saudi energy reserves estimates but let us pretend that it is true. In the meantime, Aramco has gas reserves supposedly of around 233.8 Tcf, which for the purposes of this analysis, we can also pretend is true. The plan is for Aramco to start production from Jafurah in 2024 and to reach 2.2 billion cubic feet (Bcf) per day (Bcf/d) of gas by 2036. Last year – without Jafurah – Aramco produced 8.9 Bcf/d of natural gas, a notional total of 11.1 Bcf/d. Crucially, however, even with this current 8.9 Bcf/d of gas production in place, Saudi has been burning around 400,000 bpd of oil for power generation (on top of enormous actual volumes of fuel oil and diesel).

All other factors remaining equal, one billion cubic feet of gas equals 0.167 million barrels of oil equivalent, so 2.2 Bcf/d (the future Jafurah output) equals 0.3674 million barrels of oil equivalent, or 367,400 barrels. Therefore, the total projected new amount of gas to come from Jafurah is around 367,400 barrels per day, which is not even enough to cover the current amount of oil being (400,000 bpd) burned for power generation in Saudi Arabia, even if Aramco’s already elevated gas production holds steady. Based on independent industry estimates on changing Saudi demographics and corollary changing power demand patterns, the Kingdom will probably need gas production of around 23-25 Bcf/d within the next 15 years just to cover its own power and industrial demand, compared to the 11.1 Bcf/d of Aramco’s current peak production added to the notional production from Jafurah. In sum, then, even if the quality of the Jafurah find is unparalleled in the history of gas finds, then Saudi would still be in deficit in its power generation sector if there was a straight switch from crude oil burning to gas-only burning.

By Simon Watkins for Oilprice.com

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Telus prioritizing ‘most important customers,’ avoiding ‘unprofitable’ offers: CFO

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Telus Corp. says it is avoiding offering “unprofitable” discounts as fierce competition in the Canadian telecommunications sector shows no sign of slowing down.

The company said Friday it had fewer net new customers during its third quarter compared with the same time last year, as it copes with increasingly “aggressive marketing and promotional pricing” that is prompting more customers to switch providers.

Telus said it added 347,000 net new customers, down around 14.5 per cent compared with last year. The figure includes 130,000 mobile phone subscribers and 34,000 internet customers, down 30,000 and 3,000, respectively, year-over-year.

The company reported its mobile phone churn rate — a metric measuring subscribers who cancelled their services — was 1.09 per cent in the third quarter, up from 1.03 per cent in the third quarter of 2023. That included a postpaid mobile phone churn rate of 0.90 per cent in its latest quarter.

Telus said its focus is on customer retention through its “industry-leading service and network quality, along with successful promotions and bundled offerings.”

“The customers we have are the most important customers we can get,” said chief financial officer Doug French in an interview.

“We’ve, again, just continued to focus on what matters most to our customers, from a product and customer service perspective, while not loading unprofitable customers.”

Meanwhile, Telus reported its net income attributable to common shares more than doubled during its third quarter.

The telecommunications company said it earned $280 million, up 105.9 per cent from the same three-month period in 2023. Earnings per diluted share for the quarter ended Sept. 30 was 19 cents compared with nine cents a year earlier.

It reported adjusted net income was $413 million, up 10.7 per cent year-over-year from $373 million in the same quarter last year. Operating revenue and other income for the quarter was $5.1 billion, up 1.8 per cent from the previous year.

Mobile phone average revenue per user was $58.85 in the third quarter, a decrease of $2.09 or 3.4 per cent from a year ago. Telus said the drop was attributable to customers signing up for base rate plans with lower prices, along with a decline in overage and roaming revenues.

It said customers are increasingly adopting unlimited data and Canada-U.S. plans which provide higher and more stable ARPU on a monthly basis.

“In a tough operating environment and relative to peers, we view Q3 results that were in line to slightly better than forecast as the best of the bunch,” said RBC analyst Drew McReynolds in a note.

Scotiabank analyst Maher Yaghi added that “the telecom industry in Canada remains very challenging for all players, however, Telus has been able to face these pressures” and still deliver growth.

The Big 3 telecom providers — which also include Rogers Communications Inc. and BCE Inc. — have frequently stressed that the market has grown more competitive in recent years, especially after the closing of Quebecor Inc.’s purchase of Freedom Mobile in April 2023.

Hailed as a fourth national carrier, Quebecor has invested in enhancements to Freedom’s network while offering more affordable plans as part of a set of commitments it was mandated by Ottawa to agree to.

The cost of telephone services in September was down eight per cent compared with a year earlier, according to Statistics Canada’s most recent inflation report last month.

“I think competition has been and continues to be, I’d say, quite intense in Canada, and we’ve obviously had to just manage our business the way we see fit,” said French.

Asked how long that environment could last, he said that’s out of Telus’ hands.

“What I can control, though, is how we go to market and how we lead with our products,” he said.

“I think the conditions within the market will have to adjust accordingly over time. We’ve continued to focus on digitization, continued to bring our cost structure down to compete, irrespective of the price and the current market conditions.”

Still, Canada’s telecom regulator continues to warn providers about customers facing more charges on their cellphone and internet bills.

On Tuesday, CRTC vice-president of consumer, analytics and strategy Scott Hutton called on providers to ensure they clearly inform their customers of charges such as early cancellation fees.

That followed statements from the regulator in recent weeks cautioning against rising international roaming fees and “surprise” price increases being found on their bills.

Hutton said the CRTC plans to launch public consultations in the coming weeks that will focus “on ensuring that information is clear and consistent, making it easier to compare offers and switch services or providers.”

“The CRTC is concerned with recent trends, which suggest that Canadians may not be benefiting from the full protections of our codes,” he said.

“We will continue to monitor developments and will take further action if our codes are not being followed.”

French said any initiative to boost transparency is a step in the right direction.

“I can’t say we are perfect across the board, but what I can say is we are absolutely taking it under consideration and trying to be the best at communicating with our customers,” he said.

“I think everyone looking in the mirror would say there’s room for improvement.”

This report by The Canadian Press was first published Nov. 8, 2024.

Companies in this story: (TSX:T)

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TC Energy cuts cost estimate for Southeast Gateway pipeline project in Mexico

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CALGARY – TC Energy Corp. has lowered the estimated cost of its Southeast Gateway pipeline project in Mexico.

It says it now expects the project to cost between US$3.9 billion and US$4.1 billion compared with its original estimate of US$4.5 billion.

The change came as the company reported a third-quarter profit attributable to common shareholders of C$1.46 billion or $1.40 per share compared with a loss of C$197 million or 19 cents per share in the same quarter last year.

Revenue for the quarter ended Sept. 30 totalled C$4.08 billion, up from C$3.94 billion in the third quarter of 2023.

TC Energy says its comparable earnings for its latest quarter amounted to C$1.03 per share compared with C$1.00 per share a year earlier.

The average analyst estimate had been for a profit of 95 cents per share, according to LSEG Data & Analytics.

This report by The Canadian Press was first published Nov. 7, 2024.

Companies in this story: (TSX:TRP)

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BCE reports Q3 loss on asset impairment charge, cuts revenue guidance

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BCE Inc. reported a loss in its latest quarter as it recorded $2.11 billion in asset impairment charges, mainly related to Bell Media’s TV and radio properties.

The company says its net loss attributable to common shareholders amounted to $1.24 billion or $1.36 per share for the quarter ended Sept. 30 compared with a profit of $640 million or 70 cents per share a year earlier.

On an adjusted basis, BCE says it earned 75 cents per share in its latest quarter compared with an adjusted profit of 81 cents per share in the same quarter last year.

“Bell’s results for the third quarter demonstrate that we are disciplined in our pursuit of profitable growth in an intensely competitive environment,” BCE chief executive Mirko Bibic said in a statement.

“Our focus this quarter, and throughout 2024, has been to attract higher-margin subscribers and reduce costs to help offset short-term revenue impacts from sustained competitive pricing pressures, slow economic growth and a media advertising market that is in transition.”

Operating revenue for the quarter totalled $5.97 billion, down from $6.08 billion in its third quarter of 2023.

BCE also said it now expects its revenue for 2024 to fall about 1.5 per cent compared with earlier guidance for an increase of zero to four per cent.

The company says the change comes as it faces lower-than-anticipated wireless product revenue and sustained pressure on wireless prices.

BCE added 33,111 net postpaid mobile phone subscribers, down 76.8 per cent from the same period last year, which was the company’s second-best performance on the metric since 2010.

It says the drop was driven by higher customer churn — a measure of subscribers who cancelled their service — amid greater competitive activity and promotional offer intensity. BCE’s monthly churn rate for the category was 1.28 per cent, up from 1.1 per cent during its previous third quarter.

The company also saw 11.6 per cent fewer gross subscriber activations “due to more targeted promotional offers and mobile device discounting compared to last year.”

Bell’s wireless mobile phone average revenue per user was $58.26, down 3.4 per cent from $60.28 in the third quarter of the prior year.

This report by The Canadian Press was first published Nov. 7, 2024.

Companies in this story: (TSX:BCE)

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