shimself
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Post by shimself on Dec 14, 2014 23:23:42 GMT
Has anybody done some sums as to the effect of a few years of oil at $50 a barrel.
Some of the papers say it's an attempt to put paid to fracking, and obviously it also changes the investment sums for renewables.
This seems pretty daft to me because the investments in these projects are for years even decades ahead, and you just know OPEC Saudi etc will double the price in a year or three, but still.
The real question here, has anybody done the sums on existing investments, will we still get paid?
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pikestaff
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Post by pikestaff on Dec 15, 2014 9:58:18 GMT
There was something about "OPEC vs fracking" in the Economist a couple of weeks ago. I've binned my copy already so this is from memory. Fracking is not like regular oilfields where the initial investment is big and they last for many years. The upfront investment for fracking is about $3m per hole and the output falls off fairly rapidly so the price you get for the first year or two's output is critical. Also a lot of the fracking companies are very highly geared and will not be able to service their debts at current prices. So a shakeout is expected.
On renewables, the revenue stream generally has two components:
(1) The FIT. This is fixed (indexed) for the life of the project so there will be no impact on existing projects except to the extent that a lower oil price reduces inflation. However, a lower oil price may well increase the downward pressure on FITs for future projects.
(2) The export tariff or power purchase agreement (PPA). The export tariff is what you get if you sell your output to the grid and is index linked like the FIT, but most projects have a PPA to sell to a specific counterparty at a higher price. The PPA may be only for a limited period and is dependent on the financial strength of the counterparty. To the extent that a lower oil price reduces energy prices in the UK (which is unclear because there is little direct linkage between oil and gas prices), this may increase the risk that PPAs are not renewed or that the counterparty defaults, in which case you'd have to fall back on the export tariff.
To put this into perspective, the FIT is much the larger part of the revenue stream and the difference between the PPA and the export tariff is usually relatively small. Example from the credit report for AC loan #112:
FIT 18.53 p/kWh
PPA 5.5 p/kWh
Export tariff 4.77 p/kWh
Total expected revenue 24.03 p/kWh
At risk 5.5 - 4.77 = 0.73 p/kWh
which is about 3% of revenue. This may eat into the LTV a bit but it does not look like a fundamental problem.
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Post by ablrateandy on Dec 15, 2014 20:13:55 GMT
There was a good article on Bloomberg recently about energy bonds... concentrates on the junk oil sector but mentions a couple of shale oil company. Obviously, as observed above, the value of your turbine (or shale oil, solar farm etc) is dependent on how long your contract is to supply at a higher than market price. Obviously I wouldn't comment on individual deals but it is a good read. Bloomberg ArticleI am sure that I read an article once about how much it costs to extract oil and shale oil and to frack. I'll try to find it. Obviously none of this is relevant to your turbines but nice background I hope  |
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shimself
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Post by shimself on Dec 15, 2014 22:34:07 GMT
... I am sure that I read an article once about how much it costs to extract oil and shale oil and to frack. I'll try to find it. ... The radio says that $50/barrel is about how much fracked oil costs. Saudi oil costs under $10 I think. They could therefore afford to put the frackers out of business (except I think that governments will get involved to maintain a certain level of domestic production)
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pikestaff
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Post by pikestaff on Dec 16, 2014 8:06:16 GMT
...Saudi oil costs under $10 I think. They could therefore afford to put the frackers out of business... Except that they couldn't because Saudi runs a massive welfare state for its citizens, as well as spending a lot on defence and security. At current prices the Saudi state itself is running a large deficit and it cannot afford to do this indefinitely.
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shimself
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Post by shimself on Dec 16, 2014 12:48:23 GMT
...Saudi oil costs under $10 I think. They could therefore afford to put the frackers out of business... Except that they couldn't because Saudi runs a massive welfare state for its citizens, as well as spending a lot on defence and security. At current prices the Saudi state itself is running a large deficit and it cannot afford to do this indefinitely. For long enough says the seat of my pants, although of course I might be talking out of the adjacent piece of my anatomy
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Post by GentlemansFamilyFinances on Feb 13, 2015 13:20:25 GMT
$50 oil will not impact Wind that much - there is more of a legislative risk than anything else.
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