How expensive is the future of the energy sector?
As second-quarter results start coming in, analysts and experts are making a prediction on the outlook of the energy sector.
Oil prices have fallen at a much steeper rate than energy shares since June 23, 2014, and as such, the energy sector won’t be able to sustain even current share prices going forward, according to predictions.
With the energy sector's second-quarter earnings seen doing better than the prevailing consensus forecast for a decline of almost 59 percent from the quarter a year ago, according to a Thomson Reuters analysis, shares could get a benefit. The S&P energy sector's price to earnings ratio is around 23 compared with 17 for the S&P 500.
But the S&P energy subsector of exploration and production companies .SPLRCOILP is at its most expensive on a price-earnings basis since Reuters started tracking the data in 1995. Consensus estimates for oil producer earnings this year imply an average crude oil price of US$65.19 a barrel in 2016, Fadel Gheit, an analyst with Oppenheimer & Co, reported to Reuters.
"The outlook for energy shares looks somewhat challenging for now as the oil price implied in the shares is higher than current spot prices," Stephen Clark, senior vice president, portfolio manager, Standard Life Investments, in Boston, a long investor which is mostly on the sidelines for oil, told the news source. "There is already some degree of oil price recovery baked in."
The energy sector overall is expected to report earnings 3.5 percent better than consensus estimates, according to Thomson Reuters data, which puts more weight on forecasts from analysts with the most accurate track record.
In next week's reports Chevron Corp (CVX.N), Exxon Mobil (XOM.N) and Murphy Oil (MUR.N) are seen beating consensus estimates while ConocoPhillips (COP.N), Range Resources (RRC.N) and Occidental Petroleum (OXY.N) could miss consensus, according to Thomson Reuters data.
Investors have been encouraged by signs of strong demand in the summer driving season and cuts to capital expenditures by many energy firms, allowing more room for profitability on those sales.
"There could be a trade higher for both oil prices and the energy stocks later this year driven by falling U.S. production and generally healthy demand," said Tim Parker, oil analyst and portfolio manager at T. Rowe Price.
Hydrostor receives $4m funding for A-CAES facility in Canada
Hydrostor has received $4m funding to develop a 300-500MW Advanced Compressed Air Energy Storage (A-CAES) facility in Canada.
The funding will be used to complete essential engineering and planning, and enable Hydrostor to plan construction.
The project will be modeled on Hydrostor’s commercially operating Goderich storage facility, providing up to 12 hours of energy storage.
Hydrostor’s A-CAES system supports Canada’s green economic transition by designing, building, and operating emissions-free energy storage facilities, and employing people, suppliers, and technologies from the oil and gas sector.
The Honorable Seamus O’Regan, Jr. Minister of Natural Resources, said: “Investing in clean technology will lower emissions and increase our competitiveness. This is how we get to net zero by 2050.”
A-CAES has the potential to lower greenhouse gas emissions by enabling the transition to a cleaner and more flexible electricity grid. Specifically, the low-impact and cost-effective technology will reduce the use of fossil fuels and will provide reliable and bankable energy storage solutions for utilities and regulators, while integrating renewable energy for sustainable growth.
Curtis VanWalleghem, Hydrostor’s Chief Executive Officer, said: “We are grateful for the federal government’s support of our long duration energy storage solution that is critical to enabling the clean energy transition. This made-in-Canada solution, with the support of NRCan and Sustainable Development Technology Canada, is ready to be widely deployed within Canada and globally to lower electricity rates and decarbonize the electricity sector."
The Rosamond A-CAES 500MW Project is under advanced development and targeting a 2024 launch. It is designed to turn California’s growing solar and wind resources into on-demand peak capacity while allowing for closure of fossil fuel generating stations.
Hydrostor closed US$37 million (C$49 million) in growth financing in September 2019.