Renewable energy is getting more and more popular globally every year, but there are still plenty of countries that rely heavily on fossil fuels or nuclear energy. In this week's episode of Industry Focus: Energy, Motley Fool analysts Sean O'Reilly and Taylor Muckerman take a look at the breakdowns by country to see where the world gets its energy.
Also, the hosts talk about updates from OPEC last week that have the price of oil hovering around $50 a barrel, earnings reports coming out of Core Labs (NYSE:CLB) and Halliburton (NYSE:HAL) that have sent sand stocks down significantly this week, and more.
A full transcript follows the video.
This video was recorded on July 27, 2017.
Sean O'Reilly: Welcome to Industry Focus, the podcast that dives into a different sector of the stock market every day. Today is Thursday, July 27, 2017, so we're talking about energy and industrials. I am your host, Sean O'Reilly, and to my left is a man that needs no introduction but is getting one anyway, Motley Fool Canada co-director Mr. Taylor Muckerman. What's up, sir?
Taylor Muckerman: Hey, buddy!
O'Reilly: How are you?
Muckerman: I'm good.
O'Reilly: On today's show, we have an infographic that shows energy source users across the whole planet. A cool graphic.
Muckerman: Yeah, it's a graphic where they took a picture of the Earth at night and all the lights that typically shine from each individual country, and the brighter the lights, the more you use that sort of power source. So, some countries completely disappear for renewable energy. Basically every country disappears for nuclear energy, other than some in Europe.
O'Reilly: Except for France.
Muckerman: Yeah, France is a shining beacon of light.
O'Reilly: Of nuclear light. Plus, a few companies reporting earnings. Would you say Halliburton is in there?
Muckerman: Halliburton, Core Labs.
O'Reilly: But first, oil, trying to give $50 a barrel a high five again. It's basically just because of strong words from Saudi Arabia, right?
Muckerman: Yeah. I guess they said they're going to curb exports for the summer.
O'Reilly: This caught me kind of by surprise, but I guess I didn't know they were meeting in St. Petersburg.
Muckerman: They never meet in an OPEC country. Their headquarters is in ... Switzerland, maybe?
O'Reilly: Yeah, neutral ground. It's Vienna. But, Saudi Arabia came out on Tuesday and pledged to curb exports starting next month. OPEC called on several members to boost compliance on output cuts to help rein in oversupply and tackle flagging prices. They made this from St. Petersburg, where they started meeting on Monday, and they were there to possibly discuss the possibility of extending their deal to cut output by 1.8 million barrels per day beyond 2018 if necessary. And, icing on the cake -- this is what I want to get everybody's thoughts on here -- Saudi Arabian energy ministers said they would limit crude exports out of Saudi Arabia to 6.6 million barrels per day in August, which is 1 million barrels below the level of a year ago. Didn't most of those exports go to the U.S.? Is that basically saying, shale is up a million, so we're going to go down a million?
Muckerman: I don't know what the percentage is, but we do still import oil from Saudi Arabia because our refineries are built to process that crude crude oil, versus the light sweet crude oil, that we produce. That's why exports have been moving here, not only because we're producing a lot, but because our refiners are like, "Get that out of here, we don't want that. It's too easy to refine. We want the hard stuff, we want the cheap, hard stuff. Give us that sticky crude."
O'Reilly: They must be sending any excess oil to India and China or something, then.
Muckerman: China, definitely. Again, not sure what the breakdown is, but I remember them negotiating prices with China earlier this year or late last year, because they were trying to raise prices on China, because they continue to raise their demand levels.
O'Reilly: I always laugh, because they have the price that they sell to China at, and they change it by, like, $0.50 a month.
Muckerman: Well, it makes a big difference when you're sending millions of barrels a day.
O'Reilly: Yeah, you're talking about $0.50 on 10 million barrels, I get it.
Muckerman: That's why I think The New York Times or somebody should charge, like, one ten-thousandth of a penny per article or something, or Google should charge that per email, because it wouldn't matter to you or I, but if you're sending a few billion emails, you're on the left side of the decimal system after a little while.
O'Reilly: A little bit there, yeah. So, we'll see what happens. But oil has gained a couple dollars a barrel this week.
Muckerman: Yeah. Finally, OPEC says something that raises the price of oil.
O'Reilly: Right, at all costs. As you mentioned before, yesterday, you sent something pretty nifty my way through Slack. It's a cool, interactive website put together by gocompare.com, and it answers the question: What powers the world? Listeners can go check this out by going to www.gocompare.com/gas-and-electricity/what-powers-the-world/.
Muckerman: That was a mistake. Just google "what powers the world" and "gocompare."
O'Reilly: It pops up and features planet Earth at night, and three simple buttons at the top labelled "fossil fuels," "nuclear," and "renewables," and then you can hit each button and see for yourself just how many lights go out without that power source. So, Taylor, which button did you hit first?
Muckerman: Renewables. Why not? Check out the future.
O'Reilly: Nothing went out. [laughs]
Muckerman: There were some places that got a little dim.
O'Reilly: Iceland went out.
Muckerman: The United States got pretty dim when you clicked renewables.
O'Reilly: That's a good one. That's a good point.
Muckerman: It's very heavily reliant on fossil fuels. When you look at it, it's really, Brazil from hydropower, Canada from hydropower, the Scandinavian Peninsula and Europe. India, surprisingly, although they have a decent amount of hydropower as well. Which is the No. 1 renewable source of energy around the world. Canada almost gets all of its power from renewable hydro, and so does Brazil. Go figure, the Amazon.
O'Reilly: Yeah, right? So, basically, what can we glean from this at first glance? Fossil fuels represent about two-thirds of electricity usage on the planet. Nuclear makes up about 10% of all global electricity usage, and I think we mentioned in the intro, France is the world's most nuclear country, and that's not bombs, it's the electricity. 74% out there in France from nuclear reactors.
Muckerman: Yeah, that's a big deal. I think the rest of Europe is only bright because France is so illuminated.
O'Reilly: Do you remember after Japan had their Fukushima accident, everybody freaked out about nuclear, and Germany pledged to shut all their plants down. And I was like, that doesn't seem entirely rational, because Japan is an island in the Ring of Fire. Of course you're going to have earthquakes, and maybe not have nuclear reactors there. Germany is in the middle of the European continent, and is somewhat insulated from that sort of thing.
Muckerman: I don't know, maybe they were worried about North Sea oil drilling causing earthquakes like people have said is happening in Oklahoma.
O'Reilly: It struck me as a little bit of an overreaction.
Muckerman: A little bit of an over-reactor?
O'Reilly: Oh my god. [laughs] We did not plan that, ladies and gentlemen. Canada and Brazil with the hydro, that's fun.
Muckerman: Albania, 100% of its power comes from hydro. Paraguay, 100% of its power comes from hydro. Norway, 97% hydro, 2% fossil fuels, 1% other.
O'Reilly: Fun fact, side note -- I saved this in my Evernote a couple weeks ago: Solar energy now powers the entire island of American Samoa thanks to Tesla and SolarCity. They used to burn diesel to power the island. Like using diesel generators.
Muckerman: There's still some Middle Eastern countries that burn oil for power.
O'Reilly: Isn't Saudi Arabia ... ?
Muckerman: All I know is that, before 1850, we were burning all of our power through wood. So, we've come a long way, ladies and gentlemen. Since 1850, we've adopted coal, natural gas, nuclear power, hydropower, solar, wind, biomass, the works.
Muckerman: All from lumber. Just eight countries produce 80% of the world's installed wind power.
O'Reilly: That's fun. I went to Iceland a couple months ago, and they talk up the fact that they're all geothermal and hydroelectric.
Muckerman: Yeah, geothermal, I forgot about that one.
O'Reilly: I actually met multiple college students, because they were waitressing inside or whatever, and they were like, "We're here to study that," and they were frequently from Canada. It was like, "Yeah, I think I have to stay here because it's a big deal here."
Muckerman: There's a company in the U.S. that I liked a long time ago, Ormat Technologies. They design and install geothermal power facilities around the world. Pretty cool company, and over the last five years, up over 210%.
O'Reilly: Well, well. That reminds me of another company I started recently looking into because of all this stuff, which is NextEra Energy (NYSE:NEE), and their publicly traded asset-owning partnership NextEra Energy Partners (NYSE:NEP).
Muckerman: Say that 11 times fast.
O'Reilly: Gesundheit. So, NextEra, they're the ones that bought Florida Power & Light. They have a lot of wind assets down there in Florida, and, obviously, solar. But they're still 70% natural gas. So, this is actually NextEra Energy. They're big into alternatives, and their next-biggest portion of power generation is from nuclear at 23%. Then, coal was 4% last year, and stuff.
O'Reilly: I'm sorry. They'll shut it down, I promise. More interesting is the partnership, NextEra Energy Partners. They drop things off and sell them to them. But, they own a portfolio of wind and solar assets here in the U.S. that generates over 3,000 megawatts of electricity.
Muckerman: What does that do for us?
O'Reilly: That's a lot. I think it was 18 wind farms, and about nine ... And, they own a few natural gas pipelines for good measure. [laughs]
Muckerman: Hey, those aren't going anywhere. I was reading the other day that the U.K. recently came out and said that by 2040, they're going to outlaw the sale of petroleum and diesel vehicles. And I was thinking back to a couple days ago how, in order for the United States to have 100% EV at the current car ownership rate, we would need to double our baseload power generation from where it currently is to power all these vehicles. So, when I read that, I was like, "Hmm, natural gas isn't going anywhere, because it's so abundant, and pipelines crisscross this country in every which direction." But, yeah, we have the wind and the solar catching up pretty quickly in this country.
O'Reilly: It definitely seems like the future of utilities will be a mix. You'll have your wind, your solar, maybe a little geothermal, and then backing it all up will be natural gas.
Muckerman: Yeah, you would imagine. And I doubt that nuclear will get shut down any time soon. They're not currently adding any nuclear capacity, but I think it would be hard to justify shutting those down until there's an immediate replacement. I was just in Portugal this summer, and...
O'Reilly: A lot of solar?
Muckerman: No, wind, everywhere. Wind power everywhere.
O'Reilly: Blowing in off the Atlantic, right?
Muckerman: Yeah, basically everywhere north of Lisbon, just wind turbines on all the hilltops. Folks say it's unsightly and they're worried about it messing up the horizon, but they're not brightly colored, they're not NASCARs circulating in the air. There's no sponsors blasted all over them. On a cloudy day, you barely even recognize it. Just from last year when I was there to this year, I noticed a tremendous increase in the number of them, without being like, "Oh my god, they ruined the place."
O'Reilly: Was anyone complaining about bird deaths?
Muckerman: No, they were not. They were overjoyed by the fact that they powered their country completely by renewable energy for four days this past March.
O'Reilly: Wow. Very cool. Taylor, you were honing on Halliburton and Core Labs earning calls this week, and I hear that Halliburton is giving some sand producers a rough time?
Muckerman: Yeah, let me take over some talking for you, after that. Halliburton announced earnings. Sand producers were crushed on Monday.
O'Reilly: What did they do to these poor people?
Muckerman: They basically said that, for the first time in as long as they can remember, their sand usage actually declined in the quarter. Then, they talked about oncoming production from other sand mines that are being announced, saying that in this quarter they used a little bit more of their own proprietary chemical formulations to frack these wells and get the oil and natural gas stimulated rather than sand.
O'Reilly: So, they're getting better at their job.
Muckerman: Yeah, that and, I think they're trying to capture a little bit more margin out of the downturn. Right now, you're seeing some of these wells use up to 50 million pounds of sand, versus just 3 million pounds for some of the bigger wells a few years ago. So, it's still a huge increase historically, but they said that slowed and maybe declined a little bit. So, talking about declining use and increased supply coming online here in the next year or so, some of these sand mines were down double-digit percentages. And they've had a rough ride of it over the last couple years, because they're a fringe service and equipment provider really only applicable to fracking. So, it's not a global business by any means, just yet.
O'Reilly: Yeah, they're a supplier to a very specific segment of the oil market. And that's a commodity market.
Muckerman: Yes. It happens to be the fastest-growing portion of the oil markets, but...
O'Reilly: Nevertheless. Did Halliburton or Core Labs have anything interesting to say about oil markets? I know the Core Labs CEO is always interesting to listen to.
Muckerman: Yeah. Basically, they were talking about a little bit fewer completions than were expected, and that has to do with Halliburton and its competitors. They didn't get staffed up and get rigs out there as quickly because they, again, are trying to capture some of the margin that they lost, so wisely keeping some of the supply of their own business a little bit restricted. But, Halliburton's CEO said that his customers were chomping at the bit. So, there's definitely demand out there to complete these wells. In return, Core Labs will probably see an uptick in their business, if that holds true over the course of the rest of the year.
O'Reilly: If that works.
Muckerman: Yeah, if that works. You even heard Core Labs mention that an offshore client is planning on bringing something online, which is something we haven't talked about in a little while, and that's offshore oil production. We talked about some looming bankruptcies or restructurings in the form of Seadrill and others, but not necessarily any offshore drilling. So, that's kind of interesting.
O'Reilly: Yeah. I'll never forget, the U.S. government had that auction in the Gulf Coast 6 to 12 months ago, and nobody showed up. [laughs]
Muckerman: Yeah, it was just echoes, seagulls flapping around there. They were loving it.
O'Reilly: Who's reporting in the next couple weeks? Anything interesting around the corner?
Muckerman: Everybody. It's pretty early in earnings season. We'll see if Halliburton's peers report some solid results as well. Halliburton was 30% higher revenue from same quarter last year. They said that they outproduced their peers in every major geographic market.
O'Reilly: Does that sound loaded to you? Do you buy it?
Muckerman: I don't know, but I hope so, because they're in my portfolio.
O'Reilly: All right, I'll buy that.
Muckerman: [laughs] I already have.
O'Reilly: As always, it's a pleasure. Have a good one.
Muckerman: Definitely, you too.
O'Reilly: Thank you for your thoughts. That's it for us, folks. Be sure to tune in tomorrow for the Technology show with Dylan Lewis. If you're a loyal listener and have questions or comments, we would love to hear from you. Just email us at firstname.lastname@example.org.
As always, people on this program may have interests in the stocks that they talk about, and The Motley Fool may have formal recommendations for or against those stocks, so don't buy or sell anything based solely on what you hear on this program. For Taylor Muckerman, I'm Sean O'Reilly. Thanks for listening and Fool on!
Sean O'Reilly has no position in any stocks mentioned. Taylor Muckerman owns shares of Core Laboratories, Halliburton, and Tesla. The Motley Fool owns shares of and recommends Core Laboratories and Tesla. The Motley Fool owns shares of Ormat Technologies. The Motley Fool recommends The New York Times. The Motley Fool has a disclosure policy.