discussion response

You must reply to at least three colleagues in a manner that extends the discussion. A simple “I agree/disagree” will not be accepted. respond in a manner that further extends the discussion.

post 1

Most people around the globe can see that the US election is one of the most defining in modern American history. Over the last few decades, the clash between Democrats and Republicans intensified. Unfortunately, this election does not just effect Americans, it will affect people from different countries, too, as globalization continues to increase. As we learned in a recent lesson, the subject of the Keystone XL pipeline became a hot topic over the last few election cycles. Republicans view the pipeline as a way to promote job growth while Democrats see it as a threat to dreams of clean energy. As a result, whoever wins the election in a few weeks will affect the pipelines trajectory.

          Since the KXL traverses from Alberta, Canada to Nebraska and then down to Texas in the United States, the majority party come election night matters. If the pipeline is postponed further, it will prevent TC Energy from increasing its production due to the limitations of the current pipeline system. The pipeline has experienced delays for over a decade. Trump allowed a presidential permit to continue working on the pipeline, while Biden, if elected, would rescind the permit. This is an example of a geopolitical risk that TC Energy will need to price into its analysis. Conversely, in 2017, when Trump granted the presidential permit for the Keystone XL pipeline, this was an opportunity for TC Energy.

          Similarly in Canada, political risks affect the province of Alberta. In March, during the beginning of the coronavirus pandemic, Premier Jason Kenney secured $1.5 billion (CAD) for TC Energy to complete the project. However, the oil economy within the province has not recovered as hoped under Kenneys tenure.

          Complicating these political risks are risks associated with the global coronavirus pandemic. While this risk affects the entire energy sector, it is still a risk that TC Energy will need to consider in their analysis. In addition, one of the major reasons people are against the Keystone XL pipeline is for the risk of water and ground contamination due to leaks. These health and safety risks affect most companies within the industry, but as lockdowns and social distancing continue, demand has decreased substantially. This in turn adds to the uncertainty around TC Energys Keystone XL pipeline risk vs reward analysis as well as projected earnings for TC Energy over the coming years.

Nickel, R., & Lewis, J. (2020, October 22). Analysis: As popularity slides, Alberta’s Kenney has oil pipeline riding on U.S. vote. https://finance.yahoo.com/news/analysis-popularity-slides-albertas-kenney-101114298.html.

Simkins, B. J., & Simkins, R. E. (2013). Energy finance and economics: Analysis and valuation, risk management, and the future of energy (1st ed.). Hoboken, NJ: Wiley.

post 2

The very first thing that comes to my mind when thinking about the dangers and risks for oil companies is oil spills.  However, as we are entering the election season, it makes me think of the political risk that surrounds the oil industry.  According to Dr. Alfred Boulos, political risk is a broad concept that is intended to encompass the “non-commercial” landscape of international oil and gas ventures. Political risk encompasses such risks as expropriation, revolution, civil disorder, creeping expropriation, unilateral imposition of new taxes and royalties, imposition of export controls or withdrawing licenses for export or import, exchange control restrictions and other factors that reduce or destroy the value of the international oil and gas venture. A company in deciding on political risk may make use of many sources of information and resources: governments, consultants, professors, analysts, and political science experts alike.  The primary way that politics can affect oil is in the regulatory sense, but it’s not necessarily the only way.  Oil and gas are normally regulated so that there are limits on when, where, and how oil can be extracted.  These are things that can differ at the state level as well.  This risk can also increase when extracting abroad.  Foreign affairs come into play and you can see things happen such as deals being made with said countries, as well as, conversely, allowing less extraction.  Regarding oil extraction, companies typically prefer countries with a more stable political environment.  However, some do not look into that as much and will simply go where more oil, no matter if it matches their preferences or not. 

https://www.ipaa.org/wp-content/uploads/2017/01/PoliticalRisk.pdf

post 3

Like almost all business, the energy industry took a hard hit when the COVID-19 pandemic hit. So far in the pandemic, we have seen the energy industry take a huge hit, forcing companies to lay off a total of more than 100,000 employees. Employment in the American gas, oil and chemical energy has became increasingly sensitive to prices. It is estimated that for everyone $1 movement in prices, affects approximately 3000 jobs. As seen during this pandemic, prices have been extremely volatile, with crude oil barrels reaching negative prices at one point, so it is easy to see why so many jobs have been affected. This is just one risk that energy companies face.

https://nypost.com/2020/10/05/us-energy-industry-axed-107000-jobs-amid-coronavirus-crisis/ (Links to an external site.)

 

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