(c) F. Bruce Abel
Prepared for this winter? Natural gas will be low, low, low (compared to a year ago). Natural Gas Futures as of close October 29, 2009:
December 2009 5.062
January 2010 5.428
February 2010 5.481
March 2010 5.456
April 2010 5.454
(cf. with three years ago when I checked on September 25, 2006:
January 2007 7.63
February 2007 7.70)
Add about 2.5 for your delivery cost and you get $7.8 on average for this upcoming winter heating season, which is $.78 per ccf for Duke Energy (Cincinnati) for example, if Duke were solely based on the spot market.
Whereas three years ago the projection was about $1.00 even for the winter of 2006-2007.
[From the Globe and Mail of a few days ago]
The reason for the dirt-cheap heating costs is twofold.
On one hand, enormous supplies of natural gas have been flowing into the North American market, mainly from shale rock formations that until recently were too technically difficult to tap into. At the same time, the recession has dampened demand from industrial users, like manufacturers.
Direct Energy, a natural gas and electricity provider in Canada and the United States, has been able to pass on those savings to customers, said spokeswoman Lynzey MacRae.
But how those changes are reflected depends on whether customers have opted for a variable or fixed price plan, she said. While variable plans “may offer value in a declining market, they do require that consumers pay close attention to changes in market conditions that could trigger increases in their pricing.”
A fixed plan, on the other hand, offers more stability, said Ms. MacRae. “Customers know what price they will pay for the term of their contract, and don't have to deal with the kind of dramatic price fluctuations we've seen over the past year.”
The lower natural gas prices are no doubt welcome, but there are several relatively easy and inexpensive ways for consumers to squeeze more savings out of their home heating costs this winter, said Ken Elsey, president and chief executive officer of the Canadian Energy Efficiency Centre.
“The first thing is, stop air leaks. Caulking is probably the cheapest thing that a consumer can do to save on their heating costs,” he said.
“Look at how you use heat,” Mr. Elsey adds. For instance, Close the heat register in rooms that aren't begin occupied on a regular basis. “It's not rocket science. That's the part that surprises me. It's just trying to change behaviour is the biggest problem that we face.”
A home can lose up to 30 per cent of its heat through poorly fitted windows and doors, said Dave Walton, director of Home Ideas for Direct Energy.
Making sure your furnace's filter is clean could save about 10 per cent on heating costs, Mr. Walton added. “If the furnace filter is clogged, it's going to work that much harder to operate, and in fact could cause premature breakdown of the equipment as well.”
The greatest savings could come from investing a newer, higher efficiency furnace over the long run, but that comes with an up front cost of a few thousand dollars at least.
“Many homes still have furnaces that are upwards of 18, 19, 20 years old. And those furnaces, when they were manufactured, were manufactured to only operate at about 60 per cent efficiency,” Mr. Walton said. “And what that means is 40 cents of every dollar they're spending is going right up the chimney.”
In contrast newer furnaces can be up to 96 per cent efficient.
Mr. Walton also suggests homeowners look into getting an energy audit, in which any potential leaks or other problems can be identified. Any work that results from the audit may be eligible for a provincial or federal rebate. “If homeowners are planning to make any kind of changes to their home... they'd be wise to look into getting an energy audit done.”
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Friday, October 30, 2009
Krugman -- A Must-Read Today
(c) 2009 F. Bruce Abel
Ok, listen up. Krugman says This is It!
http://www.nytimes.com/2009/10/30/opinion/30krugman.html?hp
Ok, listen up. Krugman says This is It!
http://www.nytimes.com/2009/10/30/opinion/30krugman.html?hp
Thursday, October 29, 2009
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Ofgem loses it entirely....
What planet is Ofgem on?
Alistair Buchanan, chief executive of the energy regulator, has found that Europe could be under-supplied by 41bn cubic metres in six years’ time, if key Russian projects – many already delayed – fail to deliver. This will affect the UK if it relies on a significant expansion of gas-fired power stations to replace retiring coal stations, while nuclear plants are not operational until 2020 and energy demand rises in a strong global economy. It would narrow to a 33bn cubic metre shortfall of gas by 2020
On AB's planet, Shale has never happened. Shale in Poland, Germany, the Netherlands, France, Switzerland, Sweden, Hungary or Austria doesn't change a thing, especially by 2020.
We cannot believe that a public official (salary £260,000) is so inexpert! Has no one in Ofgem read the papers or perhaps they should ask Jonathan Stern his opinion:
Worst Crisis of Russian gas supply imaginable had no significant effect on UK gas supplies and prices
We'll call out each and every paper who prints this rubbish! We remind them again of the words of someone who Alistair Buchanan obviously thinks is a rank amateur compared to an expert such as himself: Peter Voser the CEO of Shell quoted in the WSJ of October 13:
The U.K.'s fears of over reliance on imports of natural gas in the future are overdone because supply of the fuel will remain ample and secure, said Royal Dutch Shell PLC Chief Executive Peter Voser Tuesday.The focus of the U.K.'s fears - supply from Russia - made up less than 5% of total supply in 2008 and will be a similar proportion in 2020, he said. Shipments of liquefied natural gas and pipeline imports from Norway will be a much larger proportion of U.K. supply, he said."The U.K.'s energy challenge is acute. This raises the question why it can afford to dismiss natural gas as a future source of energy," particularly because it contains less carbon than other fossil fuels, Voser said.
Journalists at least should expect some minimum level of competency from such an important person. What's Mr Buchanan's excuse?
No wonder he gives a free pass to suppliers, the man is either totally inept or simply the most gullible man in Britain.
Posted at 10:06 PM in Current Affairs, Prices and Politics, Shale Gas Permalink Comments (0) TrackBack (0)
The smart ones walk away.
Most oil companies have never made themselves any friends in the past through a desire to "drill, baby, drill" just about anywhere, polar bears, dolphins, indigenous tribes and every other sentient being be damned.
Aubrey McLendon, head of Chesapeake Energy is disrupting, along with most things, that part of the hydrocarbon matrix that has never found a potential source they didn't like.
Gas drillers have been exploring the giant Marcellus Shale coming up from West Virginia and Pennsylvania for most of the past year, and were waiting for go ahead on drilling in upstate New York to unleash yet another gas land-rush.
Although the southern section in the Catskills,is especially attractive for being in the New York City exurbs, this portion of the Marcellus was also close to the watershed for the NYC drinking water supply. There was the potential for a big battle between classic Manhattan limousine liberals and upstaters who wanted to take the money and move to Miami, an attractive prospect in a depressed area. In short the old nimby v economy story, which usually ends up eating column inches and grand debate for years.
But not this time:
Bowing to intense public pressure, the Chesapeake Energy Corporation says it will not drill for natural gas within the upstate New York watershed, an environmentally sensitive region that supplies unfiltered water to nine million people.
The reversal seems to signal a more conciliatory tone from the gas industry, which is facing mounting opposition in New York to its drilling practices.
But before the New York Green Party uncorks the organic Champagne, this isn't a victory for them, it's a victory for rational common sense:
“We are not going to develop those leases, and we are not taking any more leases, and I don’t think anybody else in the industry would dare to acquire leases in the New York City watershed,” Aubrey K. McLendon, the chief executive officer at Chesapeake Energy, said in an interview on Monday in Fort Worth. “Why go through the brain damage of that, when we have so many other opportunities?”
Over all, Mr. McClendon said, the company’s holdings in the watershed are “a drop in the bucket” compared with the Marcellus field’s potential. He suggested that Chesapeake had more to lose by drilling there than by forgoing it, even though he contended such drilling would do no harm.
“How could any one well be so profitable that it would be worth damaging the New York City water system?” he said.
The simple fact is that there is so much gas that contrary to reputation, drillers can be choosy. Bad luck if you own land in the Catskills. And Dorset. There often will be those among the legions of UK nimbyists who secretly want to sell out and move to Marbella. The lesson from New York is possibly don't protest too much.
Posted at 01:14 PM in Energy Tech, Next Big Things, Shale Gas Permalink Comments (1) TrackBack (0)
Oct 27, 2009
Lessons to be learned from Canada
The UK and the EU aren't the only places where there are long held dreams of expensive grand energy projects. Alaska has been dreaming of gas pipelines tothe lower 48, and next door the Mackenzie Valley pipeline from the Beaufort Sea to Alberta is another project that at one time might have made sense.
Today? Reality intrudes:
Ottawa has decided not to proceed with its investment in the $16.2-billion Mackenzie Valley Pipeline, sources said, throwing the future of Canada's largest construction proposal into doubt....Bob Hastings, an analyst at Canaccord Adams, who has been following the pipeline saga for decades, does not think it will be built.
"The price of gas isn't fantastic and the only thing that has really happened in the last year or so is that we've found a heck of a lot of shale gas close to consumer markets," he said. "And what would you rather do? Buy gas from up in the Northwest Territories, a long, long, long, long, long, long ways away at a very high cost, or get the gas that is just next door?"
Will Europe learn similar lessons regarding Nabucco? Or Carbon Capture, or nuclear or storage for that matter?
At the end of the day, most of the money will come from banks anyway, with government guarantees unable to cover anywhere near the entire cost. All of the above projects are underpinned by gas being constrained physically or politically. Take away the foundation and nothing may ever get built, grand or small.
Simply substitute Turkmenistan for Northwest Terrritories above, and ask does Nabucco make sense?
Posted at 05:43 PM in Current Affairs, Energy Prices, Prices and Politics, Shale Gas Permalink Comments (1) TrackBack (0)
Oct 26, 2009
Who's screwing who?
If you are a gas trader, then the view is far different from being a gas consumer:
Shale Is Really Screwing Natural Gas Investors
Production of natural gas from shale has been surprising both industry players and analysts on the upside, which clearly isn't helpful for natural gas prices either now or into 2010.
Whoa! When prices were over £1 a therm in summer 2008, was that helpful? For end-users now, or at least for those who have consistently followed our advice and only, and we mean ONLY, bought on day ahead prices, then things are looking better all the time:
Thus the era of ultra-cheap natural gas could be upon us, which would be bad news
Not so disastrous news for end users, and not so bad for the economy either. Everyone has to pay for energy, what is so bad when we all can pay less for it? Energy is simply a tax that isn't democratic: taxation without representation. If taxes were lower, markets would be ecstatic. Lower energy should be good news too. But not at some guys over the Barrel at Platts:
One recent example of just how jaw-dropping the US shale gas story has become came from big independent Newfield Exploration. Houston-based Newfield said in a conference call this week that its production from Oklahoma's Woodford Shale today is 308,000 Mcfe/d, versus about 240,000 Mcfe/d at June 30 -- up nearly 30% in less than four months. Moreover, the company has an inventory of 28 drilled but uncompleted Woodford wells waiting to be put online by early 2010, signalling the potential to boost production still higher.The astounding output jump prompted a comment from analysts at investment bank Wells Fargo, who in an October 22 report called Newfield's gushing Woodford production trend "disturbing." They noted the company's output had "reached recent highs despite (a drilling) slowdown and deferred completions."
But Newfield, and the Woodford field, are hardly the only purveyors of über-volumes of gas. Despite cutbacks in activity elsewhere, dozens of companies both large and small are drilling away at shale and other unconventional plays which they claim continue to offer towering economic rates of return. Their efforts have resulted in huge gas volumes flowing around the US and also recently in Canada. But with just a week left in the refill season, US gas storage bins are brimming over with the commodity. And current demand is not enough to use it all, which could continue the surplus into next year.
Put us with the happy end-users and the realist traders
While prices are now teetering at the $5/Mcf level, many industry observers look at storage figures and scratch their heads. Says one: "Given the amount of gas sitting around out there, it's a mystery why prices are so high.
Posted at 08:37 PM in Energy Prices, Next Big Things, Shale Gas Permalink Comments (0) TrackBack (0)
Why do we fear Russia on energy?
A foundation of UK energy policy is that we're running out of gas, making us dependent on the charity of others.
A sub text of much of the same policy is security of supply. But why are fears over security of supply directed against Russia who is accused of following in the footsteps of Molotov in any number of places, this one just happening to be today's FT, but it could be anywhere
The US ambassador to Sweden last year denounced Nord Stream as a "special arrangement between Germany and Russia" and called on the EU to counteract "Russia's energy weapon".
The reality is far more boring, and one of Britain's top energy experts, Jonathan Stern of the Oxford Institute for Energy Studies pointed out earlier this year talking about the Russia/Ukraine dispute of January 2008, in slide 16 of this fascinating presentation:
Worst Crisis of Russian gas supply imaginable had no significant effect on UK gas supplies and prices
No Hot Air, somewhat like Jonathan Stern, believes in facts, not anecdotes. He points out that the worst disruptions to energy supply come from the UKCS not from external sources. He also points out that they are for the most part short term, not structural. In other words, sometimes bad luck happens. To which we would add, it's much more bad luck to try and avoid it. Think of how many people bought long term prices that only provided the dubious value of paying double or more for energy in the name of risk avoidance.
Back to the Red Menace. Oops, we don't call it that anymore. Maybe we should mention the Cold War, so we can see how insane today's view of Russian energy weapons are. Example number one: Coal.
Coal and Gas are roughly tied as sources of generation. We always thought it bizarre that although 70% of UK coal is imported, no one has kittens over security of supply. But that was before we found out who the number one source of imports to the UK is.
How does the UK reconcile dependency on Russian coal with concerns about over-dependency on gas?
Coal supply is fundamentally more flexible Not dependent on pipelinesMore diverse supplier base
We know a thing or two about energy. But we didn't know this! Coal supplies about 40 per cent of UK electricity, 70 % is imported (28% of total), Russia supplies 60% of that. Or in other words, 15% or so of UK electricity is directly at the mercy of the evil empire: Russia's energy weapon.
But why do we hear about gas. Russia supplies at tops 5% of UK demand, and that is debatable, Jonathan Stern says it's none and there isn't a better expert on Russian gas around. But why don't we hear how insecure we are about coal? Gas is just as fundamentally flexible, doesn't depend on pipelines and has a far more diverse supplier base than coal.
Posted at 07:31 PM in Current Affairs, Energy Prices, Prices and Politics Permalink Comments (1) TrackBack (0)
Oct 25, 2009
Why electric cars will impact your natural gas bill
We always have thought that a key paradigm shift in energy is how we are using less of it. But what would be the impact of electric vehicles on gas and power use?
The answer is that we don't yet know, but we should at least start asking the question. One more transformation over the next few years looks like being EVs.
After years of hope and hype, electron-powered driving finally appears to be on the verge of reality.In the next three years, at least a dozen pure electric or plug-in hybrid cars are slated to hit the market in the U.S. Electricity-driven vehicles from giants such as General Motors Co. and Nissan Motor Co., as well as start-ups like Fisker Automotive Inc. in Irvine, will provide consumers with a wide variety of choices. ..
Battery makers and automakers alike are tooling up factories to produce big volumes of electric vehicles. Meanwhile, power utilities and regulators are scrambling to figure out just how big the market will be...
"This is happening and it's happening soon," said Mark Duvall, director of electric transportation at the Electric Power Research Institute, an independent, nonprofit research group. "By the end of 2011, consumers will have more choices in vehicles they can plug in than they currently do for hybrids."...
But in the last couple of years, huge improvements and new battery chemistries "opened the opportunity" for ambitious product plans, she said. Gioia predicts that as many as a quarter of new vehicles sold by 2020 will be electrics, plug-in hybrids or traditional hybrids.
It's too early to say at this point how much electricity, and gas to generate that, will be needed to power EVs. But it's not too early to say that abundant natural gas and distributed generation is the way to supply those needs whatever they end up being.
Posted at 06:24 PM in Energy Tech, Next Big Things, Renewables Permalink Comments (0) TrackBack (0)
Optimism v pessimism
Barack Obama certainly still believes in hope, as we see from his visit Friday to the energy innovation leaders at MIT:
Firstly he concentrates on the good news:
Dr. Moniz is also the Director of MIT's Energy Initiative, called MITEI. And he and President Hockfield just showed me some of the extraordinary energy research being conducted at this institute: windows that generate electricity by directing light to solar cells; light-weight, high-power batteries that aren't built, but are grown -- that was neat stuff; engineering viruses to create -- to create batteries; more efficient lighting systems that rely on nanotechnology; innovative engineering that will make it possible for offshore wind power plants to deliver electricity even when the air is still.
What a contrast to the the UK doom and gloomsters, who are cheerleaders for blackouts, Peak Oil, high price and blaming greens for everything since the Garden of Eden. But the President knows that there are plenty of people who want to fail in the US as well:
The naysayers, the folks who would pretend that this is not an issue, they are being marginalized. But I think it's important to understand that the closer we get, the harder the opposition will fight and the more we'll hear from those whose interest or ideology run counter to the much needed action that we're engaged in. There are those who will suggest that moving toward clean energy will destroy our economy -- when it's the system we currently have that endangers our prosperity and prevents us from creating millions of new jobs. There are going to be those who cynically claim -- make cynical claims that contradict the overwhelming scientific evidence when it comes to climate change, claims whose only purpose is to defeat or delay the change that we know is necessary.
Let's consider cynicism. As far as we can figure out, CC deniers are in two camps. Firstly, those who unrealistically aren't very comfortable with any idea of change and seem to be proposing an ostrich approach, and refuse to confront change. These are the guys who were complaining about how restrictions on children in coal mines would burden British industry.
But it's the second group of CCD's who are more exactly energy security hypocrites. On one hand, industry will be crippled by climate change costs, but to avoid either carbon or security of supply issues (they often mix them up), they are in line with their hands out asking for state handouts for CCS, Nuclear, and more gas storage. There is also a sub group of mad scientists schemes ranging from the promising (tidal power) through the interesting (space based solar) to the barking (geo-engineering).
But the President again on the general attitude of pessimists:
...this one is far more dangerous because we're all somewhat complicit in it. It's far more dangerous than any attack made by those who wish to stand in the way progress -- and that's the idea that there is nothing or little that we can do. It's pessimism. It's the pessimistic notion that our politics are too broken and our people too unwilling to make hard choices for us to actually deal with this energy issue that we're facing.
There are a lot of people who strongly believe that government will never solve anything, despite a number of government successes: World War Two, mass education, public health, infrastructure, etc etc.
Cynicism is healthy. No Hot Air is built on it's near at hand neighbour, skepticism. And we often think that pessimism is useful in that one is never disappointed and sometimes surprised, where optimists are just asking to be let down.
The pall of permanent doom that hangs over much of UK political thought is far more dangerous than any clouds of smog. This is even more dangerous in energy policy where the new world of abundant energy combined with the optimism coming out of places like MIT is totally at odds with the unreality of energy catastrophe the doomsayers want to peddle.
Posted at 12:00 PM in Current Affairs, Next Big Things Permalink Comments (0) TrackBack (0)
Oct 23, 2009
Russia and Shale 2
More on Gazprom and US shale via AFP:
There is little doubt Gazprom has the resources to reach its US trading targets, particularly if Russia's massive arctic Shtokman field comes online in 2014 as planed.
But according to Fadel Gheit, a senior oil and gas analyst at Oppenheimer & Co, Gazprom and other foreign majors may be entering the US market for reasons beyond market share.
Gazprom's real goal, he said, could be acquiring cutting edge technology that can exploit the difficult-to-access but potentially massive reserves of gas from shale rock.
"The United States has far more advanced shale gas drilling technology. It is basically in the hands of the smaller producers, not the Exxons, not the BPs and not Shell.
"These companies are paying very hefty entry fees to gain a window into the technology. Gazprom I don't believe is interested in production itself, they are interested in production technology. It's pay to learn."
And Gazprom may face commercial challenges to US trade, even with its resource clout.
With China's economy growing apace and European energy prices still high, those markets remain more attractive.
Although Gazprom has a 20-year plan to bring liquefied natural gas to the United States from Russia's enormous Sakhalin-2 field, the firm has preferred to cash in on higher Asian demand and higher European prices.
Still, energy analysts expect regional price differences to ease as the market becomes more global and as regional powerhouses like Gazprom and Chinese firms move into new markets.
One boon for Gazprom's US business may come from an unlikely source -- the federal government. Congress is considering new regulation governing carbon emissions.
"It is all good," Hattenberger said of the proposals, arguing emissions curbs could propel gas use as a cleaner alternative to coal and oil.
"We are still very bullish on US demand," he said
Whatever is going on here, one rather obvious question to be asked in Europe is: Does this sound like the big bad Gazprom that we should be so fearful about that we should spend huge sums of money on technological dead ends like CCS, Nuclear, Storage or Nabucco to avoid being dependent on Russian gas? Far more money we must point out than any alleged economic damage from gas interruptions.
Gazprom is simply acting like a mature, grown-up international oil company. Let's folllow their example.
Posted at 03:06 PM in Energy Prices, Next Big Things, Shale Gas Permalink Comments (1) TrackBack (0)
Oct 22, 2009
Russia and Shale
Back in June, Stephen Holditch showed figures that the former Soviet Union had 627 TCF of shale, compared to 509 in Western Europe.
Gazprom recently went into the US market, allegedly to try and import more LNG, a thankless task in today's market. Another reason?
Gazprom said it may consider acquiring a US shale-gas producer to gain the know-how to exploit similar fuel deposits at home.“An acquisition of a shale-producing company could make a lot of sense,” John Hattenberger, president of Gazprom’s US energy-trading unit, said.“Russia has huge shale reserves,” he said in a Bloomberg report.
Posted at 10:35 PM in Current Affairs, Shale Gas Permalink Comments (1) TrackBack (0)
He's a fan. Sort of.
We've written before of support for natural gas and shale from US green groups like the Sierra Club, Waterkeepers' Alliance and the progressive Centre for American Progress.
But what about the biggest green of all: Al Gore. What does he think? He isn't for shale, but he doesn't open his mouth or start clutching his chest when others on the platform do.
Sen. Reid opened his remarks by saying, “I’ve been converted. I now belong to the Pickens church,” in reference to the plan pitched by Oklahoma oilman T. Boone Pickens to ramp up the role of natural gas (and wind power) in U.S. electricity generation. Natural gas has roughly half the carbon emissions of coal when used to generate electricity.
And here's the photo:
T. Boone Pickens is a most unlikely darling of environmentalists.T. Boone Pickens is a billionaire who made most of his fortune by purchasing and selling shares in energy companies. But, as detailed by Kambiz Foroohar for Bloomberg, Pickens is now touting the Pickens Plan, which would use natural gas to power the 6.5 million diesel trucks which drive up and down America’s roads. By doing so, Pickens says that the United States can save 2.7 million barrels of oil per day, which is over half of what the country imports on a daily basis from OPEC.
The obstacles are large, but if a former oilman like Pickens can win over Harry Reid and Al Gore, his plan may reach fruition.
News from China of Gore actually saying something:
Gore, whose remarks in Beijing focused on solar, wind and geothermal power, expressed skepticism that natural gas, nuclear power or biofuels were realistic energy sources to harness in order to achieve large reductions in carbon emissions.Gore, who won the Nobel Peace Prize in 2007 for his work to publicize the dangers of global warming, said nuclear power was too expensive and could be used to make weapons, biofuels might spark food price rises and natural gas, which emits two-thirds the carbon of oil, was only a “promising transition fuel.
"Promising transition fuel?" Could be better, could be worse. But we can live with that.
Posted at 10:26 PM in Current Affairs, Prices and Politics, Shale Gas Permalink Comments (0) TrackBack (0)
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Russia and Shale
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Ofgem loses it entirely....
What planet is Ofgem on?
Alistair Buchanan, chief executive of the energy regulator, has found that Europe could be under-supplied by 41bn cubic metres in six years’ time, if key Russian projects – many already delayed – fail to deliver. This will affect the UK if it relies on a significant expansion of gas-fired power stations to replace retiring coal stations, while nuclear plants are not operational until 2020 and energy demand rises in a strong global economy. It would narrow to a 33bn cubic metre shortfall of gas by 2020
On AB's planet, Shale has never happened. Shale in Poland, Germany, the Netherlands, France, Switzerland, Sweden, Hungary or Austria doesn't change a thing, especially by 2020.
We cannot believe that a public official (salary £260,000) is so inexpert! Has no one in Ofgem read the papers or perhaps they should ask Jonathan Stern his opinion:
Worst Crisis of Russian gas supply imaginable had no significant effect on UK gas supplies and prices
We'll call out each and every paper who prints this rubbish! We remind them again of the words of someone who Alistair Buchanan obviously thinks is a rank amateur compared to an expert such as himself: Peter Voser the CEO of Shell quoted in the WSJ of October 13:
The U.K.'s fears of over reliance on imports of natural gas in the future are overdone because supply of the fuel will remain ample and secure, said Royal Dutch Shell PLC Chief Executive Peter Voser Tuesday.The focus of the U.K.'s fears - supply from Russia - made up less than 5% of total supply in 2008 and will be a similar proportion in 2020, he said. Shipments of liquefied natural gas and pipeline imports from Norway will be a much larger proportion of U.K. supply, he said."The U.K.'s energy challenge is acute. This raises the question why it can afford to dismiss natural gas as a future source of energy," particularly because it contains less carbon than other fossil fuels, Voser said.
Journalists at least should expect some minimum level of competency from such an important person. What's Mr Buchanan's excuse?
No wonder he gives a free pass to suppliers, the man is either totally inept or simply the most gullible man in Britain.
Posted at 10:06 PM in Current Affairs, Prices and Politics, Shale Gas Permalink Comments (0) TrackBack (0)
The smart ones walk away.
Most oil companies have never made themselves any friends in the past through a desire to "drill, baby, drill" just about anywhere, polar bears, dolphins, indigenous tribes and every other sentient being be damned.
Aubrey McLendon, head of Chesapeake Energy is disrupting, along with most things, that part of the hydrocarbon matrix that has never found a potential source they didn't like.
Gas drillers have been exploring the giant Marcellus Shale coming up from West Virginia and Pennsylvania for most of the past year, and were waiting for go ahead on drilling in upstate New York to unleash yet another gas land-rush.
Although the southern section in the Catskills,is especially attractive for being in the New York City exurbs, this portion of the Marcellus was also close to the watershed for the NYC drinking water supply. There was the potential for a big battle between classic Manhattan limousine liberals and upstaters who wanted to take the money and move to Miami, an attractive prospect in a depressed area. In short the old nimby v economy story, which usually ends up eating column inches and grand debate for years.
But not this time:
Bowing to intense public pressure, the Chesapeake Energy Corporation says it will not drill for natural gas within the upstate New York watershed, an environmentally sensitive region that supplies unfiltered water to nine million people.
The reversal seems to signal a more conciliatory tone from the gas industry, which is facing mounting opposition in New York to its drilling practices.
But before the New York Green Party uncorks the organic Champagne, this isn't a victory for them, it's a victory for rational common sense:
“We are not going to develop those leases, and we are not taking any more leases, and I don’t think anybody else in the industry would dare to acquire leases in the New York City watershed,” Aubrey K. McLendon, the chief executive officer at Chesapeake Energy, said in an interview on Monday in Fort Worth. “Why go through the brain damage of that, when we have so many other opportunities?”
Over all, Mr. McClendon said, the company’s holdings in the watershed are “a drop in the bucket” compared with the Marcellus field’s potential. He suggested that Chesapeake had more to lose by drilling there than by forgoing it, even though he contended such drilling would do no harm.
“How could any one well be so profitable that it would be worth damaging the New York City water system?” he said.
The simple fact is that there is so much gas that contrary to reputation, drillers can be choosy. Bad luck if you own land in the Catskills. And Dorset. There often will be those among the legions of UK nimbyists who secretly want to sell out and move to Marbella. The lesson from New York is possibly don't protest too much.
Posted at 01:14 PM in Energy Tech, Next Big Things, Shale Gas Permalink Comments (1) TrackBack (0)
Oct 27, 2009
Lessons to be learned from Canada
The UK and the EU aren't the only places where there are long held dreams of expensive grand energy projects. Alaska has been dreaming of gas pipelines tothe lower 48, and next door the Mackenzie Valley pipeline from the Beaufort Sea to Alberta is another project that at one time might have made sense.
Today? Reality intrudes:
Ottawa has decided not to proceed with its investment in the $16.2-billion Mackenzie Valley Pipeline, sources said, throwing the future of Canada's largest construction proposal into doubt....Bob Hastings, an analyst at Canaccord Adams, who has been following the pipeline saga for decades, does not think it will be built.
"The price of gas isn't fantastic and the only thing that has really happened in the last year or so is that we've found a heck of a lot of shale gas close to consumer markets," he said. "And what would you rather do? Buy gas from up in the Northwest Territories, a long, long, long, long, long, long ways away at a very high cost, or get the gas that is just next door?"
Will Europe learn similar lessons regarding Nabucco? Or Carbon Capture, or nuclear or storage for that matter?
At the end of the day, most of the money will come from banks anyway, with government guarantees unable to cover anywhere near the entire cost. All of the above projects are underpinned by gas being constrained physically or politically. Take away the foundation and nothing may ever get built, grand or small.
Simply substitute Turkmenistan for Northwest Terrritories above, and ask does Nabucco make sense?
Posted at 05:43 PM in Current Affairs, Energy Prices, Prices and Politics, Shale Gas Permalink Comments (1) TrackBack (0)
Oct 26, 2009
Who's screwing who?
If you are a gas trader, then the view is far different from being a gas consumer:
Shale Is Really Screwing Natural Gas Investors
Production of natural gas from shale has been surprising both industry players and analysts on the upside, which clearly isn't helpful for natural gas prices either now or into 2010.
Whoa! When prices were over £1 a therm in summer 2008, was that helpful? For end-users now, or at least for those who have consistently followed our advice and only, and we mean ONLY, bought on day ahead prices, then things are looking better all the time:
Thus the era of ultra-cheap natural gas could be upon us, which would be bad news
Not so disastrous news for end users, and not so bad for the economy either. Everyone has to pay for energy, what is so bad when we all can pay less for it? Energy is simply a tax that isn't democratic: taxation without representation. If taxes were lower, markets would be ecstatic. Lower energy should be good news too. But not at some guys over the Barrel at Platts:
One recent example of just how jaw-dropping the US shale gas story has become came from big independent Newfield Exploration. Houston-based Newfield said in a conference call this week that its production from Oklahoma's Woodford Shale today is 308,000 Mcfe/d, versus about 240,000 Mcfe/d at June 30 -- up nearly 30% in less than four months. Moreover, the company has an inventory of 28 drilled but uncompleted Woodford wells waiting to be put online by early 2010, signalling the potential to boost production still higher.The astounding output jump prompted a comment from analysts at investment bank Wells Fargo, who in an October 22 report called Newfield's gushing Woodford production trend "disturbing." They noted the company's output had "reached recent highs despite (a drilling) slowdown and deferred completions."
But Newfield, and the Woodford field, are hardly the only purveyors of über-volumes of gas. Despite cutbacks in activity elsewhere, dozens of companies both large and small are drilling away at shale and other unconventional plays which they claim continue to offer towering economic rates of return. Their efforts have resulted in huge gas volumes flowing around the US and also recently in Canada. But with just a week left in the refill season, US gas storage bins are brimming over with the commodity. And current demand is not enough to use it all, which could continue the surplus into next year.
Put us with the happy end-users and the realist traders
While prices are now teetering at the $5/Mcf level, many industry observers look at storage figures and scratch their heads. Says one: "Given the amount of gas sitting around out there, it's a mystery why prices are so high.
Posted at 08:37 PM in Energy Prices, Next Big Things, Shale Gas Permalink Comments (0) TrackBack (0)
Why do we fear Russia on energy?
A foundation of UK energy policy is that we're running out of gas, making us dependent on the charity of others.
A sub text of much of the same policy is security of supply. But why are fears over security of supply directed against Russia who is accused of following in the footsteps of Molotov in any number of places, this one just happening to be today's FT, but it could be anywhere
The US ambassador to Sweden last year denounced Nord Stream as a "special arrangement between Germany and Russia" and called on the EU to counteract "Russia's energy weapon".
The reality is far more boring, and one of Britain's top energy experts, Jonathan Stern of the Oxford Institute for Energy Studies pointed out earlier this year talking about the Russia/Ukraine dispute of January 2008, in slide 16 of this fascinating presentation:
Worst Crisis of Russian gas supply imaginable had no significant effect on UK gas supplies and prices
No Hot Air, somewhat like Jonathan Stern, believes in facts, not anecdotes. He points out that the worst disruptions to energy supply come from the UKCS not from external sources. He also points out that they are for the most part short term, not structural. In other words, sometimes bad luck happens. To which we would add, it's much more bad luck to try and avoid it. Think of how many people bought long term prices that only provided the dubious value of paying double or more for energy in the name of risk avoidance.
Back to the Red Menace. Oops, we don't call it that anymore. Maybe we should mention the Cold War, so we can see how insane today's view of Russian energy weapons are. Example number one: Coal.
Coal and Gas are roughly tied as sources of generation. We always thought it bizarre that although 70% of UK coal is imported, no one has kittens over security of supply. But that was before we found out who the number one source of imports to the UK is.
How does the UK reconcile dependency on Russian coal with concerns about over-dependency on gas?
Coal supply is fundamentally more flexible Not dependent on pipelinesMore diverse supplier base
We know a thing or two about energy. But we didn't know this! Coal supplies about 40 per cent of UK electricity, 70 % is imported (28% of total), Russia supplies 60% of that. Or in other words, 15% or so of UK electricity is directly at the mercy of the evil empire: Russia's energy weapon.
But why do we hear about gas. Russia supplies at tops 5% of UK demand, and that is debatable, Jonathan Stern says it's none and there isn't a better expert on Russian gas around. But why don't we hear how insecure we are about coal? Gas is just as fundamentally flexible, doesn't depend on pipelines and has a far more diverse supplier base than coal.
Posted at 07:31 PM in Current Affairs, Energy Prices, Prices and Politics Permalink Comments (1) TrackBack (0)
Oct 25, 2009
Why electric cars will impact your natural gas bill
We always have thought that a key paradigm shift in energy is how we are using less of it. But what would be the impact of electric vehicles on gas and power use?
The answer is that we don't yet know, but we should at least start asking the question. One more transformation over the next few years looks like being EVs.
After years of hope and hype, electron-powered driving finally appears to be on the verge of reality.In the next three years, at least a dozen pure electric or plug-in hybrid cars are slated to hit the market in the U.S. Electricity-driven vehicles from giants such as General Motors Co. and Nissan Motor Co., as well as start-ups like Fisker Automotive Inc. in Irvine, will provide consumers with a wide variety of choices. ..
Battery makers and automakers alike are tooling up factories to produce big volumes of electric vehicles. Meanwhile, power utilities and regulators are scrambling to figure out just how big the market will be...
"This is happening and it's happening soon," said Mark Duvall, director of electric transportation at the Electric Power Research Institute, an independent, nonprofit research group. "By the end of 2011, consumers will have more choices in vehicles they can plug in than they currently do for hybrids."...
But in the last couple of years, huge improvements and new battery chemistries "opened the opportunity" for ambitious product plans, she said. Gioia predicts that as many as a quarter of new vehicles sold by 2020 will be electrics, plug-in hybrids or traditional hybrids.
It's too early to say at this point how much electricity, and gas to generate that, will be needed to power EVs. But it's not too early to say that abundant natural gas and distributed generation is the way to supply those needs whatever they end up being.
Posted at 06:24 PM in Energy Tech, Next Big Things, Renewables Permalink Comments (0) TrackBack (0)
Optimism v pessimism
Barack Obama certainly still believes in hope, as we see from his visit Friday to the energy innovation leaders at MIT:
Firstly he concentrates on the good news:
Dr. Moniz is also the Director of MIT's Energy Initiative, called MITEI. And he and President Hockfield just showed me some of the extraordinary energy research being conducted at this institute: windows that generate electricity by directing light to solar cells; light-weight, high-power batteries that aren't built, but are grown -- that was neat stuff; engineering viruses to create -- to create batteries; more efficient lighting systems that rely on nanotechnology; innovative engineering that will make it possible for offshore wind power plants to deliver electricity even when the air is still.
What a contrast to the the UK doom and gloomsters, who are cheerleaders for blackouts, Peak Oil, high price and blaming greens for everything since the Garden of Eden. But the President knows that there are plenty of people who want to fail in the US as well:
The naysayers, the folks who would pretend that this is not an issue, they are being marginalized. But I think it's important to understand that the closer we get, the harder the opposition will fight and the more we'll hear from those whose interest or ideology run counter to the much needed action that we're engaged in. There are those who will suggest that moving toward clean energy will destroy our economy -- when it's the system we currently have that endangers our prosperity and prevents us from creating millions of new jobs. There are going to be those who cynically claim -- make cynical claims that contradict the overwhelming scientific evidence when it comes to climate change, claims whose only purpose is to defeat or delay the change that we know is necessary.
Let's consider cynicism. As far as we can figure out, CC deniers are in two camps. Firstly, those who unrealistically aren't very comfortable with any idea of change and seem to be proposing an ostrich approach, and refuse to confront change. These are the guys who were complaining about how restrictions on children in coal mines would burden British industry.
But it's the second group of CCD's who are more exactly energy security hypocrites. On one hand, industry will be crippled by climate change costs, but to avoid either carbon or security of supply issues (they often mix them up), they are in line with their hands out asking for state handouts for CCS, Nuclear, and more gas storage. There is also a sub group of mad scientists schemes ranging from the promising (tidal power) through the interesting (space based solar) to the barking (geo-engineering).
But the President again on the general attitude of pessimists:
...this one is far more dangerous because we're all somewhat complicit in it. It's far more dangerous than any attack made by those who wish to stand in the way progress -- and that's the idea that there is nothing or little that we can do. It's pessimism. It's the pessimistic notion that our politics are too broken and our people too unwilling to make hard choices for us to actually deal with this energy issue that we're facing.
There are a lot of people who strongly believe that government will never solve anything, despite a number of government successes: World War Two, mass education, public health, infrastructure, etc etc.
Cynicism is healthy. No Hot Air is built on it's near at hand neighbour, skepticism. And we often think that pessimism is useful in that one is never disappointed and sometimes surprised, where optimists are just asking to be let down.
The pall of permanent doom that hangs over much of UK political thought is far more dangerous than any clouds of smog. This is even more dangerous in energy policy where the new world of abundant energy combined with the optimism coming out of places like MIT is totally at odds with the unreality of energy catastrophe the doomsayers want to peddle.
Posted at 12:00 PM in Current Affairs, Next Big Things Permalink Comments (0) TrackBack (0)
Oct 23, 2009
Russia and Shale 2
More on Gazprom and US shale via AFP:
There is little doubt Gazprom has the resources to reach its US trading targets, particularly if Russia's massive arctic Shtokman field comes online in 2014 as planed.
But according to Fadel Gheit, a senior oil and gas analyst at Oppenheimer & Co, Gazprom and other foreign majors may be entering the US market for reasons beyond market share.
Gazprom's real goal, he said, could be acquiring cutting edge technology that can exploit the difficult-to-access but potentially massive reserves of gas from shale rock.
"The United States has far more advanced shale gas drilling technology. It is basically in the hands of the smaller producers, not the Exxons, not the BPs and not Shell.
"These companies are paying very hefty entry fees to gain a window into the technology. Gazprom I don't believe is interested in production itself, they are interested in production technology. It's pay to learn."
And Gazprom may face commercial challenges to US trade, even with its resource clout.
With China's economy growing apace and European energy prices still high, those markets remain more attractive.
Although Gazprom has a 20-year plan to bring liquefied natural gas to the United States from Russia's enormous Sakhalin-2 field, the firm has preferred to cash in on higher Asian demand and higher European prices.
Still, energy analysts expect regional price differences to ease as the market becomes more global and as regional powerhouses like Gazprom and Chinese firms move into new markets.
One boon for Gazprom's US business may come from an unlikely source -- the federal government. Congress is considering new regulation governing carbon emissions.
"It is all good," Hattenberger said of the proposals, arguing emissions curbs could propel gas use as a cleaner alternative to coal and oil.
"We are still very bullish on US demand," he said
Whatever is going on here, one rather obvious question to be asked in Europe is: Does this sound like the big bad Gazprom that we should be so fearful about that we should spend huge sums of money on technological dead ends like CCS, Nuclear, Storage or Nabucco to avoid being dependent on Russian gas? Far more money we must point out than any alleged economic damage from gas interruptions.
Gazprom is simply acting like a mature, grown-up international oil company. Let's folllow their example.
Posted at 03:06 PM in Energy Prices, Next Big Things, Shale Gas Permalink Comments (1) TrackBack (0)
Oct 22, 2009
Russia and Shale
Back in June, Stephen Holditch showed figures that the former Soviet Union had 627 TCF of shale, compared to 509 in Western Europe.
Gazprom recently went into the US market, allegedly to try and import more LNG, a thankless task in today's market. Another reason?
Gazprom said it may consider acquiring a US shale-gas producer to gain the know-how to exploit similar fuel deposits at home.“An acquisition of a shale-producing company could make a lot of sense,” John Hattenberger, president of Gazprom’s US energy-trading unit, said.“Russia has huge shale reserves,” he said in a Bloomberg report.
Posted at 10:35 PM in Current Affairs, Shale Gas Permalink Comments (1) TrackBack (0)
He's a fan. Sort of.
We've written before of support for natural gas and shale from US green groups like the Sierra Club, Waterkeepers' Alliance and the progressive Centre for American Progress.
But what about the biggest green of all: Al Gore. What does he think? He isn't for shale, but he doesn't open his mouth or start clutching his chest when others on the platform do.
Sen. Reid opened his remarks by saying, “I’ve been converted. I now belong to the Pickens church,” in reference to the plan pitched by Oklahoma oilman T. Boone Pickens to ramp up the role of natural gas (and wind power) in U.S. electricity generation. Natural gas has roughly half the carbon emissions of coal when used to generate electricity.
And here's the photo:
T. Boone Pickens is a most unlikely darling of environmentalists.T. Boone Pickens is a billionaire who made most of his fortune by purchasing and selling shares in energy companies. But, as detailed by Kambiz Foroohar for Bloomberg, Pickens is now touting the Pickens Plan, which would use natural gas to power the 6.5 million diesel trucks which drive up and down America’s roads. By doing so, Pickens says that the United States can save 2.7 million barrels of oil per day, which is over half of what the country imports on a daily basis from OPEC.
The obstacles are large, but if a former oilman like Pickens can win over Harry Reid and Al Gore, his plan may reach fruition.
News from China of Gore actually saying something:
Gore, whose remarks in Beijing focused on solar, wind and geothermal power, expressed skepticism that natural gas, nuclear power or biofuels were realistic energy sources to harness in order to achieve large reductions in carbon emissions.Gore, who won the Nobel Peace Prize in 2007 for his work to publicize the dangers of global warming, said nuclear power was too expensive and could be used to make weapons, biofuels might spark food price rises and natural gas, which emits two-thirds the carbon of oil, was only a “promising transition fuel.
"Promising transition fuel?" Could be better, could be worse. But we can live with that.
Posted at 10:26 PM in Current Affairs, Prices and Politics, Shale Gas Permalink Comments (0) TrackBack (0)
Next »
Baseline Scenario -- Especially on the New Home Buyers' Tax Credit Through the Spring
(c) 2009 F. Bruce Abel
Kwak is good today in Baselind Scenario, on many fronts, as usual.
The Baseline Scenario
How Big?
Paging Jamie Dimon
Homebuyer Tax Credit Update
More Too Big to Fail
How Big?
Posted: 28 Oct 2009 06:48 AM PDT
You hear a lot these days that banks need to be big to serve their clients. Charles Calomiris said this morning that we can’t run the global economy with “mom-and-pop banks.” Sure, I’m willing to concede that. But how that’s a silly debating tactic. More seriously, how big do they need to be?
Yves Smith, no friend of the mega-banks, says, “The elephant in the room is derivatives. The big players have massive OTC derivatives exposures. You need a really big balance sheet to provide OTC derivatives cost effectively.”
How big?
Here’s a starting point. In 1998, Goldman Sachs had $217 billion of assets. (Lehman had $154 billion.) In today’s dollars (using the GDP price index), that would be about $270 billion. I think that they were probably doing a perfectly good job of serving their clients at the time. Adjusting for inflation, I don’t think their clients are substantially bigger or more global now than they were then. So the question is (multiple choice):
(a) Has the financial world changed so much that Goldman now needs more than $270 billion to serve clients effectively (and if so, is that change we want)?
(b) Is $270 billion enough?
I don’t claim to know the answer to this one, but if it’s (a), I’d like to see some evidence.
By James Kwak
Paging Jamie Dimon
Posted: 28 Oct 2009 06:29 AM PDT
Surprise, surprise — GMAC needs more money. As you may recall, GMAC was the one institution that got a C- on the stress tests this spring that were impossible to fail. I imagine the analysts at the Fed really wanted to give it an F, but they couldn’t. In any case, it seems that GMAC is too big to fail, because of its importance to the auto industry. Yves Smith says, “The reason for more dough to GMAC is so GM and Chrysler can continue to finance auto purchases, not as a result of greater than expected losses on its existing portfolio. So this is cash for clunkers under another brand name.”
Again, not surprisingly, the government is treating the 50% ownership threshold as some sort of magic line. From the Times article:
“With all three helpings of federal aid, it is possible that the government could wind up owning at least half of the company. But GMAC and Treasury officials are discussing ways to structure the investment in a way that could limit the government’s ownership interests. One possible option would be to also ask some of its private preferred stockholders to convert their investments into common stock.”
So I have two ideas. The first is that if we put more money in GMAC, we should divide it in two and let the mortgage lending part fail. If we insist on keeping the whole thing afloat, that means we are subsidizing both the auto lending part (which is supposedly critical to the economy) and the mortgage lending part (which isn’t).
The second is that this would be a great time for JPMorgan Chase to get some good PR by stepping in and offering to replace GMAC as the funding source for GM and Chrysler dealers, so the government can abandon GMAC. Or even buying GMAC outright, including assuming all its debt and committing to subsidize the auto business, for $1 or so. Yes, that would make JPMorgan bigger, which I’m not thrilled about. But from Jamie Dimon’s perspective, it would show the potential benefits of having big banks that are willing to act in the national interest now and then, and it would be a little like Goldman declining to haggle over the price of buying back its warrants from Treasury.
Now the idea of relying on big banks to serve the national interest obviously sounds like bad policy to me. But if Jamie Dimon wants to take this problem off the taxpayer’s hand, I think he would be welcome to it.
By James Kwak
Homebuyer Tax Credit Update
Posted: 28 Oct 2009 06:12 AM PDT
Calculated Risk says there is a deal (bullet points are from his post):
Income eligibility for first-time home buyers stays at $75,000 for individuals, and $150,000 for couples.
For move-up buyers, income eligibility is $125,000 for individuals and $250,000 for couples.
There is a minimum 5 year residency requirement – in their current home – for move-up home buyers.
The tax credit is the lesser of $7,290 or 10% of the purchase price.
The credit runs from Dec. 1, 2009 to April 30, 2010, with an additional 60 day period to close escrow. (So end of April to sign contract, end of June to close escrow)
Expect bill to be signed by Friday, packaged with the unemployment benefit extension.
So my wife and I fit under the $250,000 couples limit. We’ve lived in our house for eight years. So now the government is willing to give me $7,000 to buy a new house? That would be a sale that wouldn’t have happened otherwise — but what good would it do the economy?
As I tried to explain previously, an $8,000 credit for first-time homebuyers will raise prices by less than $8,000 (leaving aside the effect of leverage for simplicity), because demand at any price point only goes up for first-time homebuyers, not all homebuyers. That means that the buyer gets a fair chunk of the subsidy. But vastly expanding eligibility like this (about 67% of households own houses, and probably about half of them have been in the same house for five years) increases the amount by which prices will go up, which lowers the buyer’s share of the subsidy and increases the seller’s share.
By James Kwak
More Too Big to Fail
Posted: 28 Oct 2009 05:47 AM PDT
Simon and Charles Calomiris were quoted on NPR this morning on the topic of the day — too big to fail.
I thought one of Calomiris’s examples was interesting. He cited Mexico, where banking was dominated by six families that wouldn’t lend to potential competitors. After the Mexican financial crisis and the entry of foreign banks, now it is easier for companies to raise money. It seems to me that story could be used by either side.
By James Kwak
Kwak is good today in Baselind Scenario, on many fronts, as usual.
The Baseline Scenario
How Big?
Paging Jamie Dimon
Homebuyer Tax Credit Update
More Too Big to Fail
How Big?
Posted: 28 Oct 2009 06:48 AM PDT
You hear a lot these days that banks need to be big to serve their clients. Charles Calomiris said this morning that we can’t run the global economy with “mom-and-pop banks.” Sure, I’m willing to concede that. But how that’s a silly debating tactic. More seriously, how big do they need to be?
Yves Smith, no friend of the mega-banks, says, “The elephant in the room is derivatives. The big players have massive OTC derivatives exposures. You need a really big balance sheet to provide OTC derivatives cost effectively.”
How big?
Here’s a starting point. In 1998, Goldman Sachs had $217 billion of assets. (Lehman had $154 billion.) In today’s dollars (using the GDP price index), that would be about $270 billion. I think that they were probably doing a perfectly good job of serving their clients at the time. Adjusting for inflation, I don’t think their clients are substantially bigger or more global now than they were then. So the question is (multiple choice):
(a) Has the financial world changed so much that Goldman now needs more than $270 billion to serve clients effectively (and if so, is that change we want)?
(b) Is $270 billion enough?
I don’t claim to know the answer to this one, but if it’s (a), I’d like to see some evidence.
By James Kwak
Paging Jamie Dimon
Posted: 28 Oct 2009 06:29 AM PDT
Surprise, surprise — GMAC needs more money. As you may recall, GMAC was the one institution that got a C- on the stress tests this spring that were impossible to fail. I imagine the analysts at the Fed really wanted to give it an F, but they couldn’t. In any case, it seems that GMAC is too big to fail, because of its importance to the auto industry. Yves Smith says, “The reason for more dough to GMAC is so GM and Chrysler can continue to finance auto purchases, not as a result of greater than expected losses on its existing portfolio. So this is cash for clunkers under another brand name.”
Again, not surprisingly, the government is treating the 50% ownership threshold as some sort of magic line. From the Times article:
“With all three helpings of federal aid, it is possible that the government could wind up owning at least half of the company. But GMAC and Treasury officials are discussing ways to structure the investment in a way that could limit the government’s ownership interests. One possible option would be to also ask some of its private preferred stockholders to convert their investments into common stock.”
So I have two ideas. The first is that if we put more money in GMAC, we should divide it in two and let the mortgage lending part fail. If we insist on keeping the whole thing afloat, that means we are subsidizing both the auto lending part (which is supposedly critical to the economy) and the mortgage lending part (which isn’t).
The second is that this would be a great time for JPMorgan Chase to get some good PR by stepping in and offering to replace GMAC as the funding source for GM and Chrysler dealers, so the government can abandon GMAC. Or even buying GMAC outright, including assuming all its debt and committing to subsidize the auto business, for $1 or so. Yes, that would make JPMorgan bigger, which I’m not thrilled about. But from Jamie Dimon’s perspective, it would show the potential benefits of having big banks that are willing to act in the national interest now and then, and it would be a little like Goldman declining to haggle over the price of buying back its warrants from Treasury.
Now the idea of relying on big banks to serve the national interest obviously sounds like bad policy to me. But if Jamie Dimon wants to take this problem off the taxpayer’s hand, I think he would be welcome to it.
By James Kwak
Homebuyer Tax Credit Update
Posted: 28 Oct 2009 06:12 AM PDT
Calculated Risk says there is a deal (bullet points are from his post):
Income eligibility for first-time home buyers stays at $75,000 for individuals, and $150,000 for couples.
For move-up buyers, income eligibility is $125,000 for individuals and $250,000 for couples.
There is a minimum 5 year residency requirement – in their current home – for move-up home buyers.
The tax credit is the lesser of $7,290 or 10% of the purchase price.
The credit runs from Dec. 1, 2009 to April 30, 2010, with an additional 60 day period to close escrow. (So end of April to sign contract, end of June to close escrow)
Expect bill to be signed by Friday, packaged with the unemployment benefit extension.
So my wife and I fit under the $250,000 couples limit. We’ve lived in our house for eight years. So now the government is willing to give me $7,000 to buy a new house? That would be a sale that wouldn’t have happened otherwise — but what good would it do the economy?
As I tried to explain previously, an $8,000 credit for first-time homebuyers will raise prices by less than $8,000 (leaving aside the effect of leverage for simplicity), because demand at any price point only goes up for first-time homebuyers, not all homebuyers. That means that the buyer gets a fair chunk of the subsidy. But vastly expanding eligibility like this (about 67% of households own houses, and probably about half of them have been in the same house for five years) increases the amount by which prices will go up, which lowers the buyer’s share of the subsidy and increases the seller’s share.
By James Kwak
More Too Big to Fail
Posted: 28 Oct 2009 05:47 AM PDT
Simon and Charles Calomiris were quoted on NPR this morning on the topic of the day — too big to fail.
I thought one of Calomiris’s examples was interesting. He cited Mexico, where banking was dominated by six families that wouldn’t lend to potential competitors. After the Mexican financial crisis and the entry of foreign banks, now it is easier for companies to raise money. It seems to me that story could be used by either side.
By James Kwak
Wednesday, October 28, 2009
Friedman -- A Must Read Today
(c) 2009 F. Bruce Abel
Thomas Friedman is so powerful today. This is worth saving for its history putting the middle east initiatives into perspective.
http://www.nytimes.com/2009/10/28/opinion/28friedman.html?_r=1&hp=&adxnnl=1&adxnnlx=1256727892-yH09MNehJaT55ipuuZ6ElQ
Thomas Friedman is so powerful today. This is worth saving for its history putting the middle east initiatives into perspective.
http://www.nytimes.com/2009/10/28/opinion/28friedman.html?_r=1&hp=&adxnnl=1&adxnnlx=1256727892-yH09MNehJaT55ipuuZ6ElQ
Baseline Scenario -- Good Math on the $8,000 Home Buyers' Credit
(c) 2009 F. Bruce Abel
Should the home buyer credit be extended? Read on.
The Baseline Scenario
Tax Credits, Screwdrivers, and Supply and Demand Curves
Posted: 27 Oct 2009 06:32 AM PDT
Our Washington Post online column today is another cry in the wilderness against the homebuyer tax credit.
There are many arguments against the tax credit. One argument we make is that the tax credit is a benefit for sellers of houses more than for buyers of houses. This is simplest to see if you imagine a permanent credit available for all buyers: “Imagine the credit were expanded to all home buyers and made permanent. This would simply boost housing prices at the low end of the market by close to $8,000, since all buyers would be willing to pay $8,000 more. (Prices would rise by a little less than $8,000 because at higher prices, more people would be willing to sell.)”
It turns out Nemo had made a similar argument already.
Small point: Nemo (in a follow-up post) says that the tax credit should boost prices by exactly $8,000 (leaving aside leverage for now), because in the short term the supply curve is vertical. I’m not convinced. The reason we said “close to $8,000″ is that the supply curve is typically upward-sloping, not vertical, as shown on the graph in that follow-up post. The supply of houses can shift quickly, because people can decide to sell their houses (say, retirees planning to move to apartments in the city can move that decision forward). Also, if the credit is not available to everyone, it won’t shift the demand curve by exactly $8,000 at every point, because the demand curve for houses is the sum of every individual’s demand for houses, so only some people’s demand will change. This is why expanding the tax credit to everyone is such a bad idea. When you restrict it to first-time homebuyers, they get at least some of the benefit.
Bigger point: Nemo points out that the $8,000 increases the homebuyer’s ability to make a down payment; since mortgages provide leverage, this means the potential impact on prices is much higher. If you are buying a house with 3.5% down, then arguably an extra $8,000 in cash (which some states will advance you) can boost your buying power by $200,000. Now, this is a complicated issue, since unless you can get a no-doc loan, you still need to qualify for the monthly payments. (Nemo discusses this here.) But I think it’s fair to say that at least some buyers are constrained by the down payment more than by the monthly payments, especially with interest rates so low (I saw this in my summer legal services job). So the potential impact on a household’s buying power could be a lot more than $8,000, as Nemo says.
The net effect is that the buyer pays an inflated price for a house, which will get deflated when the tax credit prop gets taken away. I believe in some places you can effectively use the tax credit as your down payment; this means you will have close to zero equity when the credit goes away, unless housing prices rise.
By James Kwak
Should the home buyer credit be extended? Read on.
The Baseline Scenario
Tax Credits, Screwdrivers, and Supply and Demand Curves
Posted: 27 Oct 2009 06:32 AM PDT
Our Washington Post online column today is another cry in the wilderness against the homebuyer tax credit.
There are many arguments against the tax credit. One argument we make is that the tax credit is a benefit for sellers of houses more than for buyers of houses. This is simplest to see if you imagine a permanent credit available for all buyers: “Imagine the credit were expanded to all home buyers and made permanent. This would simply boost housing prices at the low end of the market by close to $8,000, since all buyers would be willing to pay $8,000 more. (Prices would rise by a little less than $8,000 because at higher prices, more people would be willing to sell.)”
It turns out Nemo had made a similar argument already.
Small point: Nemo (in a follow-up post) says that the tax credit should boost prices by exactly $8,000 (leaving aside leverage for now), because in the short term the supply curve is vertical. I’m not convinced. The reason we said “close to $8,000″ is that the supply curve is typically upward-sloping, not vertical, as shown on the graph in that follow-up post. The supply of houses can shift quickly, because people can decide to sell their houses (say, retirees planning to move to apartments in the city can move that decision forward). Also, if the credit is not available to everyone, it won’t shift the demand curve by exactly $8,000 at every point, because the demand curve for houses is the sum of every individual’s demand for houses, so only some people’s demand will change. This is why expanding the tax credit to everyone is such a bad idea. When you restrict it to first-time homebuyers, they get at least some of the benefit.
Bigger point: Nemo points out that the $8,000 increases the homebuyer’s ability to make a down payment; since mortgages provide leverage, this means the potential impact on prices is much higher. If you are buying a house with 3.5% down, then arguably an extra $8,000 in cash (which some states will advance you) can boost your buying power by $200,000. Now, this is a complicated issue, since unless you can get a no-doc loan, you still need to qualify for the monthly payments. (Nemo discusses this here.) But I think it’s fair to say that at least some buyers are constrained by the down payment more than by the monthly payments, especially with interest rates so low (I saw this in my summer legal services job). So the potential impact on a household’s buying power could be a lot more than $8,000, as Nemo says.
The net effect is that the buyer pays an inflated price for a house, which will get deflated when the tax credit prop gets taken away. I believe in some places you can effectively use the tax credit as your down payment; this means you will have close to zero equity when the credit goes away, unless housing prices rise.
By James Kwak
Tuesday, October 27, 2009
Aggregation of Electricity
© 2009 F. Bruce Abel[1]Tuesday, October 27, 2009
Re: Electricity Aggregation – I Vote “No”
Electric Aggregation is now up for a vote November 3, 2009, at a time an electric rate of Dominion Retail, Inc., a competitor to Duke Energy, is “strongly competitive.”[2]
Aggregation implies many things. It implies that deregulation is a fait accompli and that we as individuals are left on an island without the traditional support of our local utility in supplying us low-cost power. It implies that combining with our neighbors can give us sufficient market power to have some say in what our rate is. Aggregation implies that our Village officials will know best how to control our utility prices.
I truly doubt all these things.
Aggregation takes 100/hrs per year of the City Administrator’s time the first year, less thereafter.
Aggregation generally is, in my opinion, somewhat of a deregulatory diversion because there is no need to “slice and dice” our lives up any more for a one-time $13/month savings even if it lasts for a year: there is no great need for up to two more additional middlemen (the Village and, perhaps, another true middleman advising the village) between each of us and our utility.
Aggregation nevertheless is not totally irrelevant today, however, because the competitive wholesale electric market in Nymex futures (New York) has collapsed by one-half and Duke, for the foreseeable future, appears to be undercut on that score.
Aggregation does not give Glendale “market power” as the market is controlled by Nymex electricity futures. Green Township, 28,000 in population, signed up for one Dominion Retail, Inc. deal and later smaller communities got better deals as the recession continued and futures market prices for electricity went down. Single individuals (such as me) also got the better deals with Dominion Retail, Inc. through direct solicitation of Dominion two months ago or so.
Aggregation, in my opinion, puts our officials unnecessarily “on the line” in “predicting” to some extent regulated electricity prices of Duke Energy into the future. However, such predicting is no longer possible because Duke’s near- and far-term plans have been put under seal, declared trade secrets to avoid the competitors from gaining insight. And, as noted below, the Rider FPP remains a quarterly uncertainty.
Aggregation of Electricity is a Game of Trust in the Village Officials, Which May Mean the Middleman They Must Rely on.
Duke Energy and a Competitor
Duke Energy is the “default” and its rates “known,” only until the next quarter, as described below. Once off of Duke, I believe, one loses one’s rights to refunds for the period if challenges are made to Duke’s high rates. One can go back without penalty after the contract with the competitor, however.
“CG&E” (Duke) of course generates its own electricity. But from what I recently read (from testimony and actions at the PUCO in Columbus), Duke has an affiliate which is itself a trader, and you can see by the Symmes Township video I refer to below, that Duke is gung-ho towards playing this game, in order that it may try to sell elsewhere in Ohio through its affiliate.Aggregation is “costless” to the village, at least on the surface. A city or village administrator initially spends as much as 100 hours of his valuable time the first year of aggregation talking to citizen/inquirers/-complainers who are opposed to government stepping into anything it does not need to. The administrator does this even though the new competitor (Dominion Retail or Integrys) happily carries out that function as well. But what ratepayer wants to talk to some stranger in New York who doesn’t even know where Morse Avenue is or the name of the latest Bearcat quarterback?
Third Party Experts
Also, of course, if a majority of the electorate in Glendale votes in favor of aggregation, Glendale might then rely on a third-party expert or middleman. One third-party middleman is Don Marshall, a thoroughly-decent CEO of his company Eagle Energy in Green Township, and a former manager at CG&E. If anybody “knows the territory” it is he.
The Dominion Retail, Inc. Electricity Offer
One recent offer to individuals, not through a middleman, is the specific direct-mail offer of Dominion Retail, Inc.:Dominion Retail, Inc. offered a one-year savings on the generation part of Duke’s electric bill, generation being roughly 2/3 of one’s electric bill. So if you use exactly 1000 kwh and your Duke cost is $.10 per kwh you save $66.67 x .20 or $13.34 per month, more or less. If you use a lot more kwh in the summer because of air conditioning and do not heat your house with electricity, your savings, other things being equal, will be much more than $13.34 per month as Duke has a penny higher rate per kwh for a residential above 1000 kwh per month in the summer. (It has a stunningly lower rate for above 1000 kwh in the winter months.)So Dominion can give us the lower rate – but technically it is lower for sure for two months. It only lasts for sure until we wake up with a hangover New Year’s Day 2010, not December, 2010, as Dominion promises.Why is this assured savings so short?
If you must know, the answer to the question is that Duke Energy has “Rider FPP” (fuel and purchased power) as a component of its generation portion of its electric rates. Rider FPP is adjusted quarterly, and is as volatile as energy itself, being currently 3.38 cents per kwh, and having been one cent in the not-too-distant past.The smaller the quarterly Rider FPP of Duke, the more advantage to staying with Duke and the less savings there will be in switching to Dominion. If Rider FPP went negative, or even down to 1.38 cents per kwh, on January 1, 2010, April 1, 2010, July 1, 2010, or September 1, 2010, there would then be a loss by switching to Dominion Retail, Inc.Is this reduction in Rider FPP likely? “No,” but I have no way of knowing without having been in Duke’s PUCO filings the past few years, but since there haven’t been rate case filings for nigh-on twenty years, things are fuzzy even for those attending the recent hearings.A correct analysis (“guesstimate”) depends on Duke’s reserve margins, power pool agreements, coal contracts, and other things one could know when there were regular rate cases -- Duke, under the current depressed economy, could come in with a much lower Rider FPP – even a negative rate! -- for the first quarter of 2010 and thereafter. (I called Duke September 14, 2009, and drilled down to some key employees involved; I remained in the dark; they either do not know or are not allowed to give out projections nor, under the weird rules of deregulation, are they able to simply lower their rate to match competitors.)By the way if you are a heavy user of electricity (over 1000 kwh per month) in the winter but not the summer, don’t even think of switching to Dominion Retail, Inc. It does not have the steeply declining rate for usage above 1000 kwh in the winter that Duke does.
Before you vote, try to go on http:/icrctv.com/symmes-township-special-trustee-meeting-9-24-09 and, if it is posted, the second meeting of 10-22-09. This hour-long or so meeting is very informative and has a panel of all the relevant players in the field. You will note the “smallness” of the savings by and large.
The comments of Glenn Bryant, President of the Symmes Township Board of Trustees, and Chris Gilbert, Assistant Administrator, Springfield Township, are excellent. Springfield Township has the most experience doing aggregation in southern Ohio and, after trial and error, has come down to a contract which goes up and down with Nymex, I believe. An excellent choice.
Bruce Abel
[1] For 17 years I represented Armco (now AK Steel) in electric rate cases. They, had there been deregulation then, presumably had “market power,” taking 280 megawatts of power in Middletown. Glendale residents, collectively, take 1.5 megawatts. GE in Evendale takes 20 megawatts, or used to.
[2] Dominion Retail, Inc. is offering a discount which I have taken them up on individually. Thus individual residential electric ratepayers are being direct-mail solicited by Dominion Retail, Inc. also with a very attractive offer. So the process works, for electricity only, at the individual level for the two-month or perhaps one-year period offered. And it would work similarly if the village got the same deal after aggregation.
Re: Electricity Aggregation – I Vote “No”
Electric Aggregation is now up for a vote November 3, 2009, at a time an electric rate of Dominion Retail, Inc., a competitor to Duke Energy, is “strongly competitive.”[2]
Aggregation implies many things. It implies that deregulation is a fait accompli and that we as individuals are left on an island without the traditional support of our local utility in supplying us low-cost power. It implies that combining with our neighbors can give us sufficient market power to have some say in what our rate is. Aggregation implies that our Village officials will know best how to control our utility prices.
I truly doubt all these things.
Aggregation takes 100/hrs per year of the City Administrator’s time the first year, less thereafter.
Aggregation generally is, in my opinion, somewhat of a deregulatory diversion because there is no need to “slice and dice” our lives up any more for a one-time $13/month savings even if it lasts for a year: there is no great need for up to two more additional middlemen (the Village and, perhaps, another true middleman advising the village) between each of us and our utility.
Aggregation nevertheless is not totally irrelevant today, however, because the competitive wholesale electric market in Nymex futures (New York) has collapsed by one-half and Duke, for the foreseeable future, appears to be undercut on that score.
Aggregation does not give Glendale “market power” as the market is controlled by Nymex electricity futures. Green Township, 28,000 in population, signed up for one Dominion Retail, Inc. deal and later smaller communities got better deals as the recession continued and futures market prices for electricity went down. Single individuals (such as me) also got the better deals with Dominion Retail, Inc. through direct solicitation of Dominion two months ago or so.
Aggregation, in my opinion, puts our officials unnecessarily “on the line” in “predicting” to some extent regulated electricity prices of Duke Energy into the future. However, such predicting is no longer possible because Duke’s near- and far-term plans have been put under seal, declared trade secrets to avoid the competitors from gaining insight. And, as noted below, the Rider FPP remains a quarterly uncertainty.
Aggregation of Electricity is a Game of Trust in the Village Officials, Which May Mean the Middleman They Must Rely on.
Duke Energy and a Competitor
Duke Energy is the “default” and its rates “known,” only until the next quarter, as described below. Once off of Duke, I believe, one loses one’s rights to refunds for the period if challenges are made to Duke’s high rates. One can go back without penalty after the contract with the competitor, however.
“CG&E” (Duke) of course generates its own electricity. But from what I recently read (from testimony and actions at the PUCO in Columbus), Duke has an affiliate which is itself a trader, and you can see by the Symmes Township video I refer to below, that Duke is gung-ho towards playing this game, in order that it may try to sell elsewhere in Ohio through its affiliate.Aggregation is “costless” to the village, at least on the surface. A city or village administrator initially spends as much as 100 hours of his valuable time the first year of aggregation talking to citizen/inquirers/-complainers who are opposed to government stepping into anything it does not need to. The administrator does this even though the new competitor (Dominion Retail or Integrys) happily carries out that function as well. But what ratepayer wants to talk to some stranger in New York who doesn’t even know where Morse Avenue is or the name of the latest Bearcat quarterback?
Third Party Experts
Also, of course, if a majority of the electorate in Glendale votes in favor of aggregation, Glendale might then rely on a third-party expert or middleman. One third-party middleman is Don Marshall, a thoroughly-decent CEO of his company Eagle Energy in Green Township, and a former manager at CG&E. If anybody “knows the territory” it is he.
The Dominion Retail, Inc. Electricity Offer
One recent offer to individuals, not through a middleman, is the specific direct-mail offer of Dominion Retail, Inc.:Dominion Retail, Inc. offered a one-year savings on the generation part of Duke’s electric bill, generation being roughly 2/3 of one’s electric bill. So if you use exactly 1000 kwh and your Duke cost is $.10 per kwh you save $66.67 x .20 or $13.34 per month, more or less. If you use a lot more kwh in the summer because of air conditioning and do not heat your house with electricity, your savings, other things being equal, will be much more than $13.34 per month as Duke has a penny higher rate per kwh for a residential above 1000 kwh per month in the summer. (It has a stunningly lower rate for above 1000 kwh in the winter months.)So Dominion can give us the lower rate – but technically it is lower for sure for two months. It only lasts for sure until we wake up with a hangover New Year’s Day 2010, not December, 2010, as Dominion promises.Why is this assured savings so short?
If you must know, the answer to the question is that Duke Energy has “Rider FPP” (fuel and purchased power) as a component of its generation portion of its electric rates. Rider FPP is adjusted quarterly, and is as volatile as energy itself, being currently 3.38 cents per kwh, and having been one cent in the not-too-distant past.The smaller the quarterly Rider FPP of Duke, the more advantage to staying with Duke and the less savings there will be in switching to Dominion. If Rider FPP went negative, or even down to 1.38 cents per kwh, on January 1, 2010, April 1, 2010, July 1, 2010, or September 1, 2010, there would then be a loss by switching to Dominion Retail, Inc.Is this reduction in Rider FPP likely? “No,” but I have no way of knowing without having been in Duke’s PUCO filings the past few years, but since there haven’t been rate case filings for nigh-on twenty years, things are fuzzy even for those attending the recent hearings.A correct analysis (“guesstimate”) depends on Duke’s reserve margins, power pool agreements, coal contracts, and other things one could know when there were regular rate cases -- Duke, under the current depressed economy, could come in with a much lower Rider FPP – even a negative rate! -- for the first quarter of 2010 and thereafter. (I called Duke September 14, 2009, and drilled down to some key employees involved; I remained in the dark; they either do not know or are not allowed to give out projections nor, under the weird rules of deregulation, are they able to simply lower their rate to match competitors.)By the way if you are a heavy user of electricity (over 1000 kwh per month) in the winter but not the summer, don’t even think of switching to Dominion Retail, Inc. It does not have the steeply declining rate for usage above 1000 kwh in the winter that Duke does.
Before you vote, try to go on http:/icrctv.com/symmes-township-special-trustee-meeting-9-24-09 and, if it is posted, the second meeting of 10-22-09. This hour-long or so meeting is very informative and has a panel of all the relevant players in the field. You will note the “smallness” of the savings by and large.
The comments of Glenn Bryant, President of the Symmes Township Board of Trustees, and Chris Gilbert, Assistant Administrator, Springfield Township, are excellent. Springfield Township has the most experience doing aggregation in southern Ohio and, after trial and error, has come down to a contract which goes up and down with Nymex, I believe. An excellent choice.
Bruce Abel
[1] For 17 years I represented Armco (now AK Steel) in electric rate cases. They, had there been deregulation then, presumably had “market power,” taking 280 megawatts of power in Middletown. Glendale residents, collectively, take 1.5 megawatts. GE in Evendale takes 20 megawatts, or used to.
[2] Dominion Retail, Inc. is offering a discount which I have taken them up on individually. Thus individual residential electric ratepayers are being direct-mail solicited by Dominion Retail, Inc. also with a very attractive offer. So the process works, for electricity only, at the individual level for the two-month or perhaps one-year period offered. And it would work similarly if the village got the same deal after aggregation.
No Hot Air Today
(c) 2009 F. Bruce Abel
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Oct 26, 2009
Who's screwing who?
If you are a gas trader, then the view is far different from being a gas consumer:
Shale Is Really Screwing Natural Gas Investors
Production of natural gas from shale has been surprising both industry players and analysts on the upside, which clearly isn't helpful for natural gas prices either now or into 2010.
Whoa! When prices were over £1 a therm in summer 2008, was that helpful? For end-users now, or at least for those who have consistently followed our advice and only, and we mean ONLY, bought on day ahead prices, then things are looking better all the time:
Thus the era of ultra-cheap natural gas could be upon us, which would be bad news
Not so disastrous news for end users, and not so bad for the economy either. Everyone has to pay for energy, what is so bad when we all can pay less for it? Energy is simply a tax that isn't democratic: taxation without representation. If taxes were lower, markets would be ecstatic. Lower energy should be good news too. But not at some guys over the Barrel at Platts:
One recent example of just how jaw-dropping the US shale gas story has become came from big independent Newfield Exploration. Houston-based Newfield said in a conference call this week that its production from Oklahoma's Woodford Shale today is 308,000 Mcfe/d, versus about 240,000 Mcfe/d at June 30 -- up nearly 30% in less than four months. Moreover, the company has an inventory of 28 drilled but uncompleted Woodford wells waiting to be put online by early 2010, signalling the potential to boost production still higher.The astounding output jump prompted a comment from analysts at investment bank Wells Fargo, who in an October 22 report called Newfield's gushing Woodford production trend "disturbing." They noted the company's output had "reached recent highs despite (a drilling) slowdown and deferred completions."
But Newfield, and the Woodford field, are hardly the only purveyors of über-volumes of gas. Despite cutbacks in activity elsewhere, dozens of companies both large and small are drilling away at shale and other unconventional plays which they claim continue to offer towering economic rates of return. Their efforts have resulted in huge gas volumes flowing around the US and also recently in Canada. But with just a week left in the refill season, US gas storage bins are brimming over with the commodity. And current demand is not enough to use it all, which could continue the surplus into next year.
Put us with the happy end-users and the realist traders
While prices are now teetering at the $5/Mcf level, many industry observers look at storage figures and scratch their heads. Says one: "Given the amount of gas sitting around out there, it's a mystery why prices are so high.
Posted at 08:37 PM in Energy Prices, Next Big Things, Shale Gas Permalink Comments (0) TrackBack (0)
Why do we fear Russia on energy?
A foundation of UK energy policy is that we're running out of gas, making us dependent on the charity of others.
A sub text of much of the same policy is security of supply. But why are fears over security of supply directed against Russia who is accused of following in the footsteps of Molotov in any number of places, this one just happening to be today's FT, but it could be anywhere
The US ambassador to Sweden last year denounced Nord Stream as a "special arrangement between Germany and Russia" and called on the EU to counteract "Russia's energy weapon".
The reality is far more boring, and one of Britain's top energy experts, Jonathan Stern of the Oxford Institute for Energy Studies pointed out earlier this year talking about the Russia/Ukraine dispute of January 2008, in slide 16 of this fascinating presentation:
Worst Crisis of Russian gas supply imaginable had no significant effect on UK gas supplies and prices
No Hot Air, somewhat like Jonathan Stern, believes in facts, not anecdotes. He points out that the worst disruptions to energy supply come from the UKCS not from external sources. He also points out that they are for the most part short term, not structural. In other words, sometimes bad luck happens. To which we would add, it's much more bad luck to try and avoid it. Think of how many people bought long term prices that only provided the dubious value of paying double or more for energy in the name of risk avoidance.
Back to the Red Menace. Oops, we don't call it that anymore. Maybe we should mention the Cold War, so we can see how insane today's view of Russian energy weapons are. Example number one: Coal.
Coal and Gas are roughly tied as sources of generation. We always thought it bizarre that although 70% of UK coal is imported, no one has kittens over security of supply. But that was before we found out who the number one source of imports to the UK is.
How does the UK reconcile dependency on Russian coal with concerns about over-dependency on gas?
Coal supply is fundamentally more flexible Not dependent on pipelinesMore diverse supplier base
We know a thing or two about energy. But we didn't know this! Coal supplies about 40 per cent of UK electricity, 70 % is imported (28% of total), Russia supplies 60% of that. Or in other words, 15% or so of UK electricity is directly at the mercy of the evil empire: Russia's energy weapon.
But why do we hear about gas. Russia supplies at tops 5% of UK demand, and that is debatable, Jonathan Stern says it's none and there isn't a better expert on Russian gas around. But why don't we hear how insecure we are about coal? Gas is just as fundamentally flexible, doesn't depend on pipelines and has a far more diverse supplier base than coal.
Posted at 07:31 PM in Current Affairs, Energy Prices, Prices and Politics Permalink Comments (1) TrackBack (0)
Oct 25, 2009
Why electric cars will impact your natural gas bill
We always have thought that a key paradigm shift in energy is how we are using less of it. But what would be the impact of electric vehicles on gas and power use?
The answer is that we don't yet know, but we should at least start asking the question. One more transformation over the next few years looks like being EVs.
After years of hope and hype, electron-powered driving finally appears to be on the verge of reality.In the next three years, at least a dozen pure electric or plug-in hybrid cars are slated to hit the market in the U.S. Electricity-driven vehicles from giants such as General Motors Co. and Nissan Motor Co., as well as start-ups like Fisker Automotive Inc. in Irvine, will provide consumers with a wide variety of choices. ..
Battery makers and automakers alike are tooling up factories to produce big volumes of electric vehicles. Meanwhile, power utilities and regulators are scrambling to figure out just how big the market will be...
"This is happening and it's happening soon," said Mark Duvall, director of electric transportation at the Electric Power Research Institute, an independent, nonprofit research group. "By the end of 2011, consumers will have more choices in vehicles they can plug in than they currently do for hybrids."...
But in the last couple of years, huge improvements and new battery chemistries "opened the opportunity" for ambitious product plans, she said. Gioia predicts that as many as a quarter of new vehicles sold by 2020 will be electrics, plug-in hybrids or traditional hybrids.
It's too early to say at this point how much electricity, and gas to generate that, will be needed to power EVs. But it's not too early to say that abundant natural gas and distributed generation is the way to supply those needs whatever they end up being.
Posted at 06:24 PM in Energy Tech, Next Big Things, Renewables Permalink Comments (0) TrackBack (0)
Optimism v pessimism
Barack Obama certainly still believes in hope, as we see from his visit Friday to the energy innovation leaders at MIT:
Firstly he concentrates on the good news:
Dr. Moniz is also the Director of MIT's Energy Initiative, called MITEI. And he and President Hockfield just showed me some of the extraordinary energy research being conducted at this institute: windows that generate electricity by directing light to solar cells; light-weight, high-power batteries that aren't built, but are grown -- that was neat stuff; engineering viruses to create -- to create batteries; more efficient lighting systems that rely on nanotechnology; innovative engineering that will make it possible for offshore wind power plants to deliver electricity even when the air is still.
What a contrast to the the UK doom and gloomsters, who are cheerleaders for blackouts, Peak Oil, high price and blaming greens for everything since the Garden of Eden. But the President knows that there are plenty of people who want to fail in the US as well:
The naysayers, the folks who would pretend that this is not an issue, they are being marginalized. But I think it's important to understand that the closer we get, the harder the opposition will fight and the more we'll hear from those whose interest or ideology run counter to the much needed action that we're engaged in. There are those who will suggest that moving toward clean energy will destroy our economy -- when it's the system we currently have that endangers our prosperity and prevents us from creating millions of new jobs. There are going to be those who cynically claim -- make cynical claims that contradict the overwhelming scientific evidence when it comes to climate change, claims whose only purpose is to defeat or delay the change that we know is necessary.
Let's consider cynicism. As far as we can figure out, CC deniers are in two camps. Firstly, those who unrealistically aren't very comfortable with any idea of change and seem to be proposing an ostrich approach, and refuse to confront change. These are the guys who were complaining about how restrictions on children in coal mines would burden British industry.
But it's the second group of CCD's who are more exactly energy security hypocrites. On one hand, industry will be crippled by climate change costs, but to avoid either carbon or security of supply issues (they often mix them up), they are in line with their hands out asking for state handouts for CCS, Nuclear, and more gas storage. There is also a sub group of mad scientists schemes ranging from the promising (tidal power) through the interesting (space based solar) to the barking (geo-engineering).
But the President again on the general attitude of pessimists:
...this one is far more dangerous because we're all somewhat complicit in it. It's far more dangerous than any attack made by those who wish to stand in the way progress -- and that's the idea that there is nothing or little that we can do. It's pessimism. It's the pessimistic notion that our politics are too broken and our people too unwilling to make hard choices for us to actually deal with this energy issue that we're facing.
There are a lot of people who strongly believe that government will never solve anything, despite a number of government successes: World War Two, mass education, public health, infrastructure, etc etc.
Cynicism is healthy. No Hot Air is built on it's near at hand neighbour, skepticism. And we often think that pessimism is useful in that one is never disappointed and sometimes surprised, where optimists are just asking to be let down.
The pall of permanent doom that hangs over much of UK political thought is far more dangerous than any clouds of smog. This is even more dangerous in energy policy where the new world of abundant energy combined with the optimism coming out of places like MIT is totally at odds with the unreality of energy catastrophe the doomsayers want to peddle.
Posted at 12:00 PM in Current Affairs, Next Big Things Permalink Comments (0) TrackBack (0)
Oct 23, 2009
Russia and Shale 2
More on Gazprom and US shale via AFP:
There is little doubt Gazprom has the resources to reach its US trading targets, particularly if Russia's massive arctic Shtokman field comes online in 2014 as planed.
But according to Fadel Gheit, a senior oil and gas analyst at Oppenheimer & Co, Gazprom and other foreign majors may be entering the US market for reasons beyond market share.
Gazprom's real goal, he said, could be acquiring cutting edge technology that can exploit the difficult-to-access but potentially massive reserves of gas from shale rock.
"The United States has far more advanced shale gas drilling technology. It is basically in the hands of the smaller producers, not the Exxons, not the BPs and not Shell.
"These companies are paying very hefty entry fees to gain a window into the technology. Gazprom I don't believe is interested in production itself, they are interested in production technology. It's pay to learn."
And Gazprom may face commercial challenges to US trade, even with its resource clout.
With China's economy growing apace and European energy prices still high, those markets remain more attractive.
Although Gazprom has a 20-year plan to bring liquefied natural gas to the United States from Russia's enormous Sakhalin-2 field, the firm has preferred to cash in on higher Asian demand and higher European prices.
Still, energy analysts expect regional price differences to ease as the market becomes more global and as regional powerhouses like Gazprom and Chinese firms move into new markets.
One boon for Gazprom's US business may come from an unlikely source -- the federal government. Congress is considering new regulation governing carbon emissions.
"It is all good," Hattenberger said of the proposals, arguing emissions curbs could propel gas use as a cleaner alternative to coal and oil.
"We are still very bullish on US demand," he said
Whatever is going on here, one rather obvious question to be asked in Europe is: Does this sound like the big bad Gazprom that we should be so fearful about that we should spend huge sums of money on technological dead ends like CCS, Nuclear, Storage or Nabucco to avoid being dependent on Russian gas? Far more money we must point out than any alleged economic damage from gas interruptions.
Gazprom is simply acting like a mature, grown-up international oil company. Let's folllow their example.
Posted at 03:06 PM in Energy Prices, Next Big Things, Shale Gas Permalink Comments (1) TrackBack (0)
Oct 22, 2009
Russia and Shale
Back in June, Stephen Holditch showed figures that the former Soviet Union had 627 TCF of shale, compared to 509 in Western Europe.
Gazprom recently went into the US market, allegedly to try and import more LNG, a thankless task in today's market. Another reason?
Gazprom said it may consider acquiring a US shale-gas producer to gain the know-how to exploit similar fuel deposits at home.“An acquisition of a shale-producing company could make a lot of sense,” John Hattenberger, president of Gazprom’s US energy-trading unit, said.“Russia has huge shale reserves,” he said in a Bloomberg report.
Posted at 10:35 PM in Current Affairs, Shale Gas Permalink Comments (1) TrackBack (0)
He's a fan. Sort of.
We've written before of support for natural gas and shale from US green groups like the Sierra Club, Waterkeepers' Alliance and the progressive Centre for American Progress.
But what about the biggest green of all: Al Gore. What does he think? He isn't for shale, but he doesn't open his mouth or start clutching his chest when others on the platform do.
Sen. Reid opened his remarks by saying, “I’ve been converted. I now belong to the Pickens church,” in reference to the plan pitched by Oklahoma oilman T. Boone Pickens to ramp up the role of natural gas (and wind power) in U.S. electricity generation. Natural gas has roughly half the carbon emissions of coal when used to generate electricity.
And here's the photo:
T. Boone Pickens is a most unlikely darling of environmentalists.T. Boone Pickens is a billionaire who made most of his fortune by purchasing and selling shares in energy companies. But, as detailed by Kambiz Foroohar for Bloomberg, Pickens is now touting the Pickens Plan, which would use natural gas to power the 6.5 million diesel trucks which drive up and down America’s roads. By doing so, Pickens says that the United States can save 2.7 million barrels of oil per day, which is over half of what the country imports on a daily basis from OPEC.
The obstacles are large, but if a former oilman like Pickens can win over Harry Reid and Al Gore, his plan may reach fruition.
News from China of Gore actually saying something:
Gore, whose remarks in Beijing focused on solar, wind and geothermal power, expressed skepticism that natural gas, nuclear power or biofuels were realistic energy sources to harness in order to achieve large reductions in carbon emissions.Gore, who won the Nobel Peace Prize in 2007 for his work to publicize the dangers of global warming, said nuclear power was too expensive and could be used to make weapons, biofuels might spark food price rises and natural gas, which emits two-thirds the carbon of oil, was only a “promising transition fuel.
"Promising transition fuel?" Could be better, could be worse. But we can live with that.
Posted at 10:26 PM in Current Affairs, Prices and Politics, Shale Gas Permalink Comments (0) TrackBack (0)
Oct 21, 2009
ENI on gas prices
Italy's ENI is the biggest oil and gas company most people have never heard of. although it's bigger than most companies who share it's heritage of national oil and gas champion such as Statoil, Pemex, Petrobras, PDVSA etc.
ENI has always been bigger in gas than most energy companies, going back to being one of the Soviet Unions first gas customers, followed by gas links to Norway and Algeria. In the European space, what CEO Paolo Scaroni says about gas prices should be listened to.
Crude oil prices may be showing signs of a recovery, but natural gas prices will stay depressed for years to come, the head of Italian energy company ENI SpA said in an interview on Tuesday—and the grim price outlook could force energy companies to rethink some investments in new gas projects.
Given ENI's long links to oil indexed Russian gas, we should listen up to this:
The price of gas has traditionally tended to take its cue from crude prices. But while oil has more than doubled since its lows of late 2008, the price of gas has lagged far behind...
Whatever the long-term outlook for gas is, some experts note a fundamental change in the market—a "decoupling" of oil and gas prices, particularly in the U.S....Oil now costs more than $75 a barrel, while the equivalent amount of natural gas costs just $25. "I don't see that gap closing any time soon," Mr. Scaroni said.
But there is now a big disparity between the long-term contract price of gas and the spot price.
Mr. Scaroni said that 18 months ago, he would have said the European market for natural gas would grow by 2% a year, as domestic production fell and demand for the clean-burning fuel rose. At that time, LNG cargoes were selling in the Far East for $20 per million BTUs, he said.
Since then, the demand outlook has changed dramatically. Germany is poised to backtrack on its decision to phase out nuclear power, meaning less demand for gas in Europe's largest economy, he said. Meanwhile, it is likely that the same technology that has been used to open up shale gas in the U.S. could now be used to develop unconventional gas resources in Europe, meaning more supply.
And of course ENI is buying up shale technology via it's holding in Quicksilver Resources Barnett Shale interests.
Let's go back to "the big disparity between the long-term contract price of gas and the spot price".
We've said here from day one, before even NHO had heard of shale that buying gas or power on a long-term contract is the surest way to a) pay way over the odds and b) enrich any energy consultant who advised it.
And the market is still at it. October day ahead gas is having a modest revival as it usually does this time of year on the back of slightly cold weather in the UK and early US snow. Q4 is traditionally the most volatile based on the misanthropic hope of gas traders that we'll freeze to death. By Q1 2010, reality usually intrudes and we see massive sell offs even when winter really bites. A fixed price today for one year from November would mean for example paying 46.41 for next October when this October is only 23.3 so far.
Whatever uncertainty there is about future gas prices, any idea of a 100% increase by next October is a) unlikely b) ludicrous c) disingenuous or d) fraudulent. Or all of the above?
Posted at 05:38 PM in Energy Prices, Fixed Price Madness, Prices Permalink Comments (0) TrackBack (0)
Oct 20, 2009
Talking about my (electricity) generation
In the UK, we're roughly equal at 40% each between coal and gas in fuel sources for generation. Coal, in it's present form has got to go. It's many years past it's sell-by date and we can't afford for it to poison us for much longer. But what to do about about replacing coal?
Let's pretend that we are UK policy makers, who have either never heard of shale gas, confuse it with shale oil or pretend that it's many years away. Let's also assume they also don't believe in negawatts, the electricity replaced with no power at all via efficiency. Smart metering, smart grids and LED lighting can knock 15 to 30% off total consumption.
Without gas on the energy menu, the replacement for coal would be either nuclear or CCS. Ignore for the moment that nuclear waste storage has been great-grandfathered to the 21st century equivalent of Ofgem: It's their baby, we just paid for building the power station, which the nuclear industry say is a snip at 4 billion euro each.
But as a University of Greenwich study says, nuclear isn't an economical option either:
Oct. 19 (Bloomberg) -- A group of U.K. academics advised the government against subsidizing development of nuclear power because of the "huge" costs to consumers and taxpayers. Professors from Imperial College, Sussex University and University of Greenwich will advise against subsidies at meeting of lawmakers, policy advisers and industry executives today at Westminster in London, according to a statement. The group said subsidies such as loan guarantees, fixed carbon prices and consumer taxes to support prices will be needed to develop new U.K. nuclear power. "If the government caves in to nuclear industry demands for subsidies and guarantees, it will be electricity consumers and taxpayers that will pay huge additional costs," Steve Thomas, a professor at the University of Greenwich, said in the statement. Subsidies may also be challenged under European Union competition law, the group said.
Meanwhile the US National Research Council, in a study commissioned by Congress studies the true cost of generation. It ain't pretty for coal either:
Congress commissioned the report during the preparation of the 2005 Energy Act to get a handle on what energy really costs—not how much we pay for it. That includes the “health, environmental, security, and infrastructural external costs and benefits associated with the production and consumption of energy.”
Coal-fired electricity costs the country $62 billion per year, largely in health impacts from particulate matter. Natural gas for power generation, in contrast, adds about $740 million a year in hidden costs.
Looked at another way, coal’s hidden pricetag adds up to 3.2 cents per kilowatt hour. Compare that to the 2 cents-per-kilowatt hour that wind power gets from the government—that’s less a subsidy than a partial attempt to level the playing field.
OK, what about CCS? Tony Hayward of BP's opinion:
We also need a more diverse energy mix which will enable energy security and help address the issue of climate change. Alternative energy - nuclear, wind, solar and biofuels, along with fossil fuels - will all play an important role.But we need to be realistic - the transition to a lower-carbon economy won't happen overnight.Although Carbon Capture and Storage is often trumpeted as the path to cleaner coal, it still faces a number of challenges which will take time and effort to resolve.I don't believe we'll see the commercial use of CCS at scale for at least another decade or more and it won't come without a price. Until renewables gain a sizeable share of the power sector and cleaner coal is available through Carbon Capture and Storage, I can see only one way of doing it - by increasing the use of natural gas.Gas is the fuel that offers the greatest potential to provide the largest reductions at the lowest cost - and all that by using technology that's available today.
Gas is becoming the new Borg: Resistance is futile. It makes such a compelling case that no one can deny it. So why isn't more happening?
Posted at 10:34 PM in Energy Prices, Energy Tech, Next Big Things, Prices and Politics, Shale Gas Permalink Comments (0) TrackBack (0)
Oct 18, 2009
Shale Gas in India
China are fans, so why not India. Energy bulls want us to blame the BRICs for surging oil prices, to scare energy buyers into buying gas long. Brazil has the great fortune to have the world's largest ethanol fuel infrastructure meeting recent massive off-shore deep water oil and and gas discoveries. Russia,is obviously not a problem and China seems well able to fend for itself via Australian LNG and a confidence in both shale, efficiency and renewables. But we haven't heard much from India, a country that despite great advances still has trouble keeping the lights on for three quarters of its citizens. India is looking for shale as a solution:
In India, shale deposits are found across the Gangetic plain, Assam, Rajasthan and many coastal areas, but neither the government nor the corporate sector has carried out any exploration or estimation.
DK Pande, Director Exploration, ONGC, says the company is looking at the possibility and feasibility of gas production from shale. “The pilot project should start sometime in 2011. If we make a breakthrough, gas pricing will come down.”
But what is completely weird from British viewpoint is that in the UK we have had as far as we know no reference at all in broadcast media to shale gas, yet here we have an excellent report from Channel 18 CNBC. Paging Roger Harrabin!http://www.moneycontrol.com/video/economy/ongc-eyes-gasshale-pilot-project-to-start2011_419773.html
Posted at 09:29 AM in Next Big Things, Shale Gas Permalink Comments (0) TrackBack (0)
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Oct 26, 2009
Who's screwing who?
If you are a gas trader, then the view is far different from being a gas consumer:
Shale Is Really Screwing Natural Gas Investors
Production of natural gas from shale has been surprising both industry players and analysts on the upside, which clearly isn't helpful for natural gas prices either now or into 2010.
Whoa! When prices were over £1 a therm in summer 2008, was that helpful? For end-users now, or at least for those who have consistently followed our advice and only, and we mean ONLY, bought on day ahead prices, then things are looking better all the time:
Thus the era of ultra-cheap natural gas could be upon us, which would be bad news
Not so disastrous news for end users, and not so bad for the economy either. Everyone has to pay for energy, what is so bad when we all can pay less for it? Energy is simply a tax that isn't democratic: taxation without representation. If taxes were lower, markets would be ecstatic. Lower energy should be good news too. But not at some guys over the Barrel at Platts:
One recent example of just how jaw-dropping the US shale gas story has become came from big independent Newfield Exploration. Houston-based Newfield said in a conference call this week that its production from Oklahoma's Woodford Shale today is 308,000 Mcfe/d, versus about 240,000 Mcfe/d at June 30 -- up nearly 30% in less than four months. Moreover, the company has an inventory of 28 drilled but uncompleted Woodford wells waiting to be put online by early 2010, signalling the potential to boost production still higher.The astounding output jump prompted a comment from analysts at investment bank Wells Fargo, who in an October 22 report called Newfield's gushing Woodford production trend "disturbing." They noted the company's output had "reached recent highs despite (a drilling) slowdown and deferred completions."
But Newfield, and the Woodford field, are hardly the only purveyors of über-volumes of gas. Despite cutbacks in activity elsewhere, dozens of companies both large and small are drilling away at shale and other unconventional plays which they claim continue to offer towering economic rates of return. Their efforts have resulted in huge gas volumes flowing around the US and also recently in Canada. But with just a week left in the refill season, US gas storage bins are brimming over with the commodity. And current demand is not enough to use it all, which could continue the surplus into next year.
Put us with the happy end-users and the realist traders
While prices are now teetering at the $5/Mcf level, many industry observers look at storage figures and scratch their heads. Says one: "Given the amount of gas sitting around out there, it's a mystery why prices are so high.
Posted at 08:37 PM in Energy Prices, Next Big Things, Shale Gas Permalink Comments (0) TrackBack (0)
Why do we fear Russia on energy?
A foundation of UK energy policy is that we're running out of gas, making us dependent on the charity of others.
A sub text of much of the same policy is security of supply. But why are fears over security of supply directed against Russia who is accused of following in the footsteps of Molotov in any number of places, this one just happening to be today's FT, but it could be anywhere
The US ambassador to Sweden last year denounced Nord Stream as a "special arrangement between Germany and Russia" and called on the EU to counteract "Russia's energy weapon".
The reality is far more boring, and one of Britain's top energy experts, Jonathan Stern of the Oxford Institute for Energy Studies pointed out earlier this year talking about the Russia/Ukraine dispute of January 2008, in slide 16 of this fascinating presentation:
Worst Crisis of Russian gas supply imaginable had no significant effect on UK gas supplies and prices
No Hot Air, somewhat like Jonathan Stern, believes in facts, not anecdotes. He points out that the worst disruptions to energy supply come from the UKCS not from external sources. He also points out that they are for the most part short term, not structural. In other words, sometimes bad luck happens. To which we would add, it's much more bad luck to try and avoid it. Think of how many people bought long term prices that only provided the dubious value of paying double or more for energy in the name of risk avoidance.
Back to the Red Menace. Oops, we don't call it that anymore. Maybe we should mention the Cold War, so we can see how insane today's view of Russian energy weapons are. Example number one: Coal.
Coal and Gas are roughly tied as sources of generation. We always thought it bizarre that although 70% of UK coal is imported, no one has kittens over security of supply. But that was before we found out who the number one source of imports to the UK is.
How does the UK reconcile dependency on Russian coal with concerns about over-dependency on gas?
Coal supply is fundamentally more flexible Not dependent on pipelinesMore diverse supplier base
We know a thing or two about energy. But we didn't know this! Coal supplies about 40 per cent of UK electricity, 70 % is imported (28% of total), Russia supplies 60% of that. Or in other words, 15% or so of UK electricity is directly at the mercy of the evil empire: Russia's energy weapon.
But why do we hear about gas. Russia supplies at tops 5% of UK demand, and that is debatable, Jonathan Stern says it's none and there isn't a better expert on Russian gas around. But why don't we hear how insecure we are about coal? Gas is just as fundamentally flexible, doesn't depend on pipelines and has a far more diverse supplier base than coal.
Posted at 07:31 PM in Current Affairs, Energy Prices, Prices and Politics Permalink Comments (1) TrackBack (0)
Oct 25, 2009
Why electric cars will impact your natural gas bill
We always have thought that a key paradigm shift in energy is how we are using less of it. But what would be the impact of electric vehicles on gas and power use?
The answer is that we don't yet know, but we should at least start asking the question. One more transformation over the next few years looks like being EVs.
After years of hope and hype, electron-powered driving finally appears to be on the verge of reality.In the next three years, at least a dozen pure electric or plug-in hybrid cars are slated to hit the market in the U.S. Electricity-driven vehicles from giants such as General Motors Co. and Nissan Motor Co., as well as start-ups like Fisker Automotive Inc. in Irvine, will provide consumers with a wide variety of choices. ..
Battery makers and automakers alike are tooling up factories to produce big volumes of electric vehicles. Meanwhile, power utilities and regulators are scrambling to figure out just how big the market will be...
"This is happening and it's happening soon," said Mark Duvall, director of electric transportation at the Electric Power Research Institute, an independent, nonprofit research group. "By the end of 2011, consumers will have more choices in vehicles they can plug in than they currently do for hybrids."...
But in the last couple of years, huge improvements and new battery chemistries "opened the opportunity" for ambitious product plans, she said. Gioia predicts that as many as a quarter of new vehicles sold by 2020 will be electrics, plug-in hybrids or traditional hybrids.
It's too early to say at this point how much electricity, and gas to generate that, will be needed to power EVs. But it's not too early to say that abundant natural gas and distributed generation is the way to supply those needs whatever they end up being.
Posted at 06:24 PM in Energy Tech, Next Big Things, Renewables Permalink Comments (0) TrackBack (0)
Optimism v pessimism
Barack Obama certainly still believes in hope, as we see from his visit Friday to the energy innovation leaders at MIT:
Firstly he concentrates on the good news:
Dr. Moniz is also the Director of MIT's Energy Initiative, called MITEI. And he and President Hockfield just showed me some of the extraordinary energy research being conducted at this institute: windows that generate electricity by directing light to solar cells; light-weight, high-power batteries that aren't built, but are grown -- that was neat stuff; engineering viruses to create -- to create batteries; more efficient lighting systems that rely on nanotechnology; innovative engineering that will make it possible for offshore wind power plants to deliver electricity even when the air is still.
What a contrast to the the UK doom and gloomsters, who are cheerleaders for blackouts, Peak Oil, high price and blaming greens for everything since the Garden of Eden. But the President knows that there are plenty of people who want to fail in the US as well:
The naysayers, the folks who would pretend that this is not an issue, they are being marginalized. But I think it's important to understand that the closer we get, the harder the opposition will fight and the more we'll hear from those whose interest or ideology run counter to the much needed action that we're engaged in. There are those who will suggest that moving toward clean energy will destroy our economy -- when it's the system we currently have that endangers our prosperity and prevents us from creating millions of new jobs. There are going to be those who cynically claim -- make cynical claims that contradict the overwhelming scientific evidence when it comes to climate change, claims whose only purpose is to defeat or delay the change that we know is necessary.
Let's consider cynicism. As far as we can figure out, CC deniers are in two camps. Firstly, those who unrealistically aren't very comfortable with any idea of change and seem to be proposing an ostrich approach, and refuse to confront change. These are the guys who were complaining about how restrictions on children in coal mines would burden British industry.
But it's the second group of CCD's who are more exactly energy security hypocrites. On one hand, industry will be crippled by climate change costs, but to avoid either carbon or security of supply issues (they often mix them up), they are in line with their hands out asking for state handouts for CCS, Nuclear, and more gas storage. There is also a sub group of mad scientists schemes ranging from the promising (tidal power) through the interesting (space based solar) to the barking (geo-engineering).
But the President again on the general attitude of pessimists:
...this one is far more dangerous because we're all somewhat complicit in it. It's far more dangerous than any attack made by those who wish to stand in the way progress -- and that's the idea that there is nothing or little that we can do. It's pessimism. It's the pessimistic notion that our politics are too broken and our people too unwilling to make hard choices for us to actually deal with this energy issue that we're facing.
There are a lot of people who strongly believe that government will never solve anything, despite a number of government successes: World War Two, mass education, public health, infrastructure, etc etc.
Cynicism is healthy. No Hot Air is built on it's near at hand neighbour, skepticism. And we often think that pessimism is useful in that one is never disappointed and sometimes surprised, where optimists are just asking to be let down.
The pall of permanent doom that hangs over much of UK political thought is far more dangerous than any clouds of smog. This is even more dangerous in energy policy where the new world of abundant energy combined with the optimism coming out of places like MIT is totally at odds with the unreality of energy catastrophe the doomsayers want to peddle.
Posted at 12:00 PM in Current Affairs, Next Big Things Permalink Comments (0) TrackBack (0)
Oct 23, 2009
Russia and Shale 2
More on Gazprom and US shale via AFP:
There is little doubt Gazprom has the resources to reach its US trading targets, particularly if Russia's massive arctic Shtokman field comes online in 2014 as planed.
But according to Fadel Gheit, a senior oil and gas analyst at Oppenheimer & Co, Gazprom and other foreign majors may be entering the US market for reasons beyond market share.
Gazprom's real goal, he said, could be acquiring cutting edge technology that can exploit the difficult-to-access but potentially massive reserves of gas from shale rock.
"The United States has far more advanced shale gas drilling technology. It is basically in the hands of the smaller producers, not the Exxons, not the BPs and not Shell.
"These companies are paying very hefty entry fees to gain a window into the technology. Gazprom I don't believe is interested in production itself, they are interested in production technology. It's pay to learn."
And Gazprom may face commercial challenges to US trade, even with its resource clout.
With China's economy growing apace and European energy prices still high, those markets remain more attractive.
Although Gazprom has a 20-year plan to bring liquefied natural gas to the United States from Russia's enormous Sakhalin-2 field, the firm has preferred to cash in on higher Asian demand and higher European prices.
Still, energy analysts expect regional price differences to ease as the market becomes more global and as regional powerhouses like Gazprom and Chinese firms move into new markets.
One boon for Gazprom's US business may come from an unlikely source -- the federal government. Congress is considering new regulation governing carbon emissions.
"It is all good," Hattenberger said of the proposals, arguing emissions curbs could propel gas use as a cleaner alternative to coal and oil.
"We are still very bullish on US demand," he said
Whatever is going on here, one rather obvious question to be asked in Europe is: Does this sound like the big bad Gazprom that we should be so fearful about that we should spend huge sums of money on technological dead ends like CCS, Nuclear, Storage or Nabucco to avoid being dependent on Russian gas? Far more money we must point out than any alleged economic damage from gas interruptions.
Gazprom is simply acting like a mature, grown-up international oil company. Let's folllow their example.
Posted at 03:06 PM in Energy Prices, Next Big Things, Shale Gas Permalink Comments (1) TrackBack (0)
Oct 22, 2009
Russia and Shale
Back in June, Stephen Holditch showed figures that the former Soviet Union had 627 TCF of shale, compared to 509 in Western Europe.
Gazprom recently went into the US market, allegedly to try and import more LNG, a thankless task in today's market. Another reason?
Gazprom said it may consider acquiring a US shale-gas producer to gain the know-how to exploit similar fuel deposits at home.“An acquisition of a shale-producing company could make a lot of sense,” John Hattenberger, president of Gazprom’s US energy-trading unit, said.“Russia has huge shale reserves,” he said in a Bloomberg report.
Posted at 10:35 PM in Current Affairs, Shale Gas Permalink Comments (1) TrackBack (0)
He's a fan. Sort of.
We've written before of support for natural gas and shale from US green groups like the Sierra Club, Waterkeepers' Alliance and the progressive Centre for American Progress.
But what about the biggest green of all: Al Gore. What does he think? He isn't for shale, but he doesn't open his mouth or start clutching his chest when others on the platform do.
Sen. Reid opened his remarks by saying, “I’ve been converted. I now belong to the Pickens church,” in reference to the plan pitched by Oklahoma oilman T. Boone Pickens to ramp up the role of natural gas (and wind power) in U.S. electricity generation. Natural gas has roughly half the carbon emissions of coal when used to generate electricity.
And here's the photo:
T. Boone Pickens is a most unlikely darling of environmentalists.T. Boone Pickens is a billionaire who made most of his fortune by purchasing and selling shares in energy companies. But, as detailed by Kambiz Foroohar for Bloomberg, Pickens is now touting the Pickens Plan, which would use natural gas to power the 6.5 million diesel trucks which drive up and down America’s roads. By doing so, Pickens says that the United States can save 2.7 million barrels of oil per day, which is over half of what the country imports on a daily basis from OPEC.
The obstacles are large, but if a former oilman like Pickens can win over Harry Reid and Al Gore, his plan may reach fruition.
News from China of Gore actually saying something:
Gore, whose remarks in Beijing focused on solar, wind and geothermal power, expressed skepticism that natural gas, nuclear power or biofuels were realistic energy sources to harness in order to achieve large reductions in carbon emissions.Gore, who won the Nobel Peace Prize in 2007 for his work to publicize the dangers of global warming, said nuclear power was too expensive and could be used to make weapons, biofuels might spark food price rises and natural gas, which emits two-thirds the carbon of oil, was only a “promising transition fuel.
"Promising transition fuel?" Could be better, could be worse. But we can live with that.
Posted at 10:26 PM in Current Affairs, Prices and Politics, Shale Gas Permalink Comments (0) TrackBack (0)
Oct 21, 2009
ENI on gas prices
Italy's ENI is the biggest oil and gas company most people have never heard of. although it's bigger than most companies who share it's heritage of national oil and gas champion such as Statoil, Pemex, Petrobras, PDVSA etc.
ENI has always been bigger in gas than most energy companies, going back to being one of the Soviet Unions first gas customers, followed by gas links to Norway and Algeria. In the European space, what CEO Paolo Scaroni says about gas prices should be listened to.
Crude oil prices may be showing signs of a recovery, but natural gas prices will stay depressed for years to come, the head of Italian energy company ENI SpA said in an interview on Tuesday—and the grim price outlook could force energy companies to rethink some investments in new gas projects.
Given ENI's long links to oil indexed Russian gas, we should listen up to this:
The price of gas has traditionally tended to take its cue from crude prices. But while oil has more than doubled since its lows of late 2008, the price of gas has lagged far behind...
Whatever the long-term outlook for gas is, some experts note a fundamental change in the market—a "decoupling" of oil and gas prices, particularly in the U.S....Oil now costs more than $75 a barrel, while the equivalent amount of natural gas costs just $25. "I don't see that gap closing any time soon," Mr. Scaroni said.
But there is now a big disparity between the long-term contract price of gas and the spot price.
Mr. Scaroni said that 18 months ago, he would have said the European market for natural gas would grow by 2% a year, as domestic production fell and demand for the clean-burning fuel rose. At that time, LNG cargoes were selling in the Far East for $20 per million BTUs, he said.
Since then, the demand outlook has changed dramatically. Germany is poised to backtrack on its decision to phase out nuclear power, meaning less demand for gas in Europe's largest economy, he said. Meanwhile, it is likely that the same technology that has been used to open up shale gas in the U.S. could now be used to develop unconventional gas resources in Europe, meaning more supply.
And of course ENI is buying up shale technology via it's holding in Quicksilver Resources Barnett Shale interests.
Let's go back to "the big disparity between the long-term contract price of gas and the spot price".
We've said here from day one, before even NHO had heard of shale that buying gas or power on a long-term contract is the surest way to a) pay way over the odds and b) enrich any energy consultant who advised it.
And the market is still at it. October day ahead gas is having a modest revival as it usually does this time of year on the back of slightly cold weather in the UK and early US snow. Q4 is traditionally the most volatile based on the misanthropic hope of gas traders that we'll freeze to death. By Q1 2010, reality usually intrudes and we see massive sell offs even when winter really bites. A fixed price today for one year from November would mean for example paying 46.41 for next October when this October is only 23.3 so far.
Whatever uncertainty there is about future gas prices, any idea of a 100% increase by next October is a) unlikely b) ludicrous c) disingenuous or d) fraudulent. Or all of the above?
Posted at 05:38 PM in Energy Prices, Fixed Price Madness, Prices Permalink Comments (0) TrackBack (0)
Oct 20, 2009
Talking about my (electricity) generation
In the UK, we're roughly equal at 40% each between coal and gas in fuel sources for generation. Coal, in it's present form has got to go. It's many years past it's sell-by date and we can't afford for it to poison us for much longer. But what to do about about replacing coal?
Let's pretend that we are UK policy makers, who have either never heard of shale gas, confuse it with shale oil or pretend that it's many years away. Let's also assume they also don't believe in negawatts, the electricity replaced with no power at all via efficiency. Smart metering, smart grids and LED lighting can knock 15 to 30% off total consumption.
Without gas on the energy menu, the replacement for coal would be either nuclear or CCS. Ignore for the moment that nuclear waste storage has been great-grandfathered to the 21st century equivalent of Ofgem: It's their baby, we just paid for building the power station, which the nuclear industry say is a snip at 4 billion euro each.
But as a University of Greenwich study says, nuclear isn't an economical option either:
Oct. 19 (Bloomberg) -- A group of U.K. academics advised the government against subsidizing development of nuclear power because of the "huge" costs to consumers and taxpayers. Professors from Imperial College, Sussex University and University of Greenwich will advise against subsidies at meeting of lawmakers, policy advisers and industry executives today at Westminster in London, according to a statement. The group said subsidies such as loan guarantees, fixed carbon prices and consumer taxes to support prices will be needed to develop new U.K. nuclear power. "If the government caves in to nuclear industry demands for subsidies and guarantees, it will be electricity consumers and taxpayers that will pay huge additional costs," Steve Thomas, a professor at the University of Greenwich, said in the statement. Subsidies may also be challenged under European Union competition law, the group said.
Meanwhile the US National Research Council, in a study commissioned by Congress studies the true cost of generation. It ain't pretty for coal either:
Congress commissioned the report during the preparation of the 2005 Energy Act to get a handle on what energy really costs—not how much we pay for it. That includes the “health, environmental, security, and infrastructural external costs and benefits associated with the production and consumption of energy.”
Coal-fired electricity costs the country $62 billion per year, largely in health impacts from particulate matter. Natural gas for power generation, in contrast, adds about $740 million a year in hidden costs.
Looked at another way, coal’s hidden pricetag adds up to 3.2 cents per kilowatt hour. Compare that to the 2 cents-per-kilowatt hour that wind power gets from the government—that’s less a subsidy than a partial attempt to level the playing field.
OK, what about CCS? Tony Hayward of BP's opinion:
We also need a more diverse energy mix which will enable energy security and help address the issue of climate change. Alternative energy - nuclear, wind, solar and biofuels, along with fossil fuels - will all play an important role.But we need to be realistic - the transition to a lower-carbon economy won't happen overnight.Although Carbon Capture and Storage is often trumpeted as the path to cleaner coal, it still faces a number of challenges which will take time and effort to resolve.I don't believe we'll see the commercial use of CCS at scale for at least another decade or more and it won't come without a price. Until renewables gain a sizeable share of the power sector and cleaner coal is available through Carbon Capture and Storage, I can see only one way of doing it - by increasing the use of natural gas.Gas is the fuel that offers the greatest potential to provide the largest reductions at the lowest cost - and all that by using technology that's available today.
Gas is becoming the new Borg: Resistance is futile. It makes such a compelling case that no one can deny it. So why isn't more happening?
Posted at 10:34 PM in Energy Prices, Energy Tech, Next Big Things, Prices and Politics, Shale Gas Permalink Comments (0) TrackBack (0)
Oct 18, 2009
Shale Gas in India
China are fans, so why not India. Energy bulls want us to blame the BRICs for surging oil prices, to scare energy buyers into buying gas long. Brazil has the great fortune to have the world's largest ethanol fuel infrastructure meeting recent massive off-shore deep water oil and and gas discoveries. Russia,is obviously not a problem and China seems well able to fend for itself via Australian LNG and a confidence in both shale, efficiency and renewables. But we haven't heard much from India, a country that despite great advances still has trouble keeping the lights on for three quarters of its citizens. India is looking for shale as a solution:
In India, shale deposits are found across the Gangetic plain, Assam, Rajasthan and many coastal areas, but neither the government nor the corporate sector has carried out any exploration or estimation.
DK Pande, Director Exploration, ONGC, says the company is looking at the possibility and feasibility of gas production from shale. “The pilot project should start sometime in 2011. If we make a breakthrough, gas pricing will come down.”
But what is completely weird from British viewpoint is that in the UK we have had as far as we know no reference at all in broadcast media to shale gas, yet here we have an excellent report from Channel 18 CNBC. Paging Roger Harrabin!http://www.moneycontrol.com/video/economy/ongc-eyes-gasshale-pilot-project-to-start2011_419773.html
Posted at 09:29 AM in Next Big Things, Shale Gas Permalink Comments (0) TrackBack (0)
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