In a domestic energy market developing faster than just about anyone can remember, the key for investors is in finding an edge.
That's not easy in a natural gas market bloated with inventory. But oil is a different story. Those domestic oil companies innovating new schemes to get their product to market or pulling more oil from the ground are at the leading edge of America's energy renaissance.
"Oil is growing faster in the U.S. than it has in 20 years," says Dahlman Rose & Co. analyst Nicholas Pope. "The pipelines can't keep up."
RECOMMENDED: Valuable ‘Barn Finds’ (CNBC)
"You'd be hard pressed to find a time when more pipeline was laid in the U.S. than in the last four years," he said. ( Continue… )
By naming Ernest Moniz as his next Energy secretary, President Obama is demonstrating his desire for scientific experience in a post typically occupied by business leaders or former politicians.
Is he right? Does Washington need more scientists?
Mr. Moniz's résumé – he's a nuclear physicist at the Massachusetts Institute of Technology (MIT) – is rare in a town dominated by lawyers and businesspeople. The 112th Congress, for example, counts among its ranks one physicist, one chemist, six engineers, and one microbiologist, all of whom are in the House of Representatives. That's less than 2 percent of the legislative body, which grapples with difficult energy issues (not to mention other areas of science) and is tasked with funding some of the most advanced research in the world. Some argue that more scientists are needed in the nation's capital, particularly as the nation grapples with complex policy questions surrounding climate change.
"Don't leave out public policy," former Energy secretary Bill Richardson urged engineers, chemists and physicists attending an energy conference Saturday at Moniz's employer, MIT. "Don't leave out running for office." ( Continue… )
Energy Future Holdings (EFH), the massive Texas electric holding company, formally warned last week that it might need to seek bankruptcy protection. A little more than five years ago EFH was created as the vehicle for the most expensive leveraged buy-out in history when a private equity group led by KKR, TPG and Goldman Sachs bought the Texas energy company at a price of $43.2 billion.
Questions of the company's survival have circulated for years as doubts have grown over EFH's ability to meet obligations on more than $38 billion in debt.
Is this just another narrative about how the fracking revolution, and the associated collapse in natural gas prices, is reshaping America's energy landscape?
The answer is that and more. While the foundation for this story is the huge miss by the buyers on a bet about future natural gas prices, the whole story is complex and evolving, with fascinating historical context - the implications will be far reaching. ( Continue… )
The way the oil industry is touting gains in U.S. crude oil production, you would think that production was soaring to new all-time highs. But the facts say otherwise. Above is a monthly production history through December 2012.
Production remains well below the peak achieved in 1970 and below a secondary peak—a lower high, if you will—which resulted from the ramp up of production in Alaska. But, as the graph shows, after that it was relentlessly downhill until just recently.
It is true that a new form of hydraulic fracturing—high-volume slick-water hydraulic fracturing—has made available sources of oil not previously accessible. But is it also true that the industry’s hyperbole doesn’t square with the evidence. The U.S. Energy Information Administration’s (EIA) latest estimate of technically recoverable oil from so-called tight oil deposits—the ones suitable for hydraulic fracturing—is 33 billion barrels (see below). It sounds like a lot. But, in fact, it would only supply the United States for about 6½ years. Not bad; but not a world-changing number, especially when you consider that all oil goes onto the worldwide market where that amount would last a little over a year.
But there is another column in the EIA chart above that is worth focusing on, the one labeled “% of Area Untested.” (Click on graphic above left.) We actually know every little about the potential for the country’s tight oil (often mistakenly referred to as shale oil). Many areas haven’t been drilled at all and in others drilling has only just begun. There is reason to believe that all may not go as planned since in areas already drilled, drillers have focused on a few sweet spots that have proven profitable. That just makes sense. But, it suggests that they must now venture beyond those sweet spots to find additional supplies from deposits that will be more stubborn and thus more expensive and difficult to exploit. No one is certain how drillers will fare. But logic suggests that production growth will slow and then stop at some point—and a decline will begin in earnest. ( Continue… )
Gasoline prices have been climbing rapidly of late, and it is happening earlier than normal. But why does it happen at all in the spring? There is no question that it does happen. If you check the history of gasoline prices at the US Energy Information Administration's (EIA) website you can see that gasoline prices almost always rise between January and May. For example, in 2011 the price rose by 90 cents a gallon between January and May. Last year, the price increase was 65 cents a gallon.
Many factors influence gasoline prices, but there are specific reasons behind the seasonal changes.
Two critical specifications that need to be met for each gasoline blend are the octane rating and the Reid vapor pressure (RVP). Octane rating is important for avoiding engine knocking. But the octane rating for a gasoline blend is consistent throughout the year, and is not the reason for the seasonal price fluctuations.
The RVP spec, however, does change with the seasons and this change can have a major effect on the price of fuel. The RVP is based on a test that measures vapor pressure of the gasoline blend at 100 degrees F. ( Continue… )
Should Japan invest in European Shale Gas?
I think so and here’s why:
Natural gas pricing is a complex subject tied to seemingly unconnected multiple variables that simply don’t lend themselves to a simple narrative. That doesn’t stop most people trying to create one. If they want a simple life, these people should get out of the big money and go open a laundromat or something. Natural gas pricing is a high impact multi-billion dollar issue. This may explain why those who go for the natural gas is just another fossil fuel narrative just can’t get gas pricing either. Their Peak Gas narrative is essentially we’re all using a lot of a declining resource and we’re doomed, or if we stop we’re doomed anyway or we can get out of it spending a trillion euros to go green. In which case we’re doomed and broke. As an aside, peakers are often as unaware of, and uncomfortable with, the success of energy efficiency on the demand side as they are with shale on the supply side, denying the good news reality of each.
Motor gasoline appears headed to $4 a gallon at the pump. The main catalysts appear to be higher Brent crude prices and limited refining processing capacity on-line.
It's not demand that's driving energy prices higher. Indeed, if it were, we would have a double tailwind, and energy prices would be more reminiscent of early 2008. No, demand remains weak. Keep in mind that nearly 50% of our overall energy consumption is driven by transportation fuels, and in turn, transportation fuels are nearly 100% crude-based.
Motor gasoline demand, a major indicator for total energy demand and for economic growth, continues to be weak. Demand has fallen successively lower each year since April of 2007; even as the EIA reports that U.S. retail gasoline demand is higher by 2.0% on a four week average, 2012 compared to 2011.
On February 13, the Cleveland office of the law firm McDonald Hopkins hosted a panel to discuss the pivotal water issues facing producers of oil/gas from shale via fracking. In addition to three MH attorneys, the panel also included Jeff Dick (Director of the Natural Gas and Water Resource Institute at Youngstown State University), Samuel Johnson (Director of Water Asset Development for CONSOL Energy (NYSE: CNX)), John Lucey (EVP of Business Development and Engineering for Heckmann Corporation (NYSE: HEK)) and Sudarshan Sathe (President of Water and Wastewater Equipment Co.)
I took away three main observations from the panel discussion.
First, it’s important to keep in mind the distinction between produced water and flowback water. Flowback water includes all of the fluids used in the fracking process to initially stimulate oil/gas production. Produced water is defined as the flows associated with ongoing oil/gas production long after the fracking is complete, as has long been the case with all conventional oil/gas wells that never required fracking, since all oil/gas production usually contains a sizable fraction of water. The water treatment issues for flowback waters and produced waters are thus different. In particular, flowback waters are contaminated by the proprietary ingredients that fracking operators want to protect for competitive advantage, whereas produced waters contain loadings of the minerals that leach out from the particular oil/gas bearing shale strata being tapped.
Second, as significant as the challenges are for treating the water resulting from fracking operations, sourcing the quantity of water from fracking operations may be even more challenging. Simply, fracking operations require enormous quantities of water. While the voluminous Great Lakes would seem a natural supply basin, the Great Lakes Basin Compact signed a few years ago by the jurisdictions within the Great Lakes Basin precludes transporting Great Lakes water outside the basin — and while the Marcellus and Utica shale plays are not far at all from Lake Erie as the crow flies, it nevertheless so happens that they generally lay outside that basin. Thus, fracking operators in the Marcellus and the Utica have to get their water from somewhere else. ( Continue… )
EPA must weigh impacts of regulations, business group says (Sponsor content)
The Business Roundtable (BRT) outlined its priorities in a new report. Although many of the recommendations have been talked about, members of the BRT Roundtable said they hope the new Congress and President Barack Obama will make progress on their agenda, including recommendations for the EPA:
“Ensuring that EPA regulations are based on sound science, undergo thorough net cost-benefit analysis, and take into consideration the net cumulative impact these regulations have on energy costs, economic growth and job creation, while being protective of human health and the environment.”
“Carefully evaluating the timing and cumulative impact of EPA regulations on the electric utility industry and, as appropriate, modifying these regulations to ensure continued reliability, avoid unreasonable rate impacts, and maintain a diverse, market-driven portfolio of baseload electricity generation fuel options.”
The BRT is an association of chief executive officers from many leading U.S. companies with over $6 trillion in annual revenues and more than 14 million employees. Their companies generate an estimated $420 billion in sales for small and medium-sized businesses annually. BRT members comprise nearly a third of the total value of the U.S. stock market and invest more than $150 billion annually in research and development — nearly half of all private U.S. R&D spending.
As talks heat up about who will be nominated to be the next EPA Administrator, the nominee will need to listen to voices like the BRT and take these recommendations into consideration and understand that it’s best to take a common sense action to protect the environment while not harming American jobs and consumers.
As we’ve said before, the next head of the EPA needs to fully analyze and understand the full, cumulative economic impacts of its regulations. American jobs are at stake, as well as access to affordable, reliable electricity that is a pillar to our economic recovery.
BRT companies pay $163 billion in dividends to shareholders and give nearly $9 billion a year in combined charitable contributions.
Energy Security Trust
Energy policy is a major topic of discussion during almost every State of the Union address. The most recent address was no exception, with President Obama devoting a substantial portion of his speech toward reviewing recent energy accomplishments, and then promoting new energy initiatives. (Related: Are President Obama’s Policies Causing U.S. Oil Production to Rise?)
One of those initiatives was one of the three major energy policy recommendations that I promoted in my bookPower Plays. Here was President Obama’s version during the State of the Union address:
I propose we use some of our oil and gas revenues to fund an Energy Security Trust that will drive new research and technology to shift our cars and trucks off oil for good. If a nonpartisan coalition of CEOs and retired generals and admirals can get behind this idea, then so can we. Let’s take their advice and free our families and businesses from the painful spikes in gas prices we’ve put up with for far too long. I’m also issuing a new goal for America: Let’s cut in half the energy wasted by our homes and businesses over the next 20 years.
In my book, I made three policy recommendations that I believe would not only enhance the long-term energy security of any country, but are also capable of receiving broad political support. The recommendations address the demand side, the supply side, and they minimize the risks if supply and demand projections are grossly in error. The three policy recommendations are:
- Shift some income taxes to fossil fuel taxes in a revenue neutral manner
- Use the proceeds of oil to reduce dependence upon oil
- Support the Open Fuel Standard
The second proposal above is the one that the President endorsed during the State of the Union address. As I explained in my book, I am concerned about the impact of continued reliance on fossil fuels. But I have no doubt that we will still need stable oil supplies for a number of years as we transition away from oil. The proposal is designed to meet those petroleum needs during this transition phase, while using some of the proceeds to hasten the transition. In short, my proposal was that governments encourage domestic drilling — to meet our energy needs in the short-term — while using the royalties and tax revenues to fund programs that reduce dependence on oil. ( Continue… )