Chemicals and Fertilizer Industries
In last week’s post Who Wins from Rising Natural Gas Prices?, I discussed the sectors that would benefit from rising natural gas prices. This week, let’s talk about the potential losers.
Natural gas is an important feedstock for the chemicals and fertilizer industries, so higher prices could pressure those sectors. Oil companies with significant chemical operations could also see this business segment take a hit, but based on ExxonMobil’s (NYSE: XOM) advocacy of liquified natural gas (LNG) exports, it clearly believes the net effect of rising natural gas prices on the company would be positive.
Dow Chemical (NYSE: DOW), on the other hand, has come out strongly against LNG exports because of the potential cost to its own business and that of other heavy users of natural gas. Ironically, last week the Department of Energy granted a permit to a facility called Freeport LNG — in which Dow owns a 15% stake. Dow’s answer to that is that they invested in the facility when it was supposed to be an LNG import facility. ( Continue… )
The famous Danish physicist Niels Bohr once humorously observed, "Predictions are very difficult, especially about the future." And so, as the world considers yet another rosy oil supply forecast, this time from the Paris-based International Energy Agency (IEA), it is worth reviewing the agency's record.
Back in the year 2000, the IEA divined that by 2010, liquid fuel production worldwide would reach 95.8 million barrels per day (mbpd). The actual 2010 number was 87.1 mbpd. The agency further forecast an average daily oil price of $28.25 per barrel (adjusted for inflation). The actual average daily price of oil traded on the New York Mercantile Exchange in 2010 was $79.61.
(The IEA included in its 2000 supply projections not only crude oil plus lease condensate, which is the definition of oil, but also natural gas plant liquids--only a small fraction of which can be substituted for oil--and refinery processing gain which is the result of applying energy to break oil into its components, causing the final volume to expand. The agency refers to the resulting number as "oil" supply. But, clearly this number is not really just oil supply, and this practice continues to confuse policymakers and the public.)
So, what made the IEA so sanguine about oil supply growth in the year 2000? It cited the revolution taking place in deepwater drilling technology which was expected to allow the extraction of oil supplies ample for the world's needs for decades to come. But, deepwater drilling has turned out to be more challenging than anticipated and has not produced the bounty the IEA imagined it would. This is not to say that it hasn't been a critical adjunct to world oil supplies. It's just that deepwater oil production hasn't been able both to make up for declines in production elsewhere AND grow supplies beyond that--something that has resulted in a bumpy plateau for world oil production (crude plus lease condensate) starting in 2005. ( Continue… )
The U.S. Energy Department last week said it gave conditional authority for a facility in Texas to eventually export liquefied natural gas. New drilling technologies mean the United States could become a natural gas export leader, though opponents of LNG say that's likely to lead to more hydraulic fracturing. Last week, the government published more than 100 pages of documents that spell out what it sees as the way forward for hydraulic fracturing. The Interior Department said it took a "common sense" approach to the debate, though both sides of the argument have expressed concern.
So far only one company in the United States, Cheniere Energy, has the licenses necessary to ship natural gas to the global market. The terminal at Sabine Pass was built originally for imports, but with the shale natural gas boom, that situation turned around a few years ago. The U.S. Energy Department now said it gave its preliminary approval for the export of LNG from a terminal at Quintana Island, Texas. Combined, the two facilities would be able to export about 3.5 billion cubic feet of natural gas per day, marking the U.S. debut in a global natural gas market dominated by the likes of Russia and Qatar. (Related article: Study Finds no Trace of Fracking Fluid in Arkansas Drinking Water)
Critics of LNG exports from the United States worry it will lead to more hydraulic fracturing, a controversial practice at the heart of the U.S. energy debate. Concerns over hydraulic fracturing, or fracking, range from groundwater contamination by trace amounts of carcinogens to earthquakes. The U.S. Interior Department last week announced a "common sense" approach to fracking regulations on federal lands. The new plans, all 171 pages of them, give drillers the ability to use the industry-backed FracFocus to disclose what types of chemicals they use in the fracking process. That frustrated green groups who worried the government wasn't serious enough about the risks associated with the controversial procedure. ( Continue… )
The Boeing 787 Dreamliner returned to American skies Thursday for its first US passenger flight since overheating batteries grounded the fleet in January.
It's an encouraging sign, not just for the beleaguered airplane manufacturer, but for lithium-ion technology as well. The powerful, lightweight batteries had overheating and other problems when they were first used in laptop computers and electric cars. But manufacturers ironed out many of those issues, and there's hope for a similar learning curve in aviation.
"The chemistry of these batteries is changing. They can be made better," Richard Aboulafia, vice president of analysis at Teal Group Corp., an aerospace analysis firm, said in a telephone interview. "They still offer a powerful and economic solution. It’s just a question of getting the chemistry right and getting the system right."
In the short term, Boeing has implemented a series of fixes to the Dreamliners' batteries approved by the Federal Aviation Administration. Those involve more spacing between battery cells to reduce the risk of overheating, and storing them in a stronger, sealed encasement to minimize damage should overheating occur again. The casing now also includes a vent to the exterior, allowing smoke to escape in the case of a fire. ( Continue… )
There is a broad and growing consensus that freshwater is undervalued. It is a limited, but vital, commodity without a price. In nearly every region the price of water is the cost of water access rights, treatment costs, and transportation costs. There is no price or market for the water itself.
That will begin to change. Prolonged drought and overuse have depleted freshwater reserves at the same time that demand is rising rapidly. The resulting imbalance has some projections of demand for freshwater exceeding supply by as much as 40% by 2030 . Increasingly, water starved regions have begun to look to ways to both reduce overall use and to prioritize different types of use. While there are a number of policy approaches, one that seems to have wide support is the idea of regional exchanges where water could be priced (with adjustments for preferred uses) and sold.
The implications for the energy industry are significant. Fuel extraction is water intensive, especially for mining and fracking extraction - for fracked natural gas, about a gallon of water is required to extract one mmbtu. Electric generation from fossil fuels also requires large amounts of water. The average kWh produced from coal-fired electric generation uses a gallon of water, and while natural gas averages less water use, nuclear uses significantly more.
Initially, reduction in use will focus on eliminating waste and high-use-low-value activities (like watering a lawn), but as the limitations become more acute some uses will simply cease to be provided for, or the cost of use will increase, forcing a rebalancing of the ways water gets used. ( Continue… )
The US Department of Energy approved Friday the country's first liquified natural gas (LNG) export terminal since 2011.
It's a shift in policy that opens up America's newfound – and vast – natural gas resources to world markets. Advocates say they will improve the US trade balance and provide a boost for the natural gas industry, creating more jobs. The announcement is also a boost to key US allies, especially Japan, which has been lobbying the Obama administration to allow LNG exports as it transitions away from nuclear power.
But US consumers and manufacturers have benefited from the oversupply in the form of lower energy costs. Natural gas prices, which in March 2012 reached a 13-year low, will soar with the increase in foreign demand, critics warn. There are environmental concerns, as well. A global interest in US natural gas means an extended reliance on fossil fuels, delays a shift to clean-tech energy, and increases the use of potentially damaging drilling techniques, environmentalists say.
"It's a bad deal all around: for public health, the environment, and America's working people," Deb Nardone, director of the Sierra Club's Beyond Natural Gas campaign, said in a statement Friday. "LNG export is nothing but a giveaway to the dirty fuel industry, at the expense of everyday Americans." ( Continue… )
While ExxonMobil may be considered the pace-setter in the integrated oil and gas business, Chevron has outperformed its larger rival over the past five years. Chevron pays a slightly higher dividend than XOM (3.3 percent versus 2.8 percent), and its share price has appreciated 22 percent over the past five years, versus 2 percent for ExxonMobil. (Keep in mind that this includes the oil price crash of 2008). Over the last 10 years, Chevron is up an impressive 265 percent, versus 156% for ExxonMobil. During the oil price plunge in the second half of 2008, Chevron's share price only fell 10 percent (vs. 18 percent for XOM).
Chevron's market cap of $228 billion is substantially behind that of XOM, but that was still good enough for third place on last year's Fortune 500 list, with Walmart (NYSE: WMT) sandwiched between them. Chevron's 2012 profit margin of 10.9 percent was slightly ahead of Exxon's 10.2 percent. The higher profit margin - as well as Exxon's lagging stock performance relative to Chevron - is largely a reflection of the fact that natural gas is a larger component of Exxon's business, so that it was harder hit by last year's price crash.
A big concern for many investors has been a $19 billion judgement against Chevron for environmental damages in Ecuador. It concerns operations that Texaco had in Ecuador from the 1960s until about 1990. Chevron acquired Texaco in 2001, and after years of legal battles Chevron lost a lawsuit in a provincial court in Ecuador. ( Continue… )
New draft regulations on a controversial drilling method are drawing fire from both sides of the hydraulic fracturing debate. The technique, which involves injecting large amounts of water, sand, and chemicals into the ground to release oil and gas, has helped to spark a boom in US energy production.
Environmentalists say the proposal by the Bureau of Land Management (BLM) does not go far enough in overseeing "fracking" on public lands. Citing preexisting state regulations, oil and gas representatives say the federal oversight is redundant and curtails an industry that supports millions of jobs.
“States have led the way in regulating hydraulic fracturing operations while protecting communities and the environment for decades," Erik Milito, director of upstream and industry operations for the American Petroleum Institute, said in a statement "While changes to the proposed rule attempt to better acknowledge the state role, BLM has yet to answer the question why BLM is moving forward with these requirements in the first place."
The draft allows for states to propose their own rules if they can demonstrate they sufficiently protect local resources from contamination. It requires companies to disclose the chemical makeup of their fracking fluid but allows for "trade secret" exemption. Environmentalists say that process lacks a policing mechanism and is susceptible to abuse. ( Continue… )
Canada’s tars sands may just be the most unpopular source of energy in the world. Never the less they are vitally important to Canada’s plans for the future, so they are keen to reverse this opinion, and have increased their expenditure on advertising by nearly 100% from $9 million in 2012, to $16.5 million in 2013.
The Canadian government has begun an aggressive campaign to promote the tar sands just before Prime Minister Stephen Harper makes a visit to New York on Thursday to discuss issues on trade, energy security, and the Keystone XL pipeline.
Canada has been aiming its advertising campaign at the White House administration officials, hoping to sway their opinion on Keystone XL.
Prime Minister Harper will begin his trip to New York with a question and answer session with the Council on Foreign Relations, before addressing American business leaders on the merits of trade. (Related article: Canada’s Oil Sands Threatened by Lack of Market) ( Continue… )
The US Senate unanimously confirmed Ernest Moniz as Energy secretary Thursday.
The bipartisan approval of the nuclear physicist comes in contrast to divided opinions over the fate of another key member of President Obama's second-term energy and environment team. Citing transparency concerns, Republican lawmakers have sought to stall the nomination of Gina McCarthy, Mr. Obama's pick to head the Environmental Protection Agency (EPA).
With a background in both government and science, Mr. Moniz is seen as a departure from his predecessor, Steven Chu. Moniz served as under secretary of the Department of Energy between 1997 and 2001. Prior to his nomination, he was the director of the Energy Initiative at the Massachusetts Institute of Technology in Cambridge, Mass. Moniz also served on President Obama’s Council of Advisors on Science and Technology.
In his confirmation hearing last month, Moniz stressed the importance of a diverse, balanced energy portfolio. He is expected to be the flag-bearer of President Obama's "all-of-the-above" energy policy, a strategy he openly embraces. Research and development should be "first and foremost," he said, in the Department's work towards a clean-energy future. ( Continue… )