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Consumers Paying More as Nat Gas Cash Prices Spike

Consumers Paying More as Nat Gas Cash Prices Spike.

By Joao Peixe | Thu, 06 February 2014 22:43 | 0

As natural gas prices climb, reaching over $5/mcf again on 4 February, and with an unseasonably cold winter, local utilities say that natural gas customers’ bills are 30-40% higher now than last winter.

Last week, we saw natural gas prices rise above $5 for the first time in three years, then falling back a bit only to rise again on 4 February, with March futures trading above $5.25/mcf—or more than 6%, according to expert trader Dan Dicker.

Customers are footing the bill for higher gas prices and the coldest November-January period in four years in the Midwest and Northeast.

In Omaha, Nebraska, weather has been about 30% colder this year than last, and utility regulatory officials saying that gas use among customers is up while bills are up by 34-38% over last year.

Utilities are paying high prices for gas because demand has been higher and consumption rates at a level that has reduced storage by about 17% over the average of the previous five years.

In the meantime, there is a great deal of disconnect between cash prices and futures prices for natural gas, with futures trading an increasingly volatile business. While 6 February saw a spike in next-day prices, according to Reuters, 5 February saw natural gas futures fall sharply due to longer-term mild weather forecasts.

“The futures market appears to be disconnected from key developments occurring in the physical market,” Reuters quoted BNP Paribas analyst Teri Viswanath as saying on 6 February. “Today we witnessed a marked increase in spot prices for every consuming region, suggesting that utilities might be rationing limited inventories by purchasing gas off the market.”

As Dicker noted for The Street, “Low stockpiles caused by sequestration and a rush of domestic exploration and production companies away from natural gas production in favor of shale oil is taking its toll and providing the first real and consistent support of prices since 2007. Suddenly, natural gas markets are vulnerable to price spikes and traders are afraid to be short.”

By. Joao Peixe of Oilprice.com

Future food; We can grow enough, but how will we distribute it?  |  Peak Oil News and Message Boards

Future food; We can grow enough, but how will we distribute it?  |  Peak Oil News and Message Boards.

When we talk about the future of food, we usually start with world population growth. Estimates say we’ll pass the 8 billion-people mark around the spring of 2024. The worry for decades has been if we will be able to feed all those hungry mouths.

The number of hungry mouths may not be the problem. A 2002 United Nations study showed that global agricultural production would exceed the population’s needs just six years after we hit the 8 billion mark. How we distribute and sell food in the future could be far more important – and more interesting.

Moving it

“Oil isn’t cheap,” Katie Camden says when asked about the future of food distribution. “Plus, over the next 10 to 20 years, it’s not going to get any cheaper.”

Camden started her career in neuroscience, but then she moved into the food business. She and her husband, Micah, have a string of successful and unique restaurants in the Pacific Northwest. He’s the chef; she’s the brains. She refines and iterates each operation like a ruthless engineer, optimizing each step in the production and the distribution chain.

Camden is the go-to person when it comes to the future of food. She’s all business. Her no-nonsense perspectives always provide a clear vision for where she sees things going. She has strong opinions.

“The cost of just moving food – especially over long distances –  is always going to be expensive,” she explains. “It’s really the limiting factor. It’s not a food problem. It’s not even a farm problem. It’s an oil problem.”

Even with the recent shale gas boom in the U.S., the long-term cost for oil is not projected to drop. On the contrary, it has risen from around $25 a barrel in 2002 to $100 in 2013. The race to renewable and alternative energy will continue over the next few decades.

So if oil and transportation are the real limiting factors, then what should we do? What are the opportunities?

“More food retailers and restaurants will look to local farms and food producers,” Camden believes. “I don’t just mean small farms but all farms that are nearby. Retailers will base their operations on what’s available locally,” she says.

One of her most popular chains is Little Big Burger, a series of purposely small take-out restaurants that serve high-quality hamburgers from only locally sourced beef. “We’ve looked at opening our hamburger restaurants in Texas and Colorado because of their amazing local beef,” she says.

In Camden’s view, the next 10 years will see more local businesses working with local farmers to source food. She says it will go beyond that to the very issue of what’s available from those producers. “That will drive those businesses,” she predicts.

Selling it

The business of food retailing is just plain hard, with notoriously low profit margins and stiff competition. Retailers are always looking for the newest innovation that will differentiate them. Because of this, hints to the future can be found in the aisles of your local market, as well as in your email in-box, in your smartphone, and in the mass of data being created.

Affinity card programs are nothing new. Those little cards are scanned at supermarket checkouts to get special discounts. Soon, those cards will be paired with high-tech data analytics and real-time shopper tracking. Something really different is emerging: a hyperpersonalized shopping experience.

It isn’t complicated. With your permission, an affinity card tracks everything you purchase. The store offers up coupons that fit your habits. The deals land in an in-box or smartphone app, giving automatic savings at checkout.

It gets interesting when stores cross their data with other information about you. They not only can give discounts on what you are about to purchase but also can make suggestions based on other activity. You might be tracked in real time as you move through a store and are offered suggestions based on health history, social network, and your favorite movies.

Tomorrow Belongs to the Shopper

Most of us don’t realize the power we have when we make those seemingly mundane decisions in stores. Long before crop shortages plague the global supply chain, consumers will vote with their purchases. That sentiment will drive the future, and the real opportunity lies in the imaginations and aspirations of average people all over the world. The interesting question is how can farmers start to participate in that conversation?

agriculture.com

How the U.S. Exports Global Warming | Politics News | Rolling Stone

How the U.S. Exports Global Warming | Politics News | Rolling Stone.

While Obama talks of putting America on the path to a clean, green future, we’re flooding world markets with cheap, high carbon fuels

FEBRUARY 3, 2014 11:00 AM ET
How the U.S. Exports Global Warming
Illustration by Victor Juhasz

The greening of American energy is both real and profound. Since President Obama took office, the nation’s solar capacity has increased more than tenfold. Wind power has more than doubled, to 60,000 megawatts – enough to power nearly 20 million homes. Thanks to aggressive new fuel-efficiency standards, the nation’s drivers are burning nearly 5 billion fewer gallons of gasoline a year than in 2008. The boom in cheap natural gas, meanwhile, has disrupted the coal industry. Coal-power generation, though still the nation’s top source of electricity, is off nearly 20 percent since 2008. More than 150 coal plants have already been shuttered, and the EPA is expected to issue regulations in June that will limit emissions from existing coal facilities. These rules should accelerate the shift to natural gas, which – fracking’s risks to groundwater aside – generates half the greenhouse pollution of coal.

See the 10 Dumbest Things Ever Said About Global Warming

But there’s a flip side to this American success story. Even as our nation is pivoting toward a more sustainable energy future, America’s oil and coal corporations are racing to position the country as the planet’s dirty-energy dealer – supplying the developing world with cut-rate, high-polluting, climate-damaging fuels. Much like tobacco companies did in the 1990s – when new taxes, regulations and rising consumer awareness undercut domestic demand – Big Carbon is turning to lucrative new markets in booming Asian economies where regulations are looser. Worse, the White House has quietly championed this dirty-energy trade.

“The Obama administration wants to be seen as a climate leader, but there is no source of fossil fuel that it is prepared to leave in the ground,” says Lorne Stockman, research director for Oil Change International. “Coal, gas, refinery products – crude oil is the last frontier on this. You want it? We’re going to export it.”

When the winds kicked up over the Detroit river last spring, city residents confronted a new toxic hazard: swirling clouds of soot taking flight from a mysterious black dune piled high along the city’s industrial waterfront. By fall, similar dark clouds were settling over Chicago’s South Side – this time from heaping piles along the Calumet River. The pollution in both cities made national headlines – and created a dubious coming-out party for petroleum coke, or “petcoke,” a filthy byproduct of refining gasoline and diesel from Canadian tar-sands crude. Despite the controversy over Keystone XL – the stalled pipeline project that would move diluted tar-sands bitumen to refineries on the Gulf Coast – the Canadian crude is already a large and growing part of our energy mix. American refineries, primarily in the Midwest, processed 1.65 million barrels a day in 2012 – up 40 percent from 2010.

Global Warming’s Terrifying New Math

Converting tar-sands oil into usable fuels requires a huge amount of energy, and much of the black gunk that’s refined out of the crude in this process ends up as petroleum coke. Petcoke is like concentrated coal – denser and dirtier than anything that comes out of a mine. It can be burned just like coal to produce power, but petcoke emits up to 15 percent more climate pollution. (It also contains up to 12 times as much sulfur, not to mention a slew of heavy metals.) In Canada, the stuff is largely treated like a waste product; the country has stockpiled nearly 80 million tons of it. Here in the U.S., petcoke is sometimes burned in coal plants, but it’s so filthy that the EPA has stopped issuing any new licenses for its use as fuel. “Literally, in terms of climate change,” says Stockman, “it’s the dirtiest fuel on the planet.”

With domestic petcoke consumption plummeting – by nearly half since Obama took office – American energy companies have seized on the substance as a coal alternative for export. The market price for petcoke is about one-third that of coal. According to a State Department analysis, that makes American-produced petcoke “less expensive, including the shipping, than China’s coal.” Petcoke exports have surged by one-third since 2008, to 33.4 million metric tons; China is now the top consumer, and demand is exploding. Through the first nine months of 2013, Chinese imports were running 50 percent higher than in 2012.

No surprise: The Koch brothers are in the middle of this market. Koch Carbon, a subsidiary of Koch Industries, was the owner of the Detroit dune, since sold off to an international buyer. But it’s a third Koch brother, Billy, who is the petcoke king. William Koch is the CEO of Oxbow Carbon, which describes itself as “the worldwide leader in fuel-grade petcoke sourcing and sales” – trading 11 million tons per year.

Read Our Feature On the Arctic Ice Crisis

With dirty Canadian crude imports on the rise, U.S. refineries have been retooling to produce even more petcoke. A BP refinery on the outskirts of Chicago just tripled its coking capacity and is now the world’s second-largest source of the black gunk. But the Promised Land of petcoke refining is on the Gulf Coast – which is part of why Big Oil is so hot to complete the Keystone XL pipeline. The Texas and Louisiana refineries that would process Keystone crude can produce a petcoke pile the size of the Great Pyramid of Giza every year, which, when burned, would produce more than 18 million tons of carbon pollution.

Despite the dangers of petcoke, the Obama administration has turned a blind eye to its proliferation. A 2011 State Department environmental-impact study of Keystone XL, commissioned under then-Secretary Hillary Clinton, treated petcoke as if it were an inert byproduct, and failed to consider its end use as a fuel when calculating the greenhouse impacts of the pipeline. According to the EPA, that decision led State to lowball the pipeline’s associated emissions by as much as 30 percent.

In 2013, the post-Hillary State Department revised that assessment, conceding that petcoke “significantly increases” the emissions associated with tar sands. However, State punted on the big issue of climate pollution, maintaining that Keystone XL won’t create a net increase because the Canadian crude would reach Gulf refineries with or without the pipeline.

A joint letter by Rep. Henry Waxman and Sen. Sheldon Whitehouse, chairs of the Bicameral Task Force on Climate Change, blasted State’s conclusion as “fundamentally flawed” and “contrary to basic economics” – noting that it would take a new forest the size of West Virginia to fully offset the carbon emissions Keystone XL would bring to market.

The tar-sands boom has the united states poised to become a top player in the global-export market for gasoline and diesel. And Obama’s top trade ambassador has been working behind the scenes to make sure that our climate-conscious European allies don’t shutter their markets to fuels refined from the filthy Canadian crude.

The U.S. trade representative, Ambassador Michael Froman, is a protégé of former Treasury Secretary Robert Rubin and a top member of the president’s inner circle. Froman was confirmed last June to his current trade post, where he’s under direct orders from the president to “open new markets for American businesses.” His nomination was opposed by only four senators – chiefly Massachusetts Democrat Elizabeth Warren, who faulted Froman for refusing to commit to even the paltry standard for transparency in trade talks set by the George W. Bush administration. Warren was right to be concerned. In backroom negotiations, Froman has worked to undermine new European Union fuel standards intended to lower the continent’s carbon emissions. The European standards would work, in part, by grading the carbon toxicity of various crude oils. They logically propose placing polluting tar-sands oil in a carbon class all by itself; on its path from a pit mine to the filling station, a gallon of tar-sands gas is responsible for 81 percent more climate pollution than the average gallon of regular. But instead of respecting the EU’s commitment to slow global warming, Froman has worked to force North America’s dirtiest petrol into the tanks of Europe’s Volkswagens, Peugeots and lorries.

His hardball tactics were revealed in obscure written congressional testimony last year. In a question to Froman, Rep. Kevin Brady, an oil-friendly Texas Republican, slammed the European proposal as a “discriminatory, environmentally unjustified” trade barrier. Froman responded, “I share your concerns,” and described his work to “press the Commission to take the views of . . . U.S. refiners under consideration.” He explained how he had turned the standards into a point of contention in negotiations of the Transatlantic Trade and Investment Partnership – a major free-trade pact being hammered out between the U.S. and the EU. Last October, Froman’s team even went before the World Trade Organization to demand that all globally traded petroleum products be treated “without discrimination.”

Froman’s dirty-energy advocacy provoked an angry letter last December from the Bicameral Climate Change Task Force – prominently co-signed by Warren. It blasted the ambassador’s efforts to “undercut” the EU’s climate goals as well as his “shortsighted view of the United States’ economic interests.” Citing the projected $70 billion in adverse climate effects from exploitation of tar-sands crude, the task force demanded Froman justify his “troubling” actions in the context of the United States’ “long-term economic well-being.” The ambassador’s office has not responded.

“We’re telling the world on the one hand that it’s time for leadership from us on facing up to carbon pollution,” says Whitehouse, a Democrat from Rhode Island. “While on the other we’re saying, ‘Hey, here, buy our high-carbon-pollution fuels.'”

If Big Oil has its way, the United States could soon return to the business of exporting not only refined petroleum products but crude oil itself – a practice that’s been illegal since the oil shocks of the 1970s. The crude-oil-export ban has been the linchpin of U.S. energy security for more than a generation. With narrow exceptions for Alaskan crude and exports to Canada, the law requires that oil drilled here must be refined here – helping to insulate American drivers from disruptions in oil fields of the Middle East. But the unexpected boom in fracked crude from North Dakota and Texas has transformed this long-uncontroversial law into a bugbear for domestic drillers – who now see American energy independence as a threat to their profit margins.

When the Keystone XL pipeline was first proposed in 2007, the accepted notion was that Gulf Coast refineries would be able to process all the crude that the pipeline could carry. But the nation’s energy picture has since changed dramatically. Thanks to advances in fracking technology, North Dakota and Texas are bringing millions of barrels of “sweet” – low-sulfur, easily refined – crude to the market every day.

In this new reality, the fixed flow from a pipeline like Keystone XL, carrying more than 1.5 million barrels of Canadian crude to the Gulf Coast every day, is going to create excess supply. The surplus tar-sands crude, as much as 400,000 barrels per day, will have to be shipped out of the Gulf to the global market. “There is a limit to how much the Gulf Coast refiners can soak up,” said Esa Ramasamy, of the energy-information service Platts, in a recent presentation. “The Canadian crudes cannot go back up into Canada again. They will have to go out.”

An export ban or not, it will likely happen: As long as it’s not “commingled” with American crude, Canadian crude, despite its transit through the United States, remains Canadian.

The new flood of domestic crude, meanwhile, is straining U.S. refining capacity, producing a nearly $10-per-barrel discount for U.S. oil compared to the global average for sweet crude. America’s domestic drillers are desperate to fetch higher prices on the global market. (Exxon, the Chamber of Commerce and key senators like Alaska Republican Lisa Murkowski have just launched a media offensive to kill the export ban altogether.)

In addition to promoting energy independence, the export ban now has the virtue of limiting the pace at which American drillers exploit the continent’s newfound climate-toxic oil riches. Ending the ban would not only hurt U.S. consumers by wiping out the home-oil discount, it would also boost the profits of domestic-oil companies and hasten exploration of now-marginal deposits. “Lifting the oil-export ban is simply climate denial in a new, and very dangerous, form,” says Steve Kretzmann, Oil Change International’s executive director.

Nonetheless, Obama’s new energy secretary, Ernest Moniz, told reporters at a recent energy conference that the ban is a relic and ought to be re-examined “in the context of what is now an energy world that is no longer like the 1970s.”

The greatest success story in the greening of American energy is the market-driven collapse of coal. Last year, American power plants burned 181 million fewer tons of coal than in the final year of the Bush administration, as power companies shifted to burning cheaper natural gas. And after years of delay, the administration finally appears to be committed to driving some regulatory nails into Big Coal’s coffin: In January, the EPA published a draft rule that’s likely to end the construction of new coal plants by requiring cost-prohibitive carbon-capture technology. This summer, the agency is expected to introduce climate-pollution rules for existing plants that should hasten the adoption of natural gas.

With the freefall in domestic demand, industry giants like Peabody are desperate to turn American coal into a global export – targeting booming Asian economies that are powering their growth with dirty fuel. China now consumes nearly as much coal as the rest of the world combined, and its demand is projected to grow by nearly 40 percent by the end of the decade. “China’s demand,” according to William Durbin, head of global markets for the energy consultancy Wood Mackenzie, “will almost single-handedly propel the growth of coal.”

Since Obama took office, American coal exports are up more than 50 percent. And Big Coal has designs to more than double that tonnage by opening a direct export route to Asia, shipping coal strip-mined from the Powder River Basin, in Wyoming and Montana, by rail to a network of planned export terminals in the Pacific Northwest, and then by sea to China. These new coal exports have received far less attention than Keystone XL, but would unleash a carbon bomb nearly identical to the greenhouse pollution attributed to the pipeline.

After inking a 2011 deal to export 24 million tons of Powder River Basin coal through the planned Gateway Pacific Terminal at Cherry Point in Washington, Peabody Coal CEO Gregory Boyce gushed, “We’re opening the door to a new era of U.S. exports from the nation’s largest and most productive coal region to the world’s best market for coal.”

Last March, John Kitzhaber and Jay Inslee, the governors of Oregon and Washington, respectively, wrote to the White House expressing near disbelief that the administration seemed prepared to let Big Coal’s dreams come true. “It is hard to conceive that the federal government would ignore the inevitable consequences of coal leasing and coal export,” they wrote. Coal passing through Pacific Northwest terminals would produce, they argued, “climate impacts in the United States that dwarf those of almost any other action the federal government could take in the foreseeable future.”

But the administration refused to intervene. Appearing before Congress last June, the acting regulatory chief of the Army Corps of Engineers announced that climate pollution would not factor in the evaluation of permits for the export terminals. The burning of American coal in Asia, she testified, was “too far removed” to be considered.

Even more troubling, the administration opened up more than 300 million tons of coal in the Powder River Basin to bidding by the coal companies last year. The coal is on government land; it belongs to the public. Yet the leasing practices of the Bureau of Land Management (BLM) are so flawed that one independent study estimates that taxpayers have been fleeced of $30 billion over the past three decades. In the past, that stealth subsidy to Big Coal at least helped create cheap power for American homes and businesses. Today, the administration has put American taxpayers in the position of subsidizing coal destined to fuel the growth of our nation’s fiercest, and carbon-filthiest, economic rival.

In the battle to prevent the United States from fueling the developing world’s global-warming binge, the deck is stacked against climate hawks. The fossil-fuel industry remains the single most powerful special interest in Washington, having successfully ball-gagged the entire Republican Party on global warming. More insidiously, the macroeconomic indicators by which the economy – and any presidency – are measured can be cheaply inflated through dirty-energy exports, which boost GDP and narrow the trade deficit.

But here’s the surprise: Climate activists are more than holding their own. Keystone XL is on an indefinite hold, and Whitehouse says he’s “optimistic” that the pipeline won’t gain approval on the watch of new Secretary of State John Kerry. Likewise, Obama’s Powder River Basin initiatives seem to be going nowhere in the face of strong regional and national opposition. Even Wall Street is getting cold feet on coal. In January, Goldman Sachs dumped its stake in the Cherry Point, Washington, terminal once celebrated by Peabody Coal’s CEO as emblematic of his industry’s future. And with no clear path to China, coal companies themselves are pulling back. In two BLM auctions last summer, one failed to solicit any bids by coal companies; the other received a single bid – and it was too low for even the famously coal-friendly BLM to accept.

But preventing America from morphing into the world’s dirty-energy hub will likely require something more: a competitive Democratic primary for 2016. By all outward indications, the Clinton regime-in-waiting is even more supportive of the dirty-energy trade than the Obama White House. Bill Clinton is a vocal proponent of the Keystone XL pipeline, calling on America to “embrace it.” During Hillary Clinton’s reign as secretary of state, the department outsourced its flawed environmental assessment of Keystone XL to a longtime contractor for the pipeline’s builder, TransCanada – whose top lobbyist just happened to have served as a deputy manager for Clinton’s 2008 presidential run. Clinton herself, in a 2010 appearance at the Commonwealth Club in San Francisco, sounded fatalistic about bringing tar sands to market: “We’re either going to be dependent on dirty oil from the Gulf, or dependent on dirty oil from Canada,” she said.

In a contested primary, the issue of constraining the nation’s polluting exports is likely to emerge as a significant fault line between Clinton and whomever emerges to represent the Elizabeth Warren wing of the Democratic Party.

A credible challenger need not derail Clinton to make the difference. Recall that both Clinton and Obama began as reticent climate hawks in 2008 – even talking up the prospects of refining coal into a liquid for use as auto fuel – before the threat of John Edwards forced both candidates to commit to the ambitious goal of reducing climate pollution by 80 percent by 2050. On the other hand, if Hillary Clinton simply cruises through the primaries, it’s a safe bet that the corporate center will hold – and that North America’s fossil exports are going to flow. That’s a state of affairs from which the world as we know it will not soon recover.

This story is from the February 13th, 2014 issue of Rolling Stone.

Why The Keystone Pipeline Will Actually RAISE Gas Prices In the U.S. Washington’s Blog

Why The Keystone Pipeline Will Actually RAISE Gas Prices In the U.S. Washington’s Blog.

Big Oil Is Gaming the System to Raise Domestic U.S. Prices

Bloomberg notes:

Completion of the entire [Keystone] pipeline would raise prices at the pump in the Midwest and Rocky Mountains 10 to 20 cents a gallon, Verleger, the Colorado consultant, said in an e-mail message.The higher crude prices also would erase the discount enjoyed by cities including Chicago, Cheyenne and Denver, Verleger said.

CNN Money reports:

Gas prices might go up, not down: Right now, a lot of oil being produced in Canada and North Dakota has trouble reaching the refineries and terminals on the Gulf. Since that supply can’t be sold abroad, it reduces the competition for it to Midwest refineries that can pay lower prices to get it.

Giving the Canadian oil access to the Gulf means the glut in the Midwest goes away,making it more expensive for the region.

Tyson Slocum – Director of Public Citizens’ Energy Program – explains:

How does bringing in more oil supply result in higher gas prices, you ask? Let me walk you through the facts. A combination of record domestic oil production and anemic domestic demand has resulted in large stockpiles of crude oil in the U.S. In particular, supplies of crude in the critical area of Cushing, OK increased more than 150% from 2004 to early 2011 (compared to a 40% rise for the country as a whole). Segments of the oil industry want to import additional supplies of crude from Canada, bypass the surplus crude stockpiles in Oklahoma in an effort to refine this Canadian imported oil into gasoline in the Gulf Coast with the goal of increasing gasoline exports to Latin America and other foreign markets.

***

Cushing typically is a busy place – I noted in my recent Senate testimony how Wall Street speculators were snapping up oil storage capacity at Cushing. And all of that surplus capacity is pushing WTI prices down – and for many in the oil business, downward pressure on prices is a terrible thing. As MarketWatch reports, “[B]y running south across six U.S. states from Alberta to the Gulf of Mexico, [the Keystone pipeline] would skirt the pipeline hub at landlocked Cushing, Okla., a bottleneck that has forced Canadian producers to sell their oil at a steep discount to other crude grades facing fewer obstacles to the market.

***

There are several global crude oil benchmarks, and the price differential between Brent and WTI now is around $10/barrel, which is a fairly significant spread, historically speaking. Moving more Canadian crude to bypass the                WTI-benchmarked Cushing stocks, the industry hopes, will align WTI’s current price discount to be higher, and more in line with Brent.

***

The Keystone pipeline isn’t just about expanding the unsustainable mining of … Canadian crude, but also to raise gasoline prices for American consumers whose gasoline is currently priced under WTI crude benchmark prices.

Slocum notes that oil is America’s number 1 import at time same that fuel is America’s number 1 export.

Specifically, more oil is being produced now under Obama than under Bush. But gas consumption is flat.

So producers are exporting refined products. By exporting, producers keep refined products off the U.S. market, creating artificial scarcity and keeping U.S. fuel prices high.

Slocum said that the main goal of the Keystone Pipeline is to import Canadian crude so the big American oil companies can export more refined fuel, driving up prices for U.S. consumers.

 

Tom Steyer points out:

Statements from pipeline developers reveal that the intent of the Keystone XL is not to help Americans, but to use America as an export line to markets in Asia and Europe. As Alberta’s energy minister Ken Hughes acknowledged, “[I]t is a strategic imperative, it is in Alberta’s interest, in Canada’s interest, that we get access to tidewater… to diversify away from the single continental market and be part of the global market.”

And see this NBC News report.

As Fortune explains, the U.S. is now an exporter of refined petroleum products, but Americans aren’t getting reduced prices because the oil companies are now pricing the fuel according to Europeanmetrics:

The U.S. is now selling more petroleum products than it is buying for the first time in more than six decades. Yet Americans are paying around $4 or more for a gallon of gas, even as demand slumps to historic lows. What gives?

***

Americans have been told for years that if only we drilled more oil, we would see a drop in gasoline prices.

***

But more drilling is happening now, and prices are still going up. That’s because Wall Street has changed the formula for pricing gasoline.

***

Until this time last year, gas prices hinged on the price of U.S. crude oil, set daily in a small town in Cushing, Oklahoma – the largest oil-storage hub in the country. Today, gasoline prices instead track the price of a type of oil found in the North Sea called Brent crude. And Brent crude, it so happens, trades at a premium to U.S. oil by around $20 a barrel.

***

So, even as we drill for more oil in the U.S., the price benchmark has dodged the markdown bullet by taking cues from the more expensive oil. As always, we must compete with the rest of the world for petroleum – including our own.

This is an unprecedented shift. Since the dawn of the modern-day oil markets in downtown Manhattan in the 1980s, U.S. gasoline prices have followed the domestic oil price ….

In the past year, U.S. oil prices have repeatedly traded in the double-digits below the Brent price. That is money Wall Street cannot afford to walk away from.

To put it more literally, if a Wall Street trader or a major oil company can get a higher price for oil from an overseas buyer, rather than an American one, the overseas buyer wins. Just because an oil company drills inside U.S. borders doesn’t mean it has to sell to a U.S. buyer. There is patriotism and then there is profit motive. This is why Americans should carefully consider the sacrifice of wildlife preservation areas before designating them for oil drilling. The harsh reality is that we may never see a drop of oil that comes from some of our most precious lands.

***

With the planned construction of more pipelines from Canada to the Gulf of Mexico, oil will be able to leave the U.S. in greater volumes.

This isn’t old news … or just a hypothetical worry.

As Bloomberg reported in December 2013:

West Texas Intermediate crude gained the most since September after TransCanada Corp. (TRP) said it will begin operating the southern leg of its Keystone XL pipeline to the Gulf Coast in January.

[West Texas Intermediate oil] prices jumped to a one-month high, narrowing WTI’s discount to Brent. TransCanada plans to start deliveries Jan. 3 to Port Arthur, Texas, via the segment of the Keystone expansion project from Cushing, Oklahoma, according to a government filing yesterday. Cushing is the delivery point for WTI futures. Crude [oil pries] also rose as U.S. total inventories probably slid for the first time since September last week.

“With the pipeline up and running, you are going to see drops in Cushing inventories,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “It drives up WTI prices far more than Brent. You are going to see a narrowing of the Brent-WTI differential.”

Shell Stops Alaska Program in Year of ‘Hard Choices’  |  Peak Oil News and Message Boards

Shell Stops Alaska Program in Year of ‘Hard Choices’  |  Peak Oil News and Message Boards.

Royal Dutch Shell revealed Thursday that 2014 will see the company stop its Alaska program and focus on achieving better capital efficiency by making ‘hard choices’ about new projects and reducing capital spending.

Announcing its results for 2013, Shell said that the landscape the company had expected has changed and it cited factors such as the worsening security situation in Nigeria and delays to non-operated projects in several countries. With North American natural gas prices remaining low, the company said it particularly plans to focus on restructuring and improving profitability in its North American upstream operations.

“Our ambitious growth drive in recent years has yielded a step change in Shell’s portfolio and options, with more growth to come, but at the same time we have lost some momentum in operational delivery, and we can sharpen up in a number of areas,” New Shell CEO Ben van Beurden said in a company statement.

“Our overall strategy remains robust, but 2014 will be a year where we are changing emphasis, to improve our returns and cash flow performance.”

Meanwhile, Shell said the recent Ninth Circuit Court decision against the Department of the Interior “raises substantial obstacles to Shell’s plans for drilling in offshore Alaska”. As a result, Shell has decided to stop its exploration program for Alaska in 2014.

“This is a disappointing outcome, but the lack of a clear path forward means that I am not prepared to commit further resources for drilling in Alaska in 2014,” van Beurden said. “We will look to relevant agencies and the Court to resolve their open legal issues as quickly as possible.”

Shell’s capital spending in 2014 is targeted at around $37 billion, compared with the $46 million it spent in 2013. Meanwhile, the firm plans to increase the pace of its asset sales, which are expected to be $15 billion for 2014-2015 in both its upstream and downstream segments.

“We are making hard choices in our world-wide portfolio to improve Shell’s capital efficiency,” van Beurden added.

RIGZONE

Andrew Nikiforuk: Canada’s Petrostate Has “Dramatically Diminished Our International Reputation” | DeSmog Canada

Andrew Nikiforuk: Canada’s Petrostate Has “Dramatically Diminished Our International Reputation” | DeSmog Canada.

“Alberta is very much a petrostate,” says journalist and author Andrew Nikiforuk. “It gets about 30 per cent of its income from the oil and gas industry. So as a consequence, the government over time has tended more to represent this resource and the industry that produces it, than its citizens. This is very typical of a petrostate.”

The flow of money, he says, is at the heart of the issue. “When governments run on petro dollars or petro revenue instead of taxes then they kind of sever the link between taxation and representation, and if you’re not being taxed then you’re not being represented. And that’s what happens in petrostates and as a consequence they come to represent the oil and gas industry. Albert is a classic example of this kind of relationship.”

In this interview with DeSmog, Nikiforuk explains the basics of his petrostate thesis and asks why Canada, unlike any other democratic nation, hasn’t had a meaningful public debate about the Alberta oilsands and how they’ve come to shape the Canadian landscape, physically as much as politically.

Cassandra’s legacy: Italy’s slow collapse: how declining energy consumption affects GdP

Cassandra’s legacy: Italy’s slow collapse: how declining energy consumption affects GdP.

This graph compares the historical consumption of oil and gas in Italy (summed together in energy units, Terajoules) and the decline in GdP (in constant 2000 US$). The data for Italy’s GdP are from Index Mundi, updated to 2012 and 2013 (est.) from ISTAT.  The data for oil + gas consumption are from BP Statistical review of world energy. Conversion factors for oil and gas: 1 billion cubic feet of natural gas (bcf) = 1.1E3 TJ and 1 barrel of crude oil = 6.1E-3 TJ

As an integration of a previous post, where I was discussing the trends in oil and gas consumption in Italy, here is a comparison with the historical trends of the gross domestic product (GdP). As you can see, the GdP has started a clear trend of decline, after having peaked in 2007.

No GdP would exist without a continuous inflow of natural resources into the economy and the most important of these resources is energy. In Italy, gas and oil are by far the largest sources of primary energy (ca 77% of the total). So, qualitatively, we would expect that a decline in energy production would accompanied by a decline in GdP.

Now, the question is what causes what? That is, is the decline in GdP causing a decline in the demand and, consequently, a reduction in energy consumption? Or is the decline in energy availability that causes a decline in GdP? The data seem to favor the second hypothesis, since it is clear that “peak GdP” (2007) trails “peak hydrocarbons” (2005).

However, the concept of “cause and effect” may be misplaced in this case. Starting from the results of a paper published in “Energies” (U. Bardi and A. Lavacchi “A Simple Interpretation of the Hubbert Model” 2009), we can argue that the GdP can be seen as a proxy for the dissipation of the “capital stock” of a system where capital and resources are related in a feedback relationship. That is, capital is created in proportion to the rate of resource exploitation and resources are exploited at a rate proportional to the available capital. In the case of a non renewable resource, such as oil and gas, gradual irreversible depletion generates “Hubbert-like” (bell shaped) production curves and a peak in the rate of resource exploitation coming before the peak of capital dissipation.

In short, the economy of Italy seem to be declining as a consequence of the increasing cost (or – equivalently – declining energy returns, EROEI) of primary energy sources, mainly natural gas and crude oil. If such is the case, decline is irreversible. The only possibility to avoid this outcome is to decouple the economy from non renewable resources, generating energy using renewable ones.

_______________________________

Note for those who hate the concept of Gross Domestic Product, GdP. It has been said many times that GdP growth is not a worthwhile objective, since growth has little or nothing to do with quality of life and personal happiness. Fine, I agree, but we should not be confusing the concept of “growth”, which we normally measure in terms of GdP and GdP itself, which does not necessarily imply growth. GdP is simply a useful measurement of the performance of an economy. Unfortunately, however, it is a fact that when GdP goes down, people tend to be very unhappy.


Note #2 (added after publication). You may be interested in a direct comparison of GdP and gas+oil consumption – which may be obtained by shifting the curve for GdP 2 years back in such a way to match the Oil+Gas peak. Here it is

Testosterone Pit – Home – From “Glut” To Panic: Natural Gas Soars

Testosterone Pit – Home – From “Glut” To Panic: Natural Gas Soars.

On Friday, when stocks were plunging, natural gas soared 9.6% to $5.18 per million British thermal units (MMBtu) at the Henry Hub. Up 20% for the week. The highest close since June 2010.

Back then, the “shale gas revolution” had turned into a crazy no-holds-barred land-grab and fracking boom that veered into overproduction and a “glut” – accompanied by a historic collapse in price. The US could not export its excess production due to export restrictions and the lack of major LNG export terminals. By April 2012, when the Japanese were paying around $17 per MMBtu for LNG on the world markets, natural gas in the US hit a decade low of $1.92 per MMBtu, and predictions that it would go to zero showed up in the mainstream media. That was the bottom.

But nothing can be priced below the cost of production forever. By Friday, natural gas was up 170% from the April 2012 low. Turns out, only a low price can cure a low price.

The low price caused demand to creep up.

Gas exports via pipeline to Mexico have been growing, especially since additional pipeline capacity went into service last year. Mexico is switching power generation from using its own oil to cheap US natural gas. This allows it to export its more valuable oil to the US. Ka-ching. But building gas-fired generating capacity is a slow-moving process.

Other exports are also moving forward – in people’s heads. There are pipelines between the US and Canada, but the US is a net importer. Exports of LNG are at this point still a pipedream, so to speak, though deals are being made, contingent on getting government approvals to export LNG. It’s going to take years before LNG can be exported in large quantities.

But the low price had short-term and structural impacts. Utilities dispatched electricity generation from their coal-fired plants to their gas-fired plants. And there have been structural changes: utilities have built gas-fired power plants and have retired – not mothballed! – their oldest, most inefficient, and most polluting coal-fired power plants. Global industrial companies have been building plants in the US for energy-intensive processes and for processes that use natural gas as feed stock. Even natural gas in transportation is picking up.

The low price destroyed the business model for drillers.

Thousands of unprofitable wells litter the land. Many billions were written off. Real money that had been recklessly thrown around during the boom disappeared into the ground. Investors were lured with false promises. The bloodletting in the industry was enormous. Some of the largest drillers have pulled back from drilling for dry natural gas. Most of the wells that are still being drilled are in fields that are rich in natural-gas liquids and oil, which sell for much higher prices and make wells profitable. Dry natural gas has become a byproduct. In the immensely productive Bakken shale-oil field in North Dakota, where gas occurs along with oil, 30% of it is flared – burned at the well as a waste product. The low price doesn’t justify building pipelines to haul it off.

But shale gas wells have sharp decline rates, and new wells need to be drilled constantly to make up for the decline in older wells. These days, not enough wells are being drilled, and production in all gas plays combined – except for the Marcellus – is already in slight decline. The only production boom left is in the Marcellus: the “shale gas revolution” in the US is now a one-pony show.

In January 2012, according to Baker Hughes, there were 143 rigs drilling for natural gas in the Marcellus – the most prolific parts of which are in Pennsylvania. Today, there are 86. But during the drilling boom, someone forgot to install sufficient pipeline infrastructure. So, wells were shut in, perhaps thousands of them, a giant reservoir waiting for takeaway capacity. That was 2012. Last year, part of a new pipeline network went into service, and bottlenecks were removed, and the gas started flowing to New York City and other places. Drilling is down. Production – the delivery of gas to the markets – is soaring!

How long can it last? Well decline rates in the Marcellus are as steep as elsewhere, and this sudden burst in production, if not supported by a new bout of drilling, will taper off as it has in other fields. And that’s today’s one-pony show of the US “shale gas revolution.”

Then cold fronts swept across the country.

These polar vortices, as they’re now referred to for additional flair, have caused demand for gas as heating fuel to spike to record highs. And more bitter cold weather is being forecast. Natural gas in underground storage dropped to 2,423 billion cubic feet (Bcf) for the weekending January 17. The last time storage levels were this low during an equivalent week was in January 2005!

At the time, gas was selling for $12 to $14 per MMBtu and hit an all-time high of $15.40 in December that year. But demand has changed. In 2013, demand was over 18% higher than in 2005; this year, it might be over 20% higher [my article from nine days ago…. Natural Gas Squeeze? “Panic hasn’t ensued just yet”]. 

And the big money has jumped into the fray.

For years, the favorite game was to short natural gas, playing the glut for all it was worth, a sport that has gotten very complex and, if you get the timing wrong by a few hours, very expensive. Some of the spike late Friday, and some of the action all week, was due to a hard squeeze on these folks – as the big money arrived en masse.

On Wednesday, the big money went public. As reported by MarketWatch, Citi analysts wrote that, “With tight fundamentals, $5 gas is not impossible.” What had been obvious for a while, showed up in the media: “Strong demand is expected to push gas inventories to very low levels with cold weather lingering.” And the price took off once again.

Now everyone is bent over weather data, trying to figure out what nastiness the winter will still serve up, and they’re betting on the weather because cold snaps happen relatively fast and are observable. Watching the fundamentals is like watching paint dry. But it’s the fundamentals that have changed the equation. The polar vortices are merely speeding up the calculus.

Natural gas is famous for its head fakes, unexpected plunges when it should rise, and inexplicable rises when it should drop. It’s being manipulated in a myriad ways. It’s always a bet on the weather, except when it’s not. It can turn around in a second and cause whiplash. It’s a seatbelt-mandatory commodity. And once every few years, there is a panic, and it spikes to dizzying highs.

While natural gas was soaring on Friday, and all week, the rest of the markets were tanking, with emerging markets “trading in full-blown panic mode.” What gives? Read….  A Teeny-Weeny Bit Of Taper, And Look What Happened

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Peak Oil Is Here Despite Industry Claims  |  Peak Oil News and Message Boards

Peak Oil Is Here Despite Industry Claims  |  Peak Oil News and Message Boards.

The oil industry wants us to believe that North America is sitting on an endless supply of natural gas and oil – and they want access to all of it.  But the truth is that there is barely enough fossil fuel in the ground to sustain the US. Ring of Fire’s Mike Papantonio speaks with author Michael Klare about how Peak Oil is still a very real threat.

Davos delegates warned of imminent oil crisis  |  Peak Oil News and Message Boards

Davos delegates warned of imminent oil crisis  |  Peak Oil News and Message Boards.

(Pic: Shell)

(Pic: Shell)

By Alex Kirby

A British businessman will tell world leaders meeting in Switzerland today that it is dangerous to argue that fracking for shale oil and gas can help to avert a global energy crisis.

Jeremy Leggett, a former Greenpeace staff member who founded a successful solar energy company, has been invited to the annual World Economic Forum meeting in Davos from 22 to 25 January. The theme of the meeting is The Reshaping of the World: Consequences for Society, Politics and Business.

Leggett told the Climate News Network: “The WEF likes to deal in big ideas, and last year one of its ideas was to argue that the world can frack its way to prosperity. There are large numbers of would-be frackers in Davos.

“I’m a squeaky wheel within the system. I’m in Davos to put the counter-arguments to Big Energy, and I’ll tell them: ‘You’re in grave danger of repeating the mistakes of the financial services industry in pushing a hyped narrative.”

This refers to the way in which banking leaders had “their particular comforting narrative catastrophically wrong, until the proof came along in the shape of the financial crash”.

Leggett founded Solarcentury, the UK’s fastest-growing solar electric company since 2000. He also established the charity SolarAid which aims to eradicate the kerosene lamp from Africa by 2020, and chairs the Carbon Tracker Initiative.

His book Half Gone: Oil, Gas, Hot Air and the Global Energy Crisis was published in 2005, and his latest, The Energy of Nations: Risk blindness and the road to renaissance, in 2013.

‘Sunset industry’

Leggett says the conventional oil industry is facing an imminent crisis, because existing crude oil reserves are declining fast, it is having to find the money for soaring capital expenditure, and the amount of oil available for export is falling.

“Big Oil is still extremely powerful and well-capitalised”, he says, “but it is fast approaching sunset. The profitability of the big international groups – like Exxon, Shell and BP – is a real worry for investors, and they’ve been largely locked out of the easy oil controlled by national companies – just look at BP and Russia.

“Gas? Unless the price goes up, the whole US shale gas industry is in danger of becoming a bubble, even a Ponzi scheme. All but one of the biggest production regions have peaked already, and losses are piling up. This is an industry that’s in grave danger of committing financial suicide.”

A linked message that Leggett will deliver is that there is a growing danger of a carbon bubble building up in the capital markets. He says investors who think governments may agree stringent and strictly-enforced limits on greenhouse gas emissions might decide their investments in oil and gas are at risk of becoming worthless.

Crunch next year?

There is little sign yet that such limits are likely any time soon. But Leggett says that is to miss the point: “You don’t have to wait until agreement is close, or even probable. You have to believe only that there’s a realistic chance of policymaking which means assets might be stranded.”

He will also tell his audience “to take out insurance on the risk of an oil crisis, by accelerating the very things we need to deal with climate change”. Chief among these, he says, is the need to channel funds withdrawn from oil, gas, and coal into clean energy instead – though he acknowledges that, as a renewable energy entrepreneur himself, he may be accused of self-interest.

Leggett fears a world oil crisis could occur as early as 2015. And when it comes, it will certainly mean “ruinously high prices”, for a start. But it will mean something more, he says.

Last December he worked with a US national security expert, Lt-Colonel Daniel Davis, to organise the Transatlantic Energy Security Dialogue. Leggett has a regard for the views of people like Davis. “The military are better than your average politician or consultant to Big Energy at spotting systemic risk”, he says.

Leggett says military think-tanks have tended to side with those who distrust “the cornucopian narrative” of the oil industry.

One 2008 study, by the German army, says: “Psychological barriers cause indisputable facts to be blanked out and lead to almost instinctively refusing to look into this difficult subject in detail. Peak oil, however, is unavoidable.”

RTCC

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