More Green From the Golden State

December 11, 2008

green-energyOn December 5th, as is customary for his post, California Governor Arnold Schwarzenegger powered up the lights for State Capitol Christmas Tree. What makes this years tree-lighting  especially noteworthy is the use of a hydrogen fuel cell. Energy-efficeint LED bulbs are being powered by clean energy.

Said Schwarzenegger, “California leads the nation in energy efficiency standards. Once again, California is a pioneer in protecting our environment with this tree, which is powered entirely by a clean, zero-emission power source.”

In Anaheim, Disney is working to prove the Governor’s statements true, having recently revamped it’s classic submarine ride, substituting magnetic cols for steam power, and colorful, recycled glass for paint.

The quality of the show is still the number one priority for the employees of Disney, as stated Frank Dela Vara of Disneyland Environmental Affairs. “Our culture is that we want to be very careful about those pieces that we put on stage, and we don’t want to take that feel of the show away from the guests.”

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Don’t be Caught by an Oil Investment Scam

December 1, 2008

Oil & Gas Investment Scams
It is a sad fact of life that where ever an investment opportunity is presented there is also likely to be a variety of people trying to scam you out of your investment money – and oil and gas investment is certainly not immune. We at Energy Exchange have heard many an unhappy tale regarding such scam artists and, therefore, we are happy to see that the U.S. Securities and Exchange Commission has a page on their website dedicated to informing the unwary investor just what to look out for when it comes to scam oil and gas investments.

The site can be seen at http://www.sec.gov/investor/pubs/oilgasscams.htm
They list the various items that should raise a red flag to any potential investor including sales pitches, unsolicited materials, offers of high rates of return. They also offer advice about how to research a company before you invest with them. Knowledge is power, as they say. Don’t let the scam artists win, or put you off from investing in legitimate oil and gas opportunity!

Big Oil Companies May Buy Out Small Producers

November 24, 2008

 

 

USA Crude Oil Production 2005

Crude Oil Production 2005

Now here’s an interesting dilemma. Everybody is all fired up to “drill, baby, drill” so that we don’t have to spend so much money buying the foreign stuff; prices are high so there is lots of incentive to invest in new production; there’s lots of diversity in terms of large and small producers; and the lifting of restrictions of offshore drilling means new territory to be explored. And then the the price falls. . . 

“Altogether, the nation’s roughly 5,000 independent operators account for 68 percent of oil and 82 percent of the natural gas produced in the U.S., according to the Independent Petroleum Association of America”, to quote an article by CNN on Friday (see full report here).  But, the report goes on to highlight, with the price of crude falling to below $50 a barrel, and combined with the difficulties of obtaining credit because of the financial crisis, and suddenly all that drilling doesn’t look quite as attractive as it did a few weeks ago. An interesting potential side effect is that the combination of falling prices and tight credit could lead to many of the smaller operators being swallowed up by the big boys.

We are all aware of the record profits made by the big oil companies in recent months and this means that they have fairly hefty cash reserves on hand. There are also a lot of small producers who have readily exploitable land-based properties but who are struggling to find the finance to work their claims. Now, for the large, cash-rich companies these small land-based properties might become quite an investment bargain when compared to something like the costs of exploring new territories offshore. Even Chesapeake, America’s biggest gas producer has been cited by CNN as a potential BP target. It will at least mean that those territories will be worked whereas under the small producers they may not have been, the article concludes, but much is going to depend on how long those prices stay that low, and how quickly the big boys act in the meantime.

Falling Gas Prices Feel Good But Are Stifling Small Operators and Innovation.

November 17, 2008

Small investors support stripper wells
T. Boone Pickens has certainly been doing the rounds of the talks shows this past week. Not only was he on Meet The Press on Sunday but he was also talking to Jon Stewart on The Daily Show only a couple of days earlier, no less. One point he made very succinctly was that although the current low prices at the pumps are making us all feel good about filling up our SUVs it is having a damaging effect when it comes to innovation in renewable energies, and also making many of the small independent operations in the U.S. economically inviable.

In a very interesting article by Andy Vuong for the DenverPost.com,  Andy highlighted the plight of the nations ‘stripper’ wells. A ‘stripper’ well, whether it be drilling for oil or gas, is defined by the federal government as producing not more than 15 barrels a day. What I hadn’t realised is that these small stripper operations account for as much as 18% of U.S. domestic oil production and 9% of natural-gas production, whilst supporting as many as fifty thousand jobs nationwide. Many of these small operations are supported by small, non-operating investors and while oil prices were high they were a worthwhile investment. The problem for many of them now is that with prices falling once again, while costs and environmental regulatory requirements are increasing, they very soon become economically inviable.

The other problem falling prices create, as T. Boone Pickens highlighted on Sunday, is that they stifle both the determination and the investment needed to stimulate the progress towards renewable energy. One example is Picken’s plan for the world’s largest wind farm. While natural gas prices were high ($12 per million BTU in July), replacing the money the U.S. spends on foreign oil with wind power was feasible. But with prices now down to $6 per million BTU the returns are not high enough to warrant the investment. Mr. Pickens thinks that crude oil prices will be back to $100 within a year. Ironically, higher oil prices will not only be be better for the small domestic oil and gas operations, it will be better for the country as a whole. As Picken’s keeps reminding us, dependence on foreign oil is a security issue. Whatever the short term economics, the U.S. has to move towards replacing its dependence on foreign oil with its own supplies of clean renewable energies. We will always need oil as well, even if it is not to run our cars or heat our homes. Hopefully prices will recover quickly enough to retain a good mix of small to medium-sized oil and gas operations across the U.S. One thing we don’t need is another 50,000 people out of a job at this time!

World Energy Outlook Report Released Tuesday

November 10, 2008

WEO Fossil Fuel Demand to 2030 Reference Scenario
The 2006 Report by the World Energy Outlook (WEO) was released on Tuesday by the International Energy Agency (IEA) which laid out two alternative paths down which future world energy supply could end up going – “under-invested, vulnerable and dirty; or clean, clever and competitive.” The IEA is quite clear that the demand for emissions-generating fossil fuels needs to be curbed if catastrophic climate change is to be avoided. In what it calls its ‘Reference Scenario’ whereby it outlines the energy situation up to 2030 if no action is taken by governments, it projects that energy demand is likely to increase by as much as 53%, due mainly to the emerging markets of countries like India and China. Needless to say, carbon emissions increase by a similar percentage during that same period.

The IEA also forecasts that increasing demands for oil and gas is likely to be met largely by the big OPEC oil producing countries with supply from the rest of the world ‘plateauing out’ by 2015 or so. This, as now, leaves western countries with a high dependency on oil vulnerable to huge price increases should there be any major disruptions to supply. Increases in demand globally can only accentuate that vulnerability.

However, such a scenario is not inevitable the report goes on to say. The IEA’s ‘Alternative Policy Scenario’ goes on to show how with a few relatively cost-effective government measures designed to curb emissions and to enhance energy security the scenario above can be avoided. Energy efficiency measures and alternative energy supplies aimed at reducing demand for fossil fuels are the key. The report says that if the world’s energy demand can be reduced by just 10% by 2030 it will help to reduce emissions globally by as much as 16% in the same period – that is an amount equivalent to the total outputs of America and Canada combined.

The real risk, the WEO identifies, is under-investment in alternative energy supplies. The report says that as much as $20 trillion will be required to undercut the Reference Scenario predictions in that period between now and 2030. Most of that, as we have highlighted before, is needed in the developing countries. Personally, I think the election of Barak Obama on Tuesday was probably the single most important event in moving towards the goal of achieving that Alternative Policy Scenario. If government policies are to be the determining factor in this success or failure scenario then having such an important proponent of alternative energy, and someone not ‘owned’ by ‘big oil’ is a huge leap forward.

Low Oil Prices Put Production Investment at Risk

November 3, 2008

 

OPEC to cut production by 1.8m barrels to curb price fall
While many of might be giving a sound hurrah as we stand at the pumps filling up our gas-guzzlers, the falling price of oil has many of the world’s leaders and oil company execs worried. The big problem is that such a sudden collapse, and with such a volatile market, many of the planned production projects aimed at expanding the supply of oil to meet future demands have become economically inviable. Such was the concern of OPEC members as it argued for a cut in production of nearly 2 million barrels a day in order to stabilise price levels. Carola Hoyos of the Financial Times quoting their communique of last week – “Oil prices have witnessed a dramatic collapse – unprecedented in speed and magnitude – with these falling to levels which may put at jeopardy many existing oil projects and lead to the cancellation or delay of others, possibly resulting in a medium-term supply shortage.”

One problem is that many of the world’s current oil production areas are ageing and in decline, especially in Russia. Russia is one of the world’s largest oil exporters and although they have introduced tax incentives to encourage companies to invest in new production, many analysts are being reported as saying that it is “too little, too late.” 

What is also likely to be in jeopardy is investment in some of the large alternative energy projects being planned. For example, Hoyos cited Royal Dutch Shell which is pulling out from its proposed investment in the ‘London Array’ project – the world’s largest offshore windfarm, and has instead decided to look at onshore wind energy on the U.S. mainland which is far less risky.

In a study by the IEA due out next month, it is estimated that $360 billion  per year will need to be invested in oil production if future demands are to be met. Iran is a classic case where it has great reserves of oil but it’s nationally controlled oil companies don’t have the technical capability of maintaining its infrastructure. Much of the investment would need to be directed at such countries, but with the price of oil so low it is much more difficult to get the kind of investment funding required.

Energy Mercantilism Undermines Market Pricing on Oil

October 27, 2008

 

Energy Mercantilism Undermines Market Pricing on Oil
In a recent  White Paper report for ‘Investment U’ by Stewart Miller and the Investment U Research Team, they highlighted that changes in the way that governments are buying and selling oil could destabilize the the price of crude oil. Largely, these changes are taking place within the mainly new and large markets of countries like China, Russia and India and what they are doing is bypassing the traditional distribution networks such as the New York Mercantile Exchange (NYMEX). The report goes further by saying that by buying the oil directly from oil-producing countries instead of through these traditional exchange networks, these networks are being severely undermined. In what has come to be termed ‘Energy Mercantilism’ huge quantities of oil are not appearing on the open market at all. What this means is that the forecasts of crude oil prices and oil allocation traditionally based on the free market are “in danger of extinction, and with them competitive consumer prices for U.S. consumers”.

In one example from the report it states “- In Russia, Vladimir Putin has been squeezing Europe by withholding supplies of natural gas while negotiating for exclusive pipeline deals. In 2003, he dismantled the Yukos oil group who had expanded dealings with the West. He has explicitly stated that Russia will demand bilateral long-term supply contracts with consuming nations, so Russia could guarantee stable demand for its exports”. (Er – isn’t that what Walmart does?)

The problem is that for every new barrel of oil discovered the world uses 4 existing barrels. Once India and China’s oil consumption increases towards that of the western developed nations it is not difficult to see that demand is going to outpace supply. That is why countries like China have been doing long term deals with countries like Iran. Because this new Energy Mercantilism locks in supplies at set prices the whole dynamics of the energy marketplace as it stands will be fundamentally altered. Already a Council on Foreign Relations task force is warning that despite efforts to increase alternative energies it is unlikely that the U.S. will achieve energy independence anytime soon and that measures to conserve gasoline, including higher taxes and even rationing, may need to be implemented.

The problem for me is that this sounds too much like the usual Bush/Cheney scare tactics. I know the Council on Foreign Relations is supposed to be non-partisan but I would rather wait a couple of months for a more measured and reliable view from the new administration. No-one can possibly still think that consumer habits don’t have to fundamentally change when it comes to gasoline use but informed opinion seems to think that U.S. gas supplies can sustain us until alternatives are developed. The other question that sprang to my mind when I read the report was ‘If everyone else is securing direct supplies why doesn’t the U.S.’? Oh yes – silly me – that would mean that you had to talk to people who don’t like you, wouldn’t it! China was quite happy to talk to Iran and it is now they that have secured long term supplies of oil for their country. Unfortunately, America’s hawkish foreign policy over the last 50 years is now coming back to bite them in the ass! America no longer needs to fear Communism – only Capitalism it seems. Oh the irony! As far as investing is concerned, what it does mean is that any oil projects taking place here in the U.S. would be well worth investing in.

OPEC Calls Emergency Meeting as Oil Prices Tumble

October 20, 2008

OPEC Emergency Meeting to Discuss Production Investment
As oil prices fell to below $70 a barrel, a price that hasn’t been seen since June 2007, the Organisation of Oil Exporting Countries (OPEC), has decided to move its scheduled Nov 18th meeting up to next Friday, 24th October. What worries them is that the widely fluctuating price of crude belies an underlying instability in the market and that the sharp decline in price is going to seriously affect the investment in new production necessary to the supply of future demands. The agenda for the meeting is expected to include discussions on reducing OPEC member’s production by about 1 million barrels per day in order to stem the price fall.

Interestingly, from a historical perspective, oil prices seem to have fluctuated wildly ever since oil production began, and is only belied by a couple of brief periods of stability both before the Second World War and then again after it up to the 1970s. Apart from those brief interludes the oil markets have always followed a cycle of boom and bust. For a great historical overview of the fluctuations of the oil industry have a read of T. Carlisle’s excellent article in The National – http://www.thenational.ae/article/20081018/
BUSINESS/130308948/0/LATESTNEWS

One thing seems very clear though, if prices fall to the low levels of the late 1990s then a lot of oil producing countries are going to be in trouble. Several countries need the price of a barrel of crude to remain within the price range of $55 – $95 per barrel just to balance their budgets, including Saudia Arabia at the low end, and Russia, Iran and Venezuela at the higher end of that scale. One of the big problems of past downturns was that it caused insufficient investment in production capacity to cater for the later increases in demand, one of the reasons for the extreme highs seen recently. This is one problem the industry is determined to prevent for happening again, and will be high on the list of subjects to discuss at Friday’s OPEC meeting. I’m sure many people will be watching that one closely!

For a full discussion of the upcoming OPEC meeting see Jad Mouawad’s article in the International Herald Tribune – http://www.iht.com/articles/2008/10/16/business/oil.php?page=1

Most Important Year for Solar Power Expo

October 13, 2008

Solar Power International Expo 08
This week San Diego hosts the largest solar energy Expo ever held – Solar Power International 08, running through 13th – 16th October. Coinciding with Solar Energy Week, this 5th annual conference and expo promises to be extra special. Congress has just passed legislation eliminating both the residential cap on residential solar systems and the utility exemption, while giving a further 8 year extension of the federal investment tax credit for solar energy. This sets the grounds for a massive expansion on an industry that has already grown steadily over the last 10 years by as much as 40% per year.

As many as 20,000 people are expected to attend the event where over 400 exhibitors will be displaying every conceivable part of the solar industry. Although the conference and expo have traditionally been more of an international business to business networking event, more emphasis is being placed on the general public this year so that they can get a better understanding of the great possibilities which lie ahead. For example, “Public Night” on the evening of October 15, will give the public a chance to access the Solar Power International expo floor, and on the 18th there will be a ‘Tour of Solar Homes’.

Julia Hamm, executive director of SEPA and chair of Solar Power International said, “The companies and organizations participating in Solar Power International ’08 are offered the ideal forum for learning and networking to discover new partnerships and revenue opportunities that will lead to the expedited expansion of an industry that can be such an important part of the nation’s economic recovery.
More details about the conference and expo, including interviews with industry experts, can be found at the Solar Power International website – www.solarpowerinternational.com

Will Credit Crisis Affect Candidates Energy Policies?

October 6, 2008

Obama, McCain Energy Plan affected by credit crisis?
The problem for both campaigns is the increasing doubt over whether their plans are now going to be drastically delayed, or if they are affordable at all given the current economic crisis. The lone voice on energy still seems to be the nightly adverts from T. Boone Pickens. I think it is safe to say that all sides agree that one of the key priorities by all concerned is to reduce the country’s dependence on foreign oil, and that clean, renewable energy is an important element of any plan. The only problem is that such a plan requires huge amounts of capital investment, on the sort of scale that only the government can manage. However, if the government is strapped for money and there is no movement in the credit markets where is the money supposed to come from. Obama certainly sees clean energy as the engine of a new ‘green-tech’ economy and, what with increasing concerns over the damaging effects of global warming, and with 5 million projected green-tech jobs being created by it, this is one area of Obama’s future plan that he couldn’t conceivably forestall. Part of the recent bailout bill did include tax breaks for companies building solar panel installations which could give that particular industry a initial boost.

The keystone of McCain’s energy plan is the building of 45 nuclear power stations by 2030. The price tag for this would be $6 Billion per power station, much of which, again, would have to come from the government rather than Wall Street. No doubt the “Drill Baby Drill” part of his plan would be greatly stimulated by the $4 Billion tax cuts he wants to give to the big oil companies but most experts not only can see that this wouldn’t do anything to help the domestic problem of price increases, even after the ten years it would take to get that oil flowing, but that also it is not going to address the “addiction to oil” problem – only extend it.

“The challenge for the new president is to “reduce reliance on foreign oil, address high fuel bills and stimulate the economy on a tighter budget”, says Mark Harrington of Newsday.com

“There’s no better time than now to start building more low-emission transportation, wind and solar,” said Ashok Gupta of the Natural Resources Defense Council, a national environmental organization. “Worrying only about the higher cost was “narrow thinking” in light of potential benefits . . . we have to look to technology, energy efficiency and renewables to be the answer,” he said. “That’s the only way – to invest our way out of the [economic] problems.”