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By Robert Rapier on Dec 27, 2013 with 11 responses

The Top 10 Energy Stories of 2013 (#6-10)

Tags: Top 10

In the previous article, I presented my choices for articles that almost made my Top 10 Energy Stories of 2013. In the next two articles I will present my choices for the Top 10. The rankings are mostly in no particular order.

6. The year in coal

The US coal industry has been in decline for several years. The primary factors behind the decline are competition from cheaper and cleaner natural gas, and increasingly stringent government regulations. This year the EPA published draft regulations for new coal-fired power plants that will likely be economically impossible to meet.

For years the coal industry has suggested that economical carbon capture and storage technologies would come along shortly to save the day. But this year the Norwegian government abandoned support for a project that was supposed to demonstrate carbon capture and storage on commercial scale.

US coal producers have been battered as a result. Leading coal producers Peabody Energy Corporation (NYSE: BTU) and Arch Coal Inc (NYSE: ACI) saw their share prices decline by another 30 percent and 40 percent, respectively, in 2013. This was on top of steep declines in 2011 and 2012 that have seen the total market capitalizations of BTU and ACI decline by 71 percent and 87 percent over the previous three years.

No country in the world has decreased coal consumption as much in recent years as has the US. This explains the declining fortunes of coal companies with significant operations in the US. But no country has increased coal consumption as much as China. In fact, were it not for China, global consumption of coal would have decreased over the past five years. Instead, the world continues to set new records for coal consumption.

The US has 28 percent of the world’s coal reserves — the largest share of any country. Given declining US consumption, US coal producers have stepped up exports, and are seeking to expand coal export capacity from the Pacific Northwest to tap into Asia’s growing consumption.

However, there are many obstacles in place, both domestically and internationally. Domestically, environmentalists will pull out all the stops in trying to prevent this coal from being exported. Internationally, Southeast Asia is a very competitive market given the proximity of major coal exporters Australia and Indonesia. Australia is the world’s top coal exporter, with nearly 90 percent of its total exports destined for Japan, China or South Korea.

7. Iran makes a deal

Iran reached an agreement with world leaders to limit its nuclear program in exchange for lighter economic sanctions. The deal freezes or reverses progress at Iran’s major nuclear facilities, halts the installation of new centrifuges used to enrich uranium, and caps the amount and type of enriched uranium that Iran is allowed to produce. In return, Iran will get $4.2 billion in frozen overseas assets back, and sanctions reductions worth about $1.5 billion. The White House reported that $4.2 billion from new crude oil sales “will be allowed to be transferred in installments if, and as, Iran fulfills its commitments.”

In the wake of this deal, some pundits speculated that Iran’s nuclear deal could push oil prices down and threaten the US shale oil boom. But the oil markets don’t operate in a vacuum. What Iran does will impact what Saudi Arabia does, and as each of those OPEC members makes its moves the developing world will continue to increase its demand for oil. Thus, while this deal will increase the amount of available exports, there are supply and demand factors (e.g., OPEC cuts and increasing demand in developing countries) that can easily offset the amount of oil Iran can add to the market. Saudi Arabia will ensure that those supplies aren’t a net addition to the market. Rather, any signals that Iran is ready to cooperate with the world community may take some of the fear premium out of the price of oil.

8. US carbon emissions plummet

The Energy Information Administration (EIA) confirmed what the BP Statistical Review first noted, that US carbon dioxide emissions fell by nearly 4 percent in 2012. The IEA reported that US carbon dioxide emissions fell to the lowest level since 1990, even as global carbon dioxide emissions hit a new high in 2012. The US EPA released a report stating that US carbon dioxide emissions are down 7% since 2005. The primary reason for the decline has been utilities switching from coal to natural gas, which produces fewer carbon dioxide emissions per unit of energy produced. However, there are signs that some utilities are switching back with the recovery in natural gas prices, and many believe that the ongoing drop in US carbon emissions will soon reverse direction.

9. Opening the Arctic

The year opened with one of Shell’s two Arctic drilling rigs breaking free from a tow ship and running aground off the coast of Alaska. Shell sent the two Arctic drilling rigs to Asia for extensive repairs. This event prompted more calls for restrictions in opening up the Arctic to oil exploration. Shell wants to try again in 2014, but Senate Democrats are asking for a delay on further oil exploration in the Arctic.

Nevertheless, oil companies rushed to the north to explore for oil. Norway awarded 24 oil and gas exploration licences to 29 companies, mostly in the Arctic Barents Sea. The licenses were scooped up by international majors like Royal Dutch Shell, BP, ConocoPhillips, Total and Statoil, which the Norwegian government hopes will revive Norway’s falling oil production.

Other Arctic nations are also pushing forward with plans for oil exploration. Russia has aggressively defended its interests there, seizing a Greenpeace ship and detaining its crew after the group attempted to interfere with Russia’s Arctic drilling.

10. A Bad Year for Cleantech VCs

Over the past few years venture capitalists (VCs) have made some very aggressive bets on cleantech. Many of these VCs had made fortunes in the Silicon Valley computer industry, and were confident that a combination of Silicon Valley genius and Moore’s Law quickly lowering cost curves would be the key to their success. Firms like Kleiner Perkins and Khosla Ventures bet big that cleantech would be the next huge wave.

The problem with that is the computer industry and the energy industry are apples and oranges. A VC may be able to afford to fund 50 guys working out of a garage for less money than it takes to build 1 advanced biofuel demonstration plant. As Vinod Khosla is found of saying, VC has lots of misses and a few big hits. But when you are dealing with the energy business, those misses can add up to hundreds of millions to billions of dollars, and sooner or later you start to run out of other people’s money.

The decision to invest in cleantech has been cited as the reason behind Kleiner Perkins’ well-documented fall from grace. While the losses suffered by Kleiner Perkins aren’t public record to my knowledge, some of Vinod Khosla’s are because they involve companies that he took public.

In 2011, Khosla took public Amyris (NASDAQ: AMRS), Gevo (NASDAQ: GEVO), and KiOR (NASDAQ: KIOR). Each of these companies started out trading higher from their IPO, with Amyris gaining more than 90 percent at one point. But the challenges of producing fuels from biomass began to mount, and investors realized that this business is capital intensive. Investor enthusiasm for these companies dissipated as production expectations failed to be met.

Since their respective IPOs, Amyris, Gevo, and KiOR are down 79 percent, 92 percent, and 89 percent. KiOR’s steepest declines took place this year after the company failed to meet production expectations, with the company falling 75 percent in 2013 and warning of possible insolvency if they fail to get additional funding. Investors in just these three companies have seen the combined market capitalizations fall by over $3 billion. With a large ownership share in each company, Vinod Khosla, Khosla Ventures, and his associated funds have undoubtedly suffered enormous losses.

There were a few bright spots in the sector. Notably, Tesla Motors (NASDAQ: TSLA) saw its share price rise by 470 percent between January and October, before recently pulling back to a year-to-date gain of 324 percent. The company’s Model S sedan received a 5-star rating for safety overall and in every subcategory by the National Highway Traffic Safety Administration (NHTSA). This represents the highest designation given by NHTSA. Tesla also beat Wall Street expectations in recording two profitable quarters, aided by the sale of zero emission vehicle tax credits. Finally, the company paid back government loans earlier, silencing many naysayers who expected them to default as fellow electric car maker Fisker Automotive had done.

I will have the rest of the Top 10 out early next week.

Link to Original Article: Part 1 of the Top 10 Energy Stories of 2013

By Robert Rapier. (You can find me on Twitter, LinkedIn, or Facebook.)

  1. By Eric on December 27, 2013 at 2:57 pm

    Hi Robert,

    I’ll throw out another honorable mention candidate that I hope makes it into the top 5: The EPA proposed 2014 RFS standards. The big change for biofuels is the new cellulosic ethanol threshold of 17 MM gallons versus the former 1.75 B gallons. There is going to be a large impact to the cellulosic ethanol industry – which will start commissioning the first (commercially viable?) plants in 2014. The 2014 volume of 2nd generation ethanol required under the RFS will be less than the capacity of a single plant that is being constructed to meet the RFS. POET’s Project Liberty is expected to commission at approximately 20MM gal/yr.

    It’s a big win for refiners who now (correctly) don’t have to buy RINs for a product that doesn’t exist. It will, however, throw a lot of projects into disarray if the demand-side remains in question.

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    • By Robert Rapier on December 27, 2013 at 6:26 pm

      Eric, it’s in my Top 5. I have it at #3, with a lengthy explanation of the relevant issues.

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    • By Forrest on December 28, 2013 at 1:31 pm

      The EPA has a good handle of cellulosic production for ’14. Those plants scheduled to start next year and won’t achieve annual capacity. The RFS will still pull production in future years, but based on real numbers. Waste ethanol a bright spot, given the added bonus of disposal tipping fee. Watch Poet’s production cost. They seem to have an ideal logistic situation. If they need the high sale price incentive per direct production costs, well, cellulosic ethanol future not very formidable.

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  2. By Russ Finley on December 28, 2013 at 12:24 am

    Nice … looking forward to the top five.

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  3. By Forrest on December 28, 2013 at 2:25 pm

    Coal is a conundrum. The U.S. is abandoning the fuel per EPA regulations, yet the growing economies of India and China will gobble up the low cost fuel on a scale dwarfing past history. Also, they will burn the coal with little pollution control technology, spewing raw coal smoke. So, what Robert blogged, the EPA costly regulations a futile attempt to improve international waste stream of coal. So, would we be more effective upon coal pollution to develop low cost efficient plant technology to minimize the harm of coal power, knowing emerging economies will not invest without good payback?
    Also, the technology and capability for coal plant pollution control a mystery for most. So much political posturing to either promote or kill the fuel. Remember Algore wiping his white shirt with coal chunk to prove the fuel was dirty. Ugh, let’s stop that silliness. I’ve read articles of the continued improvement of waste steam limiting the most harmful to less than 5% as compared to raw smoke stack. It would be nice to have an inside story of coal plant technology and the regulation industry. What is the cost vs benefit of affordable technology and how to update old plants. Also, it would be nice to understand if the business as usual environmental shenanigans the culprit to
    prevent improvement. Meaning corrosive regulations designed to deter updating plant equipment per the regulatory process and permitting, thus tying up coal
    improvement for political gamesmanship. I read of Minnesota power plants utilizing lime dust to scrub pollutants to trace quantities, in addition lowering CO2 stream by 40%. So, if were honest brokers of improving environment why on earth don’t we scrap out or update the entire fleet of coal plants to this best in class and affordable technology. Why can’t we build new plants with this technology and export technology to China and India? My guess…underhanded environmentalist regulations that desire to kill coal future.

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  4. By Russ Finley on December 30, 2013 at 2:06 am

    PissedOffAmerican said:

    It would be wonderful if this kind of shoe horning was not such a typical response towards those of us that simply want to understand the pros and cons of Nuclear AND renewables.

    …in response to this sentence:

    “Let me turn that question around. Why is there such criticism from you pro-renewable folks?”

    It certainly wasn’t my intent to accuse you of being a party to some sort of movement. It never crossed my mind that you were accusing me of being a party to some sort of movement when you used those words.

    I was just borrowing your sentence “Why is there such criticism from you pro-nuke folks?” to suggest that a lot of the critique seen of renewables is a defense in response to critique of nuclear. An example would be me showing someone how expensive it is to put solar on a house to someone who just said that nuclear is too expensive. Like I said before, would that be a critique of renewables, or a response to a critique of nuclear? You will often see the pot calling the kettle black in these debates.

    You all need to realize that the message coming out of Fukushima, even from the actual TEPCO website, ain’t exactly instilling confidence in your industry or the science.

    I always try to put things into some kind of perspective by comparison. There used to be

    DO NOT ENTER THE WATER
    DO NOT LAND OR LAUNCH BOATS
    NO SWIMMING
    NO FISHING
    NO WADING
    THE LAKE SEDIMENT CONTAINS HAZARDOUS SUBSTANCES

    There are several super fund sites, some about the same size as the Fukushima reactor site, a few miles from my home. From the EPA:

    Once in the environment, PCBs do not readily break down and therefore may remain for long periods of time cycling between air, water, and soil. PCBs can be carried long distances and have been found in snow and sea water in areas far away from where they were released into the environment. As a consequence, PCBs are found all over the world. In general, the lighter the form of PCB, the further it can be transported from the source of contamination.

    PCBs can accumulate in the leaves and above-ground parts of plants and food crops. They are also taken up into the bodies of small organisms and fish. As a result, people who ingest fish may be exposed to PCBs that have bioaccumulated in the fish they are ingesting.

    PCBs have been demonstrated to cause cancer, as well as a variety of other adverse health effects on the immune system, reproductive system, nervous system, and endocrine system.

    The EPA lists over 400 known carcinogens in our environment. The fears over the carcinogens related to Fukushima are overblown.

    We are three years in on this Fukushima thing …

    It has taken decades to clean up these super fund sites, and none of them are nuclear related.

    …and to a layperson like myself it seems its getting worse, not better.

    Of course they will eventually get it cleaned up. The lay press needs to sensationalize things to attract readership from their competition to stay solvent. It’s a necessary evil for them. Like the super fund sites I mentioned, it’s just a matter of time and money. The press will soon forget about Fukushima, especially after it is finished cleaning up. They very quickly forgot about the 28,000 killed by the quake.

    …that sure as hell ain’t gonna help you reach anyone standing on the fence trying to decide which way to jump.

    That’s an all important point you just made. Renewables can’t do it all if you are to believe the National Renewable Energy Lab. There is going to be a mix. Once we max out the amount that renewables can do, there is only one weapon left to minimize the amount of coal, natural gas, and oil in that mix. Certainly, if the NREL is wrong, then we should start by eliminating coal with renewables. If successful, move on to oil. If successful, move on to natural gas. If successful, move on to nuclear. Eliminating nuclear ahead of fossil fuels makes no sense.

    I don’t have to worry about awakening to the sounds of a klaxon alert telling me to get the hell out of dodge

    I grew up in the Midwest. I can’t tell you how many times we took shelter when the klaxons sounded a tornado warning or alert. 40,000 Americans will die on the roads this year. The odds of anyone having to evacuate because of a nuclear power plant failure is very, very, very low. We now know from the three nuclear incidents in the last half century that the simple act of moving people out of the way of a potential radiation plume prevents anyone from being killed.

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  5. By MikeH123 on January 3, 2014 at 2:40 am

    Also, clean tech was never an emerging industry like computers. There was never any breakthrough technology opening up new frontiers. Cellulosic ethanol and wind are actually mature technologies after many years of trying. The US government has foolishly tried to force technological breakthroughs with mandates, subsidies, grants and loans on the commercial scale (like it was some sort of race to space). But, unlike the wind industry, cellulosic ethanol failed because they were unable to hide their subsidies as tax write-offs and indirect costs (transmission and backup). Subsidize cellulosic ethanol to the extent that they do wind power on a massive scale and it will be another huge success story for 2014. Who cares if the nation goes broke?

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  6. By Moiety on January 13, 2014 at 9:15 am

    Robert

    Schalk Cloete who posts at the energy collective did a calculation where he showed that the contribution to CO2 reduction from solar compared to CCS were similar. What do you think?

    http://theenergycollective.com/kgrandia/305646/carbon-capture-and-storage-coals-pipe-dream#comment-97811

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    • By Robert Rapier on January 13, 2014 at 10:04 am

      Seems pretty likely. I have yet to see a CCS scheme that I thought had a good chance of working based on the economics. Far better in my mind to use alternatives that don’t have all those stack emissions to deal with.

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