In my previous column – Is the U.S. Running Out of Crude Oil Storage? – I discussed the tightening crude oil storage picture in the U.S. That column has already generated the highest level of feedback and inquiries from readers and the media of any I have written in quite some time. So I want to follow up and drill down a little more, and show why this situation is more dynamic than is typically conveyed.
Since I wrote that article, there have been 2 more weeks of crude oil storage builds. Pundits continue to predict that crude oil prices have nowhere to go but down, because something has to give. Well, something is about to give. CONTINUE»
Update: See my latest article Crude Oil Inventories Should Peak Soon for an understanding of how important refinery utilization is in this picture.
No, despite the popular narrative that we keep hearing, the U.S is not running out of crude oil storage. Yet there are those who are predicting that oil prices are going to fall to $20 or $30 a barrel, pointing to the crude oil storage numbers and suggesting that we are near maximum capacity and therefore a price collapse is imminent. (Although Goldman Sachs did some backpedaling on their forecast this week).
The argument goes something like this: US running out of room to store oil; price collapse next?
“The U.S. has so much crude that it is running out of places to put it, and that could drive oil and gasoline prices even lower in the coming months. For the past seven weeks, the United States has been producing and importing an average of 1 million more barrels of oil every day than it is consuming. That extra crude is flowing into storage tanks, especially at the country’s main trading hub in Cushing, Oklahoma, pushing U.S. supplies to their highest point in at least 80 years, the Energy Department reported last week.”
At first glance, the argument seems to be pretty straightforward. But let’s dig into the data a bit. Admittedly, if you look at the storage numbers in the nation’s most important oil storage hub (and the price settlement point for West Texas Intermediate on the New York Mercantile Exchange) in Cushing, Oklahoma, it’s easy to form the impression that storage is filling up and an oil price crash is inevitable: CONTINUE»
In the United States, too often we think of the Caribbean as a very nice place to visit. Throughout our history, though, it has been far more important. Last week, ASP released a report looking at the unique challenges of energy security in the Caribbean. This will be the first of a series of articles showing the challenges faced in the region by energy insecurity, why that is important, and give some solutions.
The islands of the Caribbean have always been too small to control their own geopolitical destinies – they are blown by winds far from their shores: colonialism, slavery, or the Cold War.
Around the Caribbean was where the Monroe Doctrine, designed to keep Europeans from interfering in the Americas, was tested throughout the nineteenth and early twentieth centuries. It was where the U.S. first learned that it could be a regional and then global power on the world stage.
I will preface this article with my standard disclaimer on the Keystone XL Pipeline project: I have no vested interest in the pipeline either way. My interest is in fostering honest debate and discussion on energy policy, and because there has been so much distortion and outright lies related to the pipeline project, I have addressed the topic from time to time.
To reiterate, I don’t think it ultimately makes much difference one way or the other whether the pipeline is built. Not to the environment and not to energy security. I think the likelihood that this oil will simply be transported to market via other means (rail, other pipelines, and/or tanker) is vastly underestimated by Keystone XL opponents. I think the U.S. and the world will use about the same amount of oil with or without it. Refineries on the Gulf Coast will continue to run heavy Venezuelan crude if it isn’t built, which is what would be backed out in favor of heavy Canadian crude if it is built. That Venezuelan crude will continue to be transported via ship, and those have been known to spill oil. I think the risks of the pipeline have been vastly overstated by people who are generally unaware of the extent of the North American oil and gas pipeline system — and consequently how low the incident frequency actually is.
That summarizes what I believe are some of the misconceptions and misleading arguments from those who are arguing against the pipeline. But don’t mistake that as me lobbying for the pipeline. I don’t think I have ever said “We need this pipeline.” I will never be at a pro-pipeline rally. For most people who care one way or another, Keystone XL is just symbolic. The impact of building it — or not — is overstated by both sides. For those who are more interested in substance and who are concerned about the growing carbon dioxide inventory in the atmosphere — it’s going to come down to whether actions around Keystone XL can be leveraged into something much, much greater.
I do understand the core of the opponents’ arguments. Behind all of the misleading and false claims, it really boils down to one thing. CONTINUE»
I recently took a trip to Florida, which is home to both the American alligator and the American crocodile. Thanks to effective laws and effective enforcement of those laws, the alligator population has rebounded into the millions. They’re all over the place. In comparison, the crocodile population has rebounded from an estimated low of about two or three hundred to about 1,500. Crocodiles were never as common in North America as the cold-adapted alligator. The opposite is true in South America where there are no alligators. Click here to see a video I took several years ago of crocodiles in Costa Rica.
I tend to receive one or two guest submissions each week, most of which I pass on for various reasons. Either the submission isn’t topical enough, it has been republished multiple times elsewhere, I already have something scheduled, or it’s merely a front to generate traffic to a for-profit website that has nothing to do with energy.
This past week I received a submission that was original, well-written, and topical, although I had just published something. But I received the OK to wait until this week to publish it. The article was written by Elisabeth Wiebusch, a development consultant based out of New York who lived in Ghana for four years. She currently works on projects related to sustainability and energy in West Africa. I thought her article was educational, and because we spend most of the time talking about U.S. energy issues, I thought it would be a nice change of pace to shed light on the issues of another region of the world. So this week, Elisabeth discusses the challenges faced by Nigeria as they try to modernize their electricity grid. CONTINUE»
By now you have probably heard that a CSX (NYSE: CSX) train carrying Bakken crude from North Dakota’s shale oil fields derailed and caught fire. The oil was bound for a coastal oil shipping depot owned by the midstream Master Limited Partnership Plains All American Pipelines (NYSE: PAA) in Yorktown, Virginia. While the cause is still under investigation, the train was carrying 109 tankers of crude oil. 26 of the cars left the tracks, and several caught fire. Some reportedly ended up in a tributary of the Kanawha River.
Fortunately, there were no casualties from the accident, but one thing is certain: There will be more incidents like this, and it’s a matter of time before another incident like this happens in a more populated area. While there are safeguards in place to minimize the risks when these trains have to go through towns, the disaster in Lac-Mégantic, Quebec that claimed 47 lives emphasizes the risks of transporting flammable liquids.
Following the incident, someone asked me “Why do we transport something so dangerous via rail?” That’s a good question. Why do we do it? CONTINUE»
When I made my energy predictions for 2015, I made some very aggressive predictions. Perhaps the most aggressive was that the closing price of West Texas Intermediate would not fall below $40/barrel (bbl) in 2015. Why do I consider this a particularly aggressive prediction? Because on the day I made it, the price of WTI closed at $48.80, but in each of the previous three months the price of WTI had dropped at least $10/bbl over the course of the month. So if WTI had maintained the same downward trajectory, it could have easily ended January below $40/bbl. My prediction could have been proven wrong before we even got out of January, so I really stuck my neck out on that one.
It’s not that there is anything special about $40, and I acknowledge that it’s possible that we could overshoot. But I made the prediction to highlight my conviction that $40 oil simply isn’t a sustainable price in today’s world.
A number of respected pundits are projecting that we will go below $40/bbl, with some suggesting that crude could even crash all the way to $30/bbl. Last week on CNBC, respected oil analyst Stephen Schork said “I do think this is a dead cat bounce”, elaborating that at least over the next 2 to 3 months that there is too much oil supply relative to current demand. My point is that it has been a widely held belief that oil is going to fall below $40/bbl, so I am definitely on the wrong side of conventional wisdom on this prediction. That’s not a safe place to be, because when you are wrong in that case people think “Everyone read this correctly except for you.”
But I think conventional wisdom is wrong in this case. CONTINUE»
Back in 2007, Google assembled a team of engineers to investigate the feasibility of replacing fossil fuels with renewable energy. The effort ended in 2011 with the conclusion that it can’t be done with existing technology. Two of the engineers on that team wrote about their efforts in Spectrum IEEE.org. Some excerpts from that article:
Google’s boldest energy move was an effort known as RE<C [Renewables less than Coal], which aimed to develop renewable energy sources that would generate electricity more cheaply than coal-fired power plants do. The company announced that Google would help promising technologies mature by investing in start-ups and conducting its own internal R&D.
At the start of RE<C, we had shared the attitude of many stalwart environmentalists: We felt that with steady improvements to today’s renewable energy technologies, our society could stave off catastrophic climate change. We now know that to be a false hope—but that doesn’t mean the planet is doomed.
As we reflected on the project, we came to the conclusion that even if Google and others had led the way toward a wholesale adoption of renewable energy, that switch would not have resulted in significant reductions of carbon dioxide emissions. Trying to combat climate change exclusively with today’s renewable energy technologies simply won’t work; we need a fundamentally different approach.
So our best-case scenario, which was based on our most optimistic forecasts for renewable energy, would still result in severe climate change, with all its dire consequences: shifting climatic zones, freshwater shortages, eroding coasts, and ocean acidification, among others. Our reckoning showed that reversing the trend would require both radical technological advances in cheap zero-carbon energy, as well as a method of extracting CO2 from the atmosphere and sequestering the carbon.
We’re glad that Google tried something ambitious with the RE<C initiative, and we’re proud to have been part of the project. But with 20/20 hindsight, we see that it didn’t go far enough, and that truly disruptive technologies are what our planet needs. To reverse climate change, our society requires something beyond today’s renewable energy technologies. Fortunately, new discoveries are changing the way we think about physics, nanotechnology, and biology all the time. While humanity is currently on a trajectory to severe climate change, this disaster can be averted if researchers aim for goals that seem nearly impossible.
The key is that as yet invented sources have to be cheaper than fossil fuels. The problem is that existing scalable low carbon energy sources (nuclear and renewables) are all more expensive than fossil fuels, which I’ve been pointing out for years. They make a stab at explaining why wind and solar are more expensive but trust me, their explanation will largely fall on deaf ears when presented to renewable energy enthusiasts who either don’t want to hear it or are incapable of comprehending it. They argue that subsidies for renewables and nuclear to compete with fossil fuels are essentially a financial penalty to fossil fuels which simply shift their use to another part of the planet (export of oil, gas, and coal, along with manufacturing jobs).
In the past few weeks I have received numerous questions about the role of a “drop in demand” in the oil price decline. These questions are driven by many stories in the media that have referenced a drop in demand.
There are two primary reasons given for this so-called demand drop. One is that years of high oil prices have resulted in reductions in consumption through conservation and improvements in vehicle fleet efficiency. The second reason is due to the strengthening dollar, oil has become more expensive for many countries since oil is generally traded in dollars.
There are elements of truth behind both reasons. There has indeed been reduced oil consumption in recent years in most developed regions of the world. It is also true that the dollar has strengthened against many currencies. But despite the rationale that explains this drop in oil consumption, ultimately the data must support the narrative. CONTINUE»