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»
Saudi Arabia’s decision not to cut oil production, despite crashing prices, marks the beginning of an incredibly important change. There are near-term and obvious implications for oil markets and global economies. More important is the acknowledgement, demonstrated by the action of world’s most important oil producer, of the beginning of the end of the most prosperous period in human history – the age of oil.
In 2000, Sheikh Yamani, former oil minister of Saudi Arabia, gave an interview in which he said:
“Thirty years from now there will be a huge amount of oil – and no buyers. Oil will be left in the ground. The Stone Age came to an end, not because we had a lack of stones, and the oil age will come to an end not because we have a lack of oil.”
Fourteen years later, while Americans were eating or sleeping off their Thanksgiving meals, the twelve members of the Organization of Oil Producing Countries (OPEC) failed to reach an agreement to cut production below the 30 million barrel per day target that was set in 2011. This followed strenuous lobbying efforts by some of largest oil producing non-OPEC nations in the weeks leading up to the meeting. This group even went so far as to make the highly unusual offer of agreeing to their own production cuts.
The ramifications of this decision across the globe, not just in energy markets, but politically, are already having consequences for the global landscape. Lost in the effort to understand the vast implications is an even more important signal sent by Saudi Arabia, the owner of more than 16% of the world’s proved oil reserves, about its view of the future of fossil fuels.
Happy New Year to readers around the world! For the past 5 or 6 years, I have begun the year by making predictions for the upcoming year in the energy markets. I am generally happy if I can hit on 60-80% of them. In 2014 I went 5 for 5, but I can say with a fair amount of confidence that this is a feat that’s unlikely to be repeated for 2015.
The reason for this is that I see a lot of uncertainty in the energy markets at this point. There are many changing variables right now, and the direction on several fronts is unclear. And if you look at some of the predictions others have made, that becomes obvious. I have seen predictions of $30 per barrel (bbl) oil and $100/bbl oil, and some suggesting that we would see both extremes. I have also seen people predict that oil production would decline in the U.S. after rising for 6 straight years.
Nevertheless, it’s time to take a stab at 2015. I will offer up my predictions, and explain the reasoning behind them. This year I am going to make 6 predictions. Note that understanding the narrative around the prediction can be more important than the prediction itself, because that can better prepare you for reacting to changing market conditions. CONTINUE»
There was an energy story that stood head and shoulders above all the rest in 2014, but no clear runner-up. After the #1 entry on the list below, the rest of the Top 10 is highly debatable. I don’t think there is a consensus #2 story, and I don’t believe there is a well-defined Top 10.
But I do believe there is a clear #1. Here are my choices for the Top 10 energy stories of 2014, followed by about 15 more that could have easily been on the list. Feel free to chime in with any major stories I have missed.
1. Crude oil prices collapse
On July 30, West Texas Intermediate (WTI) closed at $104.29 per barrel (bbl). The next day it suffered a sharp decline below $100/bbl. As the year comes to an end, WTI has dropped below $55/bbl. The last time oil was this cheap was during the global financial crisis six years ago. CONTINUE»
As the year expires and the new year arrives, there are several topics I like to cover in a series of articles. One is to review the top energy stories of the year. Another is to grade my predictions for the year. And finally, I lay out my predictions for the upcoming year.
Usually I have a dilemma of whether to grade my predictions first, or to lay out the energy stories first — because I normally do both stories at the end of the year, and something could potentially happen right at the end of the year that might change the narrative. For example, I might do the top energy stories this week, but what if something monumental happens in the next two weeks? The other option is of course to wait until after the first of the year, but then that delays my predictions.
This year, however, there isn’t much of a dilemma on which story to do first. I can grade my 2014 predictions at this point with a high level of confidence. CONTINUE»
As the year winds down, my next 3 articles or so are fairly predictable. One will be on the top energy stories of the year. As always, I would appreciate any suggestions from readers. Another is that I will grade My 2014 Energy Predictions. (Spoiler alert: I guessed pretty well this year). Finally, I will make predictions for 2015, while providing appropriate context for the predictions. I find the context is more important than the predictions themselves. I can make a prediction on the direction of oil prices, but if you understand the factors likely to drive the price in 2015, you can adjust your expectations accordingly as conditions change.
But this week I would like to post a new interview that I did with Jason Burack of Wall Street for Main Street. I have been asked many times in recent weeks for comments on what’s happening in the oil and gas markets. Here I lay things out as I see them in a wide-ranging 40 minute interview: