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:
Back in February, I wrote an article called Natural Gas Inventories are Headed Toward Zero. The purpose of the article was to call attention to the fact that natural gas inventories were experiencing the fastest decline in U.S. history, and were approaching dangerously low levels heading into the end of winter. In August I did an update to that article called Why Natural Gas Prices Collapsed. Because natural gas prices rose following that article, and since injection season is now over (see below), let’s once more revisit what happened with natural gas this year.
In prior articles, I explained how the U.S. natural gas inventory system works. The U.S. has 9 trillion cubic feet (tcf) of natural gas storage capacity, but according to the Energy Information Administration (EIA), the actual amount in storage has never exceeded 4 tcf. During the summer season when demand is lower, natural gas inventories will usually build to between 3 and 4 tcf. This build usually starts around mid-April, and then about mid-November as cold weather begins to ratchet up natural gas demand, the withdrawal season begins.
This year injections began during the first week of April. At that time, natural gas inventories were at their lowest level in more than a decade, so that any supply/demand imbalances during injection season could cause natural gas prices to spike. In fact, gas prices did spike several times toward the end of what was the coldest winter in many years. My thesis was that low inventories would affect the natural gas markets in the following ways. Year-over-year natural gas prices were likely to be higher than the previous year because supplies were lower. Natural gas producers would need to produce at high rates to replenish the inventories, and since I believed they would be getting better prices for the natural gas, profits would be up for most producers. This, naturally, would cause the share prices of natural gas producers to rise. CONTINUE»
During the past five years that I spent in Hawaii, I worked on a number of different projects. The company I worked for invested in energy projects, and our focus was on converting biomass into energy. In my role, I often evaluated companies and technologies to determine the potential technical and economic viability.
I have found over the years that the vast majority of biomass to energy projects aren’t economically viable for one reason or another. I have looked at companies that utilize many different conversion technologies, and most of the time my job consisted of searching for fatal flaws of different approaches. I was the guy who said “No.” That approach saved my employer a lot of money, because none of the companies I said “No” to are thriving today. Most went out of business.
But I didn’t like always being the guy who said “No.” I wanted to put steel in the ground and build something. So I searched for ways to say “Yes”, or at least to turn “No” into “Maybe.” CONTINUE»
An article in Grist about the same study had a different headline: “How solar can become the world’s largest source of electricity.” From the study:
The hi-Ren requires cumulative investments for power generation of USD 4.5 trillion more than in the 2DS, including notably PV but also wind power and STE (Solar Thermal Energy).
The study also notes that, in theory and given enough time, power systems that don’t burn fossil fuels should eventually pay for themselves with fuel cost savings (which is also a trait of nuclear). See Figure 5 below.CONTINUE»
On Wednesday in Beijing, President Obama and his Chinese counterpart Xi Jinping announced a series of agreements at a surprisingly fruitful APEC summit. The US and China came to agreements on issues as diverse as military relations, trade, investment, visas, and a range of other issues. Certainly, the Chinese are not acting like they’re dealing with a U.S. President hobbling into a lame-duck period.
The biggest agreement, however, comes in the area where President Obama still has a great amount of power, both domestically and internationally, to take action: climate change. This is also an area where action by the Chinese government both has meaning for a domestic constituency and among the international community. While observers had expected some sort of deal on climate change, the scope and ambition of the deal were a surprise. Last year, I had written that “U.S. – China Agreement on Climate Shows Promise” – and with this announcement, we see that the promise is on its way to bearing fruit.
Of course, we can only judge the effectiveness of any deal on climate change over a long horizon. This deal does appear, though, to put both the US and China – and the rest of the world with them – on a track to beginning to actually meet the challenges of climate change.
The Terms of the Agreement: Ambition on Both Sides
Under the deal, the United States will cut emissions 26 to 28 percent below 2005 levels by 2025, while China agrees that its emissions will hit a peak and begin declining by 2030 at the latest, while also increasing its share of non-fossil energy to 20 percent in that same period. The White House claims its emissions cuts can be met “under existing law” (so, no need for Congressional action) and China, meanwhile, will deploy up to 1,000 gigawatts (a terawatt) of new nuclear, wind, solar and other zero-emissions generation to meet its goal. The targets are there, and so are the means.
Update Sunday 9:30 PM PST: KiOR announced Chapter 11 bankruptcy this evening. The press release says that the company has “accepted a bid for substantially all of its assets from certain affiliates of Vinod Khosla” and that they have entered an agreement with one of Vinod Khosla’s organizations for debtor-in-possession (“DIP”) financing. The press release also notes “Common stock investors should note that effective November 6, 2014, the Company has been delisted from trading on the NASDAQ stock exchange and that other creditors have priority over shareholders under the provisions of the U.S. Bankruptcy Code. The Company does not anticipate any recovery for existing KiOR common shareholders as part of these proceedings.” KiOR’s bankruptcy this year was Prediction 5 on my my 2014 Energy Predictions made in January.
Update Friday 4:30 PM PST: This afternoon KiOR filed a Form 8-K with the SEC. This form is used to notify investors of important material events. In the report, KiOR indicated that they had received a Notice of Default and Acceleration from the Mississippi Development Authority (MDA) notifying KiOR that all obligations are now due and payable within three (3) business days from November 3, 2014. This default accelerates KiOR’s other loan obligations. In addition to the $78.6 million now payable to the MDA, KiOR says this default “accelerates the Company’s obligations under the following debt agreements:”
- Loan and Security Agreement, dated January 26, 2012, among the Company and each of 1538731 Alberta Ltd. as agent and lender, 1538716 Alberta Ltd. and KFT Trust, as amended on March 17, 2013, October 21, 2013 and March 31, 2014. As of November 3, 2014, an aggregate amount of approximately $127.8 million is immediately due and payable. As a result of the MDA Notice, the loan accrues an additional four percent (4%) per annum default interest rate.
- Senior Secured Convertible Promissory Note Purchase Agreement, dated October 18, 2013, among the Company, KiOR Columbus, KV III, KFT Trust and VNK Management, LLC and KV III in its capacity as agent, as amended on October 20, 2013 and on March 31, 2014. As of November 3, 2014, an aggregate amount of approximately $95.7 million is immediately due and payable.
- Senior Secured Convertible Promissory Note Purchase Agreement, dated March 31, 2014, as amended on July 3, 2014, among the Company, KiOR Columbus and KFT Trust and KFT Trust in its capacity as agent. As of November 3, 2014, an aggregate amount of approximately $10.4 million is immediately due and payable.
So KiOR now owes, immediately due and payable, over $312 million. On the plus side, the 8-K notes “KFT Trust made a Protective Advance to KiOR in the aggregate principal amount of $1,102,691.” That is such a specific amount that I wonder if that might be the bill from the investment bank that has been shopping KiOR during the forbearance period.
My guess is that this now triggers a bankruptcy declaration next week. CONTINUE»
The Republicans have won a clear victory. They will take over the Senate, expand their control of the House, and deserve congratulations for their win.
Now, it is time to govern. The challenges that this country faces are long. And governing is different than campaigning. It means dealing with problems as they come – and not always in what fits best in a 30 second advertisement.
After this election, climate change is an issue that Republicans may think they are safe to ignore. The President has made a big push to regulate carbon emissions through the EPA over the last two years. Some outside groups sought to bring climate action into the campaign. Today, the electoral results could not be more clear: Obama’s policies were repudiated at the polls. Throughout the election, Democrats in swing districts went out of their way to avoid talking about climate change or the EPA.
Republicans could think that they are safe to continue saying “I’m not a scientist” when asked about climate change. They could think this means they don’t need a climate policy. That would be the wrong lesson to take from this.
President Obama’s policies on climate change are all wrong. His Department of Energy picks winners and losers among politically connected companies. His command-and-control policies at the EPA will ensure that “no lawyer is left behind” in a flurry of lawsuits over where to build power plants, and what kind of production is allowed.
Executive Summary for Those with Short Attention Spans
For those who tend not to read much past the headline, the answer to that question is “No.” If you want to understand a bit more about the issue of falling gas prices during election seasons, read on.
The Rotating Roles of Accused and Accuser
It never fails during election season that when gasoline prices are falling, the party out of power and media members sympathetic to that party will start to make accusations and insinuations that the President is manipulating gasoline prices in order to win elections. It happened when Clinton was in office, it happened when Bush was in office, and now it’s happening while Obama is in office. The only things that change are the party that is being charged of manipulating prices, and the people who are defending or accusing that party. This year it’s Fox News doing the accusing, and MSNBC defending. CONTINUE»
A few years ago, I wrote a post about the US Environmental Protection Agency’s (EPA) attempt to mandate a non-existent fuel into existence, and then fine refiners for not buying this fuel. That post was called “Why I Don’t Ride a Unicorn to Work“, and was designed to call attention to federal biofuel mandates that weren’t grounded in reality.
But what if I call a rhinoceros a unicorn? Does that mean unicorns then exist?
This week we have a guest post from Todd “Ike” Kiefer, who argues that this is effectively what the EPA has done. By declaring that the definition of cellulosic biofuels is ambiguous, the EPA has signaled that non-cellulosic feedstocks can qualify for full cellulosic tax treatment. Mr. Kiefer explains.
Previously Mr. Kiefer wrote an article highly critical of the Navy’s efforts promote biofuels in a periodical that is sent to Congress and top military leaders. The article was entitled Energy Insecurity: The False Promise of Liquid Biofuels (discussed here). His biography can be found at the end of the article. CONTINUE»