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By Robert Rapier on Mar 10, 2017 with 4 responses

The Ethanol Industry Braces For Impact

Last week the Renewable Fuels Association (RFA) reported that President Trump is preparing to direct the Environmental Protection Agency (EPA) to make a big change to the country’s Renewable Fuel Standard (RFS). The change is one that has been long sought by refiners, but it has been resisted by the country’s biofuel industry. Today I will attempt to explain what it all means.

Briefly, the U.S. has certain biofuel mandates in place. To track compliance, renewable identification numbers (“RINs”) are assigned to biofuels as they pass through the supply chain. Ultimately, those defined as “obligated parties” are required to submit their quota of RINs to the EPA to demonstrate compliance.

Compliance can be met by purchasing the fuel with the associated RIN, or simply purchasing the RINs (which can be separated from the associated biofuel). This means that there is a value for RINs that has the effect of offsetting some of the production cost for the biofuel producer. This system subsidizes biofuels at the expense of both the obligated parties and the final consumer. CONTINUE»

By Robert Rapier on Feb 25, 2017 with 37 responses

Meltdown At Gevo

I am currently reading the book The Frackers: The Outrageous Inside Story of the New Billionaire Wildcatters. The excess and greed of a few of those profiled is mind-boggling. Of particular note, the late Aubrey McClendon nearly ruined Chesapeake with his excessive spending. But after presiding over a huge decline in Chesapeake shares he got margin calls and his personal shares were sold out from under him. So he turned around and did some self-dealing with Chesapeake that benefited himself enormously financially, at the expense of shareholders.

The greed was excessive, but in his defense he and Chesapeake co-founder Tom Ward (whose self-dealing was also highlighted in the book) did create a multi-billion dollar company from scratch that became one of the leading energy producers in North America. It doesn’t excuse the fact that he did things out of self-interest that weren’t in the best interest of shareholders, but the company itself did provide a lot of energy to consumers.

The same can’t be said of advanced biofuel company Gevo, one of three advanced biofuel companies that went public in 2010-11 with the backing of billionaire venture capitalist Vinod Khosla. CONTINUE»

By Robert Rapier on Feb 6, 2017 with 2 responses

Can U.S. Shale Oil Offset OPEC Production Cuts?

In an earlier article - Why OPEC’s Announced Cuts Are A Really Big Deal - I addressed some of the skepticism around the recent production cuts enacted by OPEC. Today I want to consider in more depth the notion that U.S. oil producers might swiftly negate the impact of these production cuts.

To review, in November OPEC announced that it would enact 1.2 million barrels per day (bpd) of production cuts on January 1st. OPEC also announced that certain major non-OPEC members – most notably Russia – would cooperate with the production cuts, pushing the total amount of targeted cuts to 1.8 million bpd.

Some analysts cite two factors that could render OPEC’s cuts ineffective. The first is simply that OPEC members will cheat, as they have historically done. Certainly some members may overproduce their quotas, but OPEC is going to monitor global crude inventories. Those inventories had already begun to come down from record highs prior to the OPEC announcement, partly in response to declining U.S. shale oil production. CONTINUE»

By Robert Rapier on Jan 11, 2017 with 9 responses

My 2017 Energy Predictions

I read an article this morning where one analyst predicted that we are in a 10-15 year bear market for oil. The analyst stated that the market is oversupplied by about a million barrels per day (it isn’t — see the charts in today’s article), that shale oil production will surge this year (it won’t), and that the OPEC agreement to cut production would fall apart (it won’t). His projection was that we will spend 2017 below $50 per barrel (bbl) and in 2018 prices will be back below $40/bbl.

I disagree with this assessment. I believe we will look back in a few years at 2016 as the year the energy sector recovery got underway in earnest. I believe 2017 continues the recovery. Today, I explain how I see the energy markets shaping up this year, in the context of my 2017 predictions.

1. Crude oil will flow through the Dakota Access Pipeline (DAPL) in 2017. CONTINUE»

By Robert Rapier on Jan 7, 2017 with 11 responses

Fact-Checking Snopes On Las Vegas And Renewable Energy

When I hear a claim that doesn’t sound quite right to me, I usually check in at Snopes to get the facts. They usually do a good job of debunking fake news, and they provide lots of references to back them up.

However, I think they did a huge disservice to readers recently with their fact check on a viral story about Las Vegas.

The story going around was that Las Vegas is now completely powered by renewable energy. The story contains a kernel of truth, but then that kernel got distorted into something that went viral, but was clearly untrue. CONTINUE»

By Robert Rapier on Jan 1, 2017 with 1 response

Grading My 2016 Predictions

Almost a year ago I made my 2016 energy predictions (see “My 2016 Energy Predictions.”) I have been making annual predictions for nearly a decade now, primarily as a framework for sharing my views on energy markets in the coming year. I try to make predictions that are specific, measurable and actionable. I prefer not to leave anything open to interpretation or spin. With few exceptions, at the end of the year a prediction is right or it is wrong.

I try not to make “no-brainer” predictions. When I make these calls, there is a fair level of uncertainty around them.

Although I had one high-profile miss this year, the others were mostly correct. Here they are, along with commentary on each. CONTINUE»

By Robert Rapier on Dec 29, 2016 with no responses

The Top 10 Energy Stories Of 2016

A lot happened in the energy sector in 2016, with two major stories leading the way. Both the surprising election of Donald Trump to the presidency, and OPEC’s November announcement to curtail production vied for the top spot on my list, as they will both likely impact the energy markets for years to come.

But in 2016 there were also huge wildfires that curtailed oil sands production in Canada, a major new pipeline protest that erupted in North Dakota, high profile bankruptcies in the coal sector, and several important stories on hydraulic fracturing in the U.S.

Here is a list of what I believe were the year’s major energy stories. First the Top 5: CONTINUE»

By Robert Rapier on Dec 18, 2016 with 2 responses

OPEC’s Announced Production Cuts Are A Big Deal

By now you have undoubtedly heard that late last month at OPEC’s 171st Ordinary Meeting in Vienna, the group announced that it would reduce output by about 1.2 million barrels per day (bpd) by January. This is the first announced output cut by the group in eight years. Saudi Arabia will bear ~40% of the cuts, with Iraq reducing output by nearly 20%. Nigeria and Libya were exempted from the cuts.

OPEC also secured agreements from non-OPEC members. Russia led this group of non-OPEC producers by agreeing in principle to cut production by about 300,000 bpd. Most of these non-OPEC cuts are symbolic, as many are in line with the natural production declines expected to be experienced by these countries.

The market response to the OPEC cuts was swift. Global prices for crude quickly jumped >10% to above $50/bbl. Shale oil producers surged across the board, with Continental Resources and Whiting Petroleum jumping 23% and 30% respectively. CONTINUE»

By Robert Rapier on Nov 27, 2016 with 6 responses

20 Billion Barrels Of Oil Were Not Discovered In The Permian Basin

Some readers may have noticed that I haven’t been posting as many articles here as I have in the past, but it’s simply because I am busy keeping up with deadlines elsewhere. I have an article due once a week for Forbes, and two weekly articles and one longer biweekly article for Investing Daily. Add to that occasional articles I do for other sites, and I am writing around 200 articles a year with firm deadlines. On top of that, I have a regular day job as an engineer, and this year has been exceptionally busy.

This column doesn’t have a firm deadline. It’s a place I can write when everything else is caught up. But lately those other commitments have been taking up most of my spare time, and I have been lucky to get one column posted a month here. So, that’s the reason my posting frequency here has declined.

I have had some people tell me that they don’t like dealing with the ads on the Forbes site, and they have asked if I could repost some of my Forbes articles here. I am allowed to do that after they have appeared exclusively at Forbes for a few days. So today, I want to reproduce a modified version of one that got pretty good traffic at Forbes, and has gotten a lot of attention in the press. CONTINUE»

By Robert Rapier on Oct 27, 2016 with 11 responses

Ethanol From Carbon Dioxide Is Still A Losing Proposition

If I told you that I had created a process to extract pure gold from seawater, you might deem it an amazing accomplishment. If I issued a press release stating these facts, it very well could go viral.

In fact, the oceans do contain an estimated 20 million tons of dissolved gold, worth close to a quadrillion dollars at the current spot market price. But you may have noticed that I have omitted a very important fact.

I haven’t mentioned how much it costs to produce a troy ounce of gold using the process I have designed. That seems like an important detail, so I explain that the production cost is only $50,000 or so per ounce (which today is worth about $1,265), but I am sure that with enough investment dollars — and maybe a few government subsidies — I can get that cost down to something more reasonable. (This is how we subsidize some advanced biofuels where production costs are an order of magnitude above what could be considered economical). CONTINUE»