Over the past two years the spot price of natural gas fell from nearly $5 per million British thermal units (MMBtu) in June 2011 to less than $2 per MMBtu in April 2012, before beginning a steady climb back to the current level of about $4 per MMBtu. Prices have been supported by resilient demand as well as diminishing supply from some of the more mature shale formations and the depleted wells offshore.
Stronger natural gas prices are good news for some and bad news for others. Natural gas producers like Chesapeake Energy Corporation (NYSE:CHK) were hit especially hard as gas prices fell. Between June 2011 and April 2012, CHK’s share price declined 25 percent. But over the past 12 months, CHK has rallied 36 percent as gas prices recovered. Since Chesapeake is the nation’s second-largest producer of natural gas, it’s not surprising that its shares track the price of the commodity. The company isn’t diversified, so it is nearly a pure play on natural gas.
Last week the U.S. Geological Survey (USGS) provided an update of oil and gas resources in the Bakken region. This was their first update since a 2008 report that estimated mean undiscovered volumes of 3.65 billion barrels of oil and 1.85 trillion cubic feet of natural gas in the region. The new estimate includes the Three Forks formation which largely lies underneath the Bakken in the Williston Basin that sprawls across North Dakota, South Dakota, Montana, and southern Saskatchewan.
The new USGS assessment stated that the Three Forks formation had not been previously assessed, but that an assessment was warranted based on a rise in drilling and production in the formation. Inclusion of the Three Forks formation added an estimated mean resource of 3.73 billion barrels of oil to the estimated 3.65 billion barrels of oil in the Bakken formation for a total estimated resource of 7.4 billion barrels of undiscovered, technically recoverable oil in the two formations. The two formations were also estimated to contain a mean of 6.7 trillion cubic feet (tcf) of undiscovered, technically recoverable natural gas and 0.53 billion barrels of undiscovered, technically recoverable natural gas liquids (NGLs). CONTINUE»
Perhaps the biggest shortcoming of solar and wind power is their intermittency. In locations like Hawaii, where I live, wind and solar power are already competitive on price. My fossil-fuel supplied electricity typically costs above 40 cents a kilowatt-hour, and wind and solar power can compete with that. But since they can’t supply power that is available on demand (firm power) they must be backed up by power sources that can provide power when the sun isn’t shining and the wind isn’t blowing.
This scenario could change dramatically if cost-effective energy storage solutions were developed. I consider this to be the most important unresolved problem in the energy business. A company that develops a way to efficiently and economically store intermittent energy for on-demand use will be a game-changer.
The ideal power storage solution would be able to store energy densely, at a reasonable capital cost, and would be able to return that power at high efficiency. For instance, if we put 1 unit of power into the storage system and we actually got 1 unit back out when we needed it, the system would be 100% efficient. Real-life efficiencies will be less than 100%, but the higher the efficiency, the more desirable the storage option.
In last week’s column, we examined some oil production trivia involving US states. This week, we look at some international oil trivia covering the 5-year period 2007-2011, as well as some individual trivia from 2012.
In this case, the data sources are the 2012 BP Statistical Review of World Energy and the Energy Information Administration. A table showing the Top 15 countries with the highest percentage increases in oil production over the past five years follows the quiz. Answers are at the end.
1. Which country had the largest percentage increase in oil production from 2007 to 2011?
b. United States
As a result of the hydraulic fracturing (fracking) revolution, US oil and natural gas production have been rising for several years. According to the Energy Information Administration (EIA), US oil production has risen by 27% over the past 5 years.
In reviewing the data for individual states, I came across some interesting trivia. So I decided to put together a little quiz. The data source is the EIA. A table showing the Top 15 states with the highest percentage increases in oil production follows the quiz. Answers are at the end.
1. Which state had the largest percentage increase in oil production over the past 5 years?
b. North Dakota
History of U.S. Ethanol Policy
In 1978 the United States Environmental Protection Agency (EPA) issued a gasohol waiver that set the maximum legal limit of ethanol in motor gasoline at 10 percent denatured anhydrous ethanol.
27 years later, the Energy Policy Act of 2005 created a Renewable Fuel Standard (RFS) requiring 7.5 billion gallons of renewable fuel — primarily corn ethanol — to be blended into the fuel supply by 2012.
In 2007, an updated Renewable Fuel Standard — the RFS2 — accelerated the renewable fuel adoption schedule. Instead of 7.5 billion gallons by 2012, the new law required 9 billion gallons by 2008, soaring to 36 billion gallons by 2022.
Hitting the Limits
Americans presently consume about 133 billion gallons of gasoline each year, so somewhere in the range of 13 billion gallons of ethanol (approximately the amount of corn ethanol that is currently being produced in the US) the rising ethanol mandate was set to collide with the EPA’s 10% ethanol limit.
The ethanol lobby recognized this potential limitation to their market, so they petitioned the EPA to raise the allowable limit on ethanol content in conventional gasoline to 15 percent. But if this higher ethanol concentration were mandated instead of “allowed”, it would immediately increase ethanol’s market potential in the US by 50 percent.
The E15 push was opposed by automakers, oil companies, food producers, and environmental groups. Each lobby opposed the higher limits on different grounds, with automakers concerned about vehicle damage from using E15 in automobiles that weren’t designed for that concentration of ethanol. (Ethanol is more corrosive than gasoline, and while these corrosion issues can be addressed, some cars that weren’t designed for higher levels of ethanol could be damaged). CONTINUE»
Last week I made my debut as a contributor to the Wall Street Journal’s (WSJ) new feature The Experts: Journal Reports. The idea is that the WSJ poses questions to the panel, and each panel member provides a response of 300 words or so. The first 4 questions that were asked — and answered — last week were:
- Growing oil production has led to predictions that the U.S. could pump more barrels than Saudi Arabia by 2020 and that North American could become a net exporter at a later date. What does this mean for energy markets and geopolitics? (My answer)
- Should the government be financing new-energy technologies? (My answer)
- Should there be a price on carbon emissions, and if so, what’s the best way to do it? (My answer)
- What technological breakthrough is most likely in the next 10 years that could completely change the energy equation as we now see it? (My answer)
I started to go with “Fiddling While Rome Burns” in the title, but I know many people who would take great exception to the notion that the Keystone XL protesters are fiddling. Indeed, they do not believe they are fiddling. They believe they are standing up for the most important cause of our generation. Yet, as I argue in this column, the fire in Rome is burning faster than ever. Except in this case, Rome is China and what they are burning is coal.
In my most recent column – Why Environmentalists are Wrong on Keystone XL – I argued that the level of attention environmentalists are devoting to stopping the Keystone XL pipeline expansion is grossly disproportionate to the impact that the project can possibly have. I provided some numbers to support my argument, and observed that those opposing the pipeline are generally making emotional arguments.
As if to emphasize that point, the comments and emails that I got from people who were unhappy with my article were almost exclusively emotional in nature. Comments like “this post is dumb” and “we have to stop the dirtiest, filthiest oil on the planet” were typical. But nobody challenged the numbers. CONTINUE»
First Qualifying Cellulosic Ethanol
Last year, to much fanfare, the first batch of qualifying cellulosic ethanol was produced (i.e., it qualified for credits under the EPA program for certifying ethanol for sales). I reported on the development at that time.
Western Biomass Energy LLC, a subsidiary of Blue Sugars Corporation (previously KL Energy) reported the major milestone of claiming the first cellulosic ethanol tax credits under the RFS2 for a 20,069 gallon batch of cellulosic ethanol produced from bagasse (sugar cane waste) in April 2012.
However, regular readers are aware that for years I have been deeply skeptical that cellulosic ethanol as envisioned by — and ultimately mandated by — the US government will be an economic and scalable fuel option. The obstacles to success are significant, and I have described them in detail on many occasions.
If not for the US government’s latest demonstration of incompetence that played out at the end of last week (a.k.a. sequestration), the top news story might have been a report issued by the US State Department late Friday.
The report was the Draft Supplementary Environmental Impact Statement (SEIS) for the Keystone XL Pipeline project, and it was unwelcome news for environmentalists who have been protesting the crude pipeline extension that would link Canada’s oil sands to Gulf Coast refineries.
It may seem arbitrary, given the large number of oil and gas pipelines that already criss-cross the US, that this particular one has generated such a high profile debate around energy security and the environment. But this debate isn’t really about a pipeline. This pipeline isn’t going to make or break the development of Canada’s oil sands, nor — as I will show here — is it going to make a measurable difference with respect to climate change.