Natural Gas Update
Two weeks ago I wrote about the abnormal situation with natural gas inventories in Natural Gas Inventories are Headed Toward Zero. I got a number of questions and comments about that essay, and since then we now have another two weeks of inventory data, let’s update the picture.
First, I want to deal with some misconceptions that a few people had. I don’t think we are going to run completely out of natural gas in storage. My point was that this winter marked the sharpest decline trajectory and we have made the largest ever withdrawals from storage in history, and barring a sudden warm spell we are going to go into injection season with very low natural gas inventories.
This has implications. Why? Because historically a significant deviation of inventories from normal will have a lingering impact on natural gas prices. CONTINUE»
I have gotten some inquiries about my status, as I don’t typically go two weeks between posts. I am fine, but it’s been a very busy two weeks. There was lots of travel, lots of deadlines, and in between I worked in a trip to Hawaii to spend a few days with my family. I got to be there for my oldest son’s 18th birthday, and then helped chaperone an overnight camping trip for my son’s 5th grade class on the beach in Hawaii. I must say I never got a school field trip like that in elementary school in Oklahoma!
This week I am back in Arizona, where I continue to work on a project. Next week I will be in Washington, DC to sit on a panel at the 2014 Methanol Policy Forum. My panel is called “Unlocking Our Vehicles to Methanol.” I just cleared my last pressing writing deadline, and there are two topics I want to write about. One is the situation with natural gas inventories. The next Weekly Natural Gas Storage Report will be released tomorrow (March 13th), and I will put up a short post following that. So today I will address the other topic that’s been on my mind.
The 60 Minutes’ Edits
During my interview with Lesley Stahl, we discussed a lot of things that I wish had been aired. In fact, I told one of the producers that I think they could have avoided a lot of the fallout if they had aired more of my interview, because I presented a more balanced view than was presented by the overall story. As I said during my interview, the issue of cleantech isn’t black and white, or good versus evil. It is a complex story with many angles, and an attempt to reduce it to black and white was certain to create controversy. CONTINUE»
This winter has been one of the coldest on record. It’s been the coldest winter in at least 30 years, and I saw a report today that there is a chance that this will be Chicago’s coldest winter on record. Presently it is the 3rd coldest on record for Chicago, but another blast of cold air is just moving into the Midwest and East Coast.
Natural gas is a major energy source for heating homes, and prices have been spiking periodically in recent weeks as the weekly draws on natural gas inventories are higher than normal. Natural gas consumption in the US is highly seasonal, so producers use a system of underground pressurized storage that builds inventories until mid-fall, which are then depleted through the winter. Natural gas can be stored in depleted oil or gas reservoirs, in natural aquifers, or in salt caverns.
The US has nearly 9 trillion cubic feet (tcf) of natural gas storage capacity, but only a fraction of that has ever been used. According to the Energy Information Administration (EIA), the actual amount in storage has never exceeded 4 tcf. Inventories will usually build to between 3 and 4 tcf by ~ November 1st each year, before being pulled down to under 2 tcf by the end of winter. So a typical winter season will see just over 2 tcf pulled out of storage — an amount equivalent to about 10 percent of annual US natural gas production. CONTINUE»
What Ethanol Problem?
If you live in the Midwest, you are in the midst of a thriving ethanol industry. But the Midwest does not control its own destiny when it comes to ethanol. That is still controlled by the federal government.
When I first started writing about energy nearly a decade ago, many of my early articles were addressed at the ethanol policies we were pursuing in the US. Even though I supported renewable energy, I felt like we were going about things in the wrong way. While I acknowledged that you could subsidize lots of ethanol production into existence, there needed to be a clear path for sustainability in the event that strong government intervention waned.
Today, nine years after I began writing about energy, we have an ethanol industry that has undergone rapid growth, but it is an industry that still relies heavily on the hand of government in the form of the Renewable Fuel Standard (RFS). One need look no further than the uproar over the Environmental Protection Agency’s (EPA) decision to lower the RFS for 2014. CONTINUE»
A Disproportionate Response
I had intended to write an article today outlining some potential solutions to the Midwest’s ethanol predicament, but some recent exchanges on Twitter prompted me to postpone that for a week.
The issue in question involves various comments I have made about the Keystone XL pipeline. I have argued that while Keystone XL has mobilized a lot of passion and energy, its threat is minuscule compared to the world’s growing carbon dioxide emissions from coal. Thus, I believe most of the effort being directed at stopping Keystone XL would be better directed at the world’s coal emissions.
Some took exception to this. Some who are spending their time and energy on Keystone XL argued that Keystone XL really is a big deal, while others noted that a heroic effort is being expended to combat coal consumption. So, I have done a few calculations to illustrate my argument. CONTINUE»
What 60 Minutes Got Right
Following the recent 60 Minutes story The Cleantech Crash, Katie Fehrenbacher at Gigaom wrote a very good article called What 60 Minutes got right and wrong in its story on the “cleantech crash”.
In contrast to some who reacted with righteous indignation against the notion of any troubles in the world of cleantech, Katie noted, “60 Minutes got some key things right in the story”, notably that cleantech HAS crashed from a venture capital (VC) perspective.
Cleantech often requires much longer time horizons and higher capital expenditures before a VC has a chance of seeing a return on the investment. And as I have explained in the past, you can’t really afford to have a 10 percent success rate if that entails building 10 capital intensive biofuel plants before achieving success. It’s a very different model than a couple of guys starting an Internet company in their garage. You run out of money pretty quickly when building plants that fail to perform. CONTINUE»
In the previous article, I graded the 2013 predictions that I made a year ago. I scored well on the direction of oil and gas prices, the shrinking Brent-West Texas Intermediate (WTI) differential, and continued growth in US oil production (although it grew even faster than I expected). My only complete miss was that I expected approval for the northern leg of the Keystone XL pipeline. (The southern leg, incidentally, is scheduled to begin shipping oil this week from the major crude oil storage hub at Cushing, Oklahoma to the Gulf Coast near Houston).
Today I offer up my predictions, and the reasoning behind them, for what I think will transpire in 2014. One thing I have learned in making predictions is that they must be specific, and not subject to interpretation at the end of the year.
“The US oil industry will continue to thrive” is much too vague. “The price of crude will rise” is also too vague, because perhaps crude rises for part of the year, or perhaps some crudes rise and some don’t. On the other hand, “The average price of Brent crude will be higher in 2014 than in 2013” is specific and measurable. CONTINUE»
Normally I would have had this out two weeks ago, but the 60 Minutes story has thrown me behind schedule. I continue to get lots of comments and questions about Vinod Khosla and now his righteous indignation over how the 60 Minutes story was portrayed (especially since that was the only part of my interview they aired), so I may follow up in a week or so to explain (once more) the precise nature of my criticism — as well as what it isn’t. To be honest, I am tired of writing about it, and I am sure that regular readers are tired of reading about it, but new readers continue to ask questions that indicate they misunderstand the nature of my criticism.
In the meantime, here is my report card for my predictions from last year. In the next article, I will give my predictions for 2014.
In January 2013, I made the following five predictions for 2013:
- Brent and WTI crude prices will both average less in 2013 than in 2012.
- The Brent-WTI price differential — which has widened substantially in the past two years — will narrow in 2013.
- The average annual price of natural gas — as measured by the Henry Hub Gulf Coast Natural Gas Spot Price — will be higher than in 2012.
- The Obama Administration will approve the northern leg of the Keystone XL pipeline.
- US oil production will continue to grow (but at a slower pace than in 2012), reaching the highest level since 1995.
It has been a busy couple of days. Since 60 Minutes aired The Cleantech Crash on Sunday night, I have gotten quite a few emails and phone calls seeking more details, comments, or a clarification of my positions. In the previous article I wrote a “Quick Response” to the piece. Today I try to fill in some gaps. This isn’t a critique of the entire report. It’s just the back story on how I became involved, and includes some of the things we discussed that didn’t make it on air.
Let me make it clear that 60 Minutes did not take me out of context. My words were correct, in context, and I stand behind them. But only a small portion of my interview could be broadcast, and as a result a lot of issues that we covered were not aired. So, here’s the rest of the story.
Discussing Advanced Biofuels with Lesley Stahl. Photo from CBS.
Before the Interview
Back in September 2013, I was contacted by one of Lesley Stahl’s producers at 60 Minutes through LinkedIn. He indicated that he wanted to speak to me about a story they were working on, and we set up a time to talk.
As a result of Sunday night’s 60 Minutes story about cleantech, a lot of people are emailing me or clicking in here for the first time. I will have a more in-depth report on my contribution to the story — including bits that didn’t survive the editing process for a more complete context of my positions — but for now let me offer some quick answers to some questions/comments that are coming up frequently. First, if you have no idea what I am talking about, here is the story that aired last night: