Bottom Left Feat
In last month’s Short Term Energy Outlook (STEO), the Energy Information Administration (EIA) projected that it now expects record U.S. gasoline consumption this year:
Motor gasoline consumption is forecast to increase by 130,000 b/d (1.5%) to 9.29 million b/d in 2016, which would make it the highest annual average gasoline consumption on record, beating the previous record set in 2007 by 0.1%. The increase in gasoline consumption reflects a forecast 2.5% increase in highway travel (because of employment growth and lower retail gasoline prices) that is partially offset by increases in vehicle fleet fuel economy.
This projected increase follows several years of lower gasoline demand that resulted from persistently rising gasoline prices over the past decade. From 2002 to 2012 the average retail price of gasoline rose nearly every year, from an annual average of $1.39/gal in 2002 to $3.68/gal in 2012. Consumers responded to these higher prices in multiple ways, which cumulatively led to falling gasoline demand. Some even suggested that U.S. gasoline demand had permanently peaked, as a result of more fuel efficient vehicles and increasing adoption of electric vehicles (EVs). We can now say those predictions were premature. CONTINUE»
Green Tech Media
by David Keith
Although quite upbeat about solar PV (and I’m also a big fan of solar PV), this article generated almost 300 comments because it was also frank about the limits of solar PV, and wind, and to make matters worse, he concluded the article with the following statement:
My view is that only two forms of energy — solar and nuclear power — can plausibly supply tens of terawatts without a huge environmental impact.
An article last week in Business Insider discussed Bill Nye’s conversion from anti-GMO to pro-GMO (genetically modified organisms). According to Nye, while attending a political rally in NYC:
“…one speaker insisted that the US president Barack Obama was part of a conspiracy sponsored by large agriculture companies to control minds — and received a great many cheers — somehow that passionate man at the microphone crossed a line for me.”
Was it a desire to distance himself from conspiracy theorist nut-balls or was it the result of his exposure to facts by real scientists at Monsanto that finally convinced him to change his mind? If it was the latter then his stance was largely based on a lack of knowledge. Some are hoping that because Nye was convinced to distance himself from anti-GMO ideologues that he may also one day distance himself from their anti-nuclear energy counterparts, as several highly visible environmentalists have managed to do over the last few years, but I’m skeptical. Nye was not nearly as invested in his GMO stance as he is in his anti-nuclear energy belief. CONTINUE»
A Williston Basin Primer
In my previous article Addressing the World’s Flare Gas Problem, I discussed my current project, which recently took me to the Williston Basin in North Dakota and Montana. Today, I will discuss the region’s shale oil boom in greater detail. In Part 3 of this series, I will conclude by delving into the economics of shale oil production.
The Williston Basin underlies parts of North and South Dakota, Montana, southern Saskatchewan, and southwestern Manitoba. Within the Williston Basin is the Bakken Formation, which first produced oil over 60 years ago. It was on North Dakota farmer Henry Bakken’s farm in 1953 that Amerada Petroleum — later acquired by Hess (NYSE: HES) — discovered oil at a depth of about 10,000 feet. The Bakken Formation is to date the source of most of North Dakota’s rapid oil production growth, but underneath the Bakken Formation is the Three Forks Formation, which has also begun to produce oil:
Source: US Geological Survey CONTINUE»
I recently recieved two emails on the same day; one about more palm oil plantations usurping yet another tropical ecosystem, this time for highly endangered African Gorillas instead of Indonesian Orangutans, and the other from my local Sierra Club asking me to urge my elected representatives to reject a transportation funding bill that would not allow our Governor to mandate the consumption of biofuels. Instead, I wrote a letter to the editor of the Seattle Times expressing my opposition to a biofuel mandate (which, of course, wasn’t published). I put a copy of that rejected submission at the end of this post as an example of what not to send to the Seattle Times Op Ed department. CONTINUE»
In last month’s article Where are the Unicorns?, I discussed the fact that the commercial cellulosic ethanol plants that were announced with great fanfare over the past couple of years are obviously running at a small fraction of their nameplate capacity. In fact, April was a record month for cellulosic ethanol production according to the EPA’s database that tracks this information, but that meant that at least 8 months into the learning curves for these plants actual production for that month was only about 6% of nameplate capacity.
May’s numbers are now in, and the situation has gotten worse. After reporting 288,685 gallons of cellulosic ethanol in April, May’s numbers only amounted to 114,018 gallons. This is only about 2.4% of the nameplate capacity of the announced commercial cellulosic ethanol plants. If we use year-to-date numbers, the annualized capacity is still less than 3% of nameplate capacity for facilities that cost hundreds of millions of dollars to build. Let that soak in. POET alone spent $275 million, with U.S. taxpayers footing more than $100 million of that bill. Abengoa reportedly received $229 million from taxpayers for its project. For this (plus however much that was spent by INEOS), the combined plants are running at an annualized capacity of 1.7 million gallons of ethanol, which would sell on the spot market today for $2.6 million. CONTINUE»
I have been pretty adamant — some may say stubbornly so — about my expectations for crude prices this year. I have argued against the notion that oil prices were going to fall to $20 or $30/bbl for several reasons. In a nutshell, those reasons are:
- This is well below the marginal cost of shale oil production, and you can expect shale oil supplies to begin contracting in response to falling prices
- Growing crude oil inventories will peak soon for seasonal reasons
- Lower oil prices will spur demand
I have made this argument a number of places, including in a recent Wall Street Journal article. Noted oil analyst Philip Verleger made a comment following that article that those calling for collapsing prices are correct, and he patted himself on the back with the comment “A few of us who make a living in the field did (call the price collapse correct)” while arguing that those writing for the Wall Street Journal don’t “seem to understand what is going on” and are “in the dark ages.” Them’s fighting words! CONTINUE»
While U.S. crude oil inventories have been surging since last fall, I have argued that these inventories should peak off soon. There are several reasons for this, but the primary reason is that March is historically the month that refinery utilization is at its lowest, due to the popularity of performing refinery maintenance during the month. The difference in crude oil demand from refiners between March and July has historically been about 10 million barrels per week. This alone should be enough to halt the ~8 million weekly crude oil build that we have seen thus far in 2015.
Another factor is that the large capital spending cuts that have accompanied the oil price collapse will begin to negatively impact oil production. The Energy Information Administration reported 2 weeks ago that U.S. oil production had suffered a weekly decline for the first time since January. Last week, production was almost flat, up only 18,000 bpd over the previous week. Meanwhile, U.S. refinery inputs surged by 201,000 bpd, climbing back above 90% utilization for the first time in 2 months. This should have dropped crude oil inventories by more than a million barrels for the week, but the EIA reported a huge inventory build of nearly 11 million barrels for the week.
What is the explanation for this? CONTINUE»
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 latest news in the declining oil price saga comes from Saudi Arabia. Last week softening prices of Brent crude oil, the global benchmark, appeared to be resulting from weaker growth prospects in Europe and Asia. This week, according to a Reuters exclusive, the Saudis suggested that market share is preferable to them over the higher prices that other OPEC members such as Venezuela prefer. However, senior Saudi officials would not comment on this market share agenda that was reported as a result of last weeks investor and analyst meetings in New York, where Reuters obtained their information. It is also hypothesized that the Saudi trial balloons could be a vehicle to help other OPEC members see the wisdom in all members sharing in production cuts to shore up prices, not just the Saudis, which is par for the course.
By the November 27th meeting, more clarity from OPEC is expected. Concerns about U.S. oil supply growth with the potential for glut have been on the radar of numerous analysts for over a year. The prices of Brent crude and West Texas Intermediate (WTI) have fallen in tandem in the last few months. WTI dropped to $85 Friday October 10; January WTI futures fell $5.03 since Sept. 30 to $84.73 a barrel today on the New York Mercantile Exchange. The Energy Information Administration (EIA) noted October 8:
The price of North Sea Brent crude oil,[the global benchmark], has fallen to around $91 per barrel, the lowest level in more than two years and about 21% lower than its year-to-date peak of $115 per barrel on June 19. Average monthly Brent spot prices had traded within a narrow $5 per barrel range, from $107 to $112 per barrel, for 13 consecutive months through July 2014.
Saudi Arabia, the OPEC producer with the most influence, has made adjustments to production and pricing. Saudi Arabia cut its crude production by about 400,000 barrels a day in August. This reduction was tied to lower exports to Asian markets. OPEC said it had reduced estimated demand for its crude by 200,000 barrels a day for 2015. The EIA curbed its forecasts for OPEC oil and other liquid fuels production to 35.51 million barrels a day in 2015, down 350,000 bpd from last month’s forecast. For crude oil output alone the EIA cut its forecast by 300,000 bpd to 29.24 million bpd. In September, OPEC pumped nearly 31 million bpd. The EIA projects that Brent crude oil prices will average $98 a barrel in the fourth-quarter of 2014. Brent traded around $88 as of early afternoon October 13th.