Energy Independence Really?
Energy security is largely overstated and not understood. To secure energy is to have a reliable source of energy. The lack of reliable energy source typically comes from weather disruptions and political events. Therefore, the most reliable energy source usually limits the amount of transportation to obtain the energy source. More domestic use of fuel clearly achieves this objective.
I have always said the US could be energy independent, but we choose not to. The reason to not be energy independent can be explained for two reasons. The obvious reason is economic. If it is cheaper for someone else to supply a good than you could produce, you typically will import. The other reasons, a more philosophical reason, why plunder your resources now when you can let other plunder theirs. In the US, we choose not to plunder our resources; some of it is due to environmental concerns. We choose to have our natural beauty not obstructed by industrial devices and potential environmental spills. This increases the cost to the point we end up importing, versus using our domestic consumption. In the long run, perhaps by being less energy independent now, we will have more energy security later. By allowing others to plunder now, we may eventually use our resources later when we may truly need it.
Those who continually tout energy independence forget these simple points. They are aiming to say a political sound bite to get you to bite. We should not be striving for energy independent, but a smart balance energy plan which balances security, environment, and economics. I certainly enjoy the beaches and mountains without seeing industrial equipment, but I know for that, we must pay a premium and/or import more energy. Energy independence is not a goal one would want to achieve unless we are at war or will be going to war.
We can help developing thought-provoking reports. Please do keep All Energy Consulting in mind for your consulting needs and/or if you are thinking about funding a report. Let us write you a proposal.
Your Energy Consultant,
David K. Bellman
Shale Gas Production so now what?
The enormous potential for natural gas production is the essence of the shale gas revolution. Many people are still spending much of their time quantifying it. For those in the commodity trading, planning, or business development space, I think it’s time to move on and examine the opportunities. Shale gas production will not be small. Perhaps it could be medium with potential regulations limiting the development. It may be extra-large if knowledge is increased and the players involved act appropriately. The next important question is where will it all go? As with any product that is introduced, you need to do some market assessment. I can with some certainty pronounce that the bulk of the new gas supply will go to the power market.
Following that premise, the next question will be how it will go to the power sector? The answer to this will vary. As a producer you need to know your customer and how exactly best to market to this new sector. Given my vast oil & gas experience along with my power utility experience I can be that bridge for you to understand what is involved in this transition. Letting nature/market takes its course for you will produce a very rocky outcome. Approaching the transition in a more strategic approach will allow you to unlock more value and avoid significant on-hands learning moments.
Inversely, as a power/utility company, moving to gas will require much consideration as the dynamic of the gas industry is much different than the coal industry. The lingo and the business strategies are almost polar opposites in some cases. The power and gas industry are currently not aligned in the advocacy position of energy policy (or lack of). This will need to change if this transition will be smooth and productive.
At AEC we can act as the bridge for you. We can pull the two sides together to produce a win-win situation. Please call us to learn, reaffirm, and give you a unique perspective on the situation. 614-356-0484 email [email protected]
CSAPR – Cross State Air Pollution Rule – Trading Strategies
CSAPR – Cross State Air Pollution Rule – Trading Strategies
There are some clear winners and losers in the recent Cross State Air Pollution Rule (CSAPR). With the modified ruling of allowing the first two years of open trading among the groups, bring up some significant opportunity to maximize trade potentials for significant gains. At AEP, I have spent numerous hours learning and evaluating emissions trading strategy given our largest emitter standings in almost every category. I will tell you now CSAPR offers significant opportunity to make or lose significant sums of money.
Emissions trading require game theory analysis with some added inefficiencies in order to safely execute a successful trading strategy. Working with the Center for Energy Economics and simulating the recent CSAPR and reviewing the ruling there are some real opportunities for those in short position to minimize their losses significantly. As with most new trading rules/laws, they never account for potential maximization of individual actors.
If you are in a short position, please do call or email me I can help mitigate whether you are in Group 1 or Group 2. Likewise, if you are long call or email me, please don’t go selling away as you will likely be leaving money on the table. Since the beginning of emissions trading, there have always been significant losers and winners. Emission market trading requires a fundamental approach to ultimately be successful.
David K. Bellman
614-356-0484
CSAPR – Cross State Air Pollution Rule – 5 Steps to Solve / Gain Insights into the Impact on the Market
1. Understand the rule in terms of the number allowance and the limitations of trading
2. Evaluate existing generation emission rates (EPA)
3. Examine the choices to mitigate emissions
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-Retire
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-Install Pollution Control Technology – Cost and Effectiveness
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-Dispatch less – Competitive landscape with alternative plants
4. Simulate the various mitigation sources through pricing emission
- Emission price will lead to reduce emission
- High enough price will lead to retirement or incentivize the installation of control technology
5. Analyze competing fuel competition demand as a result of simulation
- Do the commodity assumptions make sense in lieu of the competitive landscape and underlying fundamentals? If not repeat step 4 with new commodity assumptions.
Call us to help you reaffirm your conclusions or help you through the process. We can identify hurdles and give you solutions to get you over them and also help you avoid the land mines of analytical paralysis.
David K. Bellman
614-356-0484
Natural Gas Price Keeps Falling and Falling – Is there an End?
Gas prices being this low is not amazing. What I do think is amazing is the forward strip. Clearly in the “shoulder” month – high supply and low demand – prices can capitulate. However when demand does pick up as we head into winter it would be very unlikely to have prices stay below $3.50. I documented this phenoman in my presentation that I did at the Platts Coal Properties & Investment Conference. In a nutshell you are seeing for every 10cent drop in price almost 1 bcf/d of more gas consumption in the power sector.
Breaking it down – just from weather in November to December over the past 10 years demand has risen on average 18 bcf/d. Over the last two years over 24 bcf/d. Now given the price impact on the power sector you can expect at least an additional 6 bcf/d above and beyond the weather impact. A total of 30 bcf/d of incremental increase demand in one month has never been seen. Last year we saw a rise of 25 bcf/d and the price responded accordingly.
Last year prices of the henry hub bottomed out at $3.20 then within a month time prices climbed over $4 – peaking at $4.55 in January. Unless weather is abnormally warm I dont expect anything different this year. Coal prices that utilities are paying for (FOB + Delivery) are higher across the board. In the end its the spread that matters not the absolute price of natural gas. The forward curve is seriously discounting the demand surge expected when the winter weather comes.
David K. Bellman
