Beginning of the Correction?

It’s no big secret that I think oil prices ran ahead of themselves in the past couple of months. I don’t think they should have cracked $90 this year (and despite mass amnesia by analysts, as of August 99% were in that camp as well). But today, WTI traded into the $80’s for the first time in over a month. Of course prices may reverse before the close today (especially since it sounds like the Fed may cut interest rates again), or they may reverse next week. But I have a feeling that this is the beginning of the correction I have been expecting (and mentioned in this week’s TWIP).

It’s not that I don’t think oil is inherently worth $100/bbl. My objection to the price had more to do with how fast the price changed. Oil ran up by over 30% in just a couple of months, and this does not allow enough time to establish the new supply/demand balance. Did the fundamentals change that much in just a couple of months? No. Yet every piece of bullish news drove prices up, and bearish news did not drive it down. But lately I have been warning that traders would be wise to heed the signs that supply was increasing and demand was falling.

In spite of this, I was treated to an unending stream of rationalizations for why $100 was going to be a brief stop on the way to $150. Never mind that rising prices should be expected to moderate demand. Never mind that we hadn’t had enough time to establish the effect that $95 oil would have on demand. No, oil was going straight to the moon. I was told multiple times that speculators are not actually a factor - that the price was near $100 because of the fundamentals.

Speculators who were “in the money” suddenly became very clever, and I got treated to several lectures on how supply and demand worked - and why that favored $100 oil. I was told that “inventories were plunging”, even though it was quite easy to confirm that they were at normal levels (having fallen from ultra-high levels). And these are the very same people who confidently told me earlier in the year that Saudi was completely tapped out - even though I was predicting they would raise production later in the year.

But the tinfoil hat crowd is out in full force today. Because oil prices are down, I have seen suggestions that 1). The public is suffering from mass delusions; 2). Oil companies are manipulating the price; and 3). The government is manipulating the price. After all, “Peak Oil is here. How could oil prices fall? It must be manipulation and conspiracy.” Or, maybe Peak Oil is not here. That just doesn’t seem to enter the equation; that the supply/demand dynamics are changing. No, if you already know the answer - Peak Oil is here - then oil prices behaving contrary to that must have some other explanation.

The big stories over the next couple of weeks will be the OPEC meeting on December 5th, in which members are expected to announce another production boost, and the Fed meeting on December 11th, where another interest rate cut is forecast. Those meetings should set the direction of oil prices for the rest of 2007.

I think Saudi is going to have a tough time getting consensus on the production boost they reportedly desire, especially with oil prices already falling away from $100. There will probably be a compromise; perhaps a token production boost. Anything more substantial - 500,000 or more barrels per day - will probably put oil back in the lower $80’s. On the other hand, with oil prices down, the Fed may be more emboldened about making a bigger interest rate cut. Lately, each cut has been met with a falling dollar and rising oil prices. They may feel like they have a little more room to work with than they would have when oil was near $100.

December is going to be an interesting month.

Two Dead in Pipeline Explosion

This is one case in which I was a bit slow to process the information. I heard about this pipeline explosion not too long after it happened, but the seriousness was not immediately apparent to me:

Explosion At A US-Canadian Pipeline Sends Oil Prices To $95.17 A Barrel

It’s amazing to me how all the stories seem to treat the two deaths as an afterthought:

New York, NY (AHN) - Oil prices soared up on Thursday by $4 following an explosion at a pipeline interrupting the supply of the crude oil to the U.S. Midwest from Canada.

The fire that broke out late Wednesday cut Canadian oil supplies through the pipelines. Canada provides the U.S. with at least 15 percent of imported crude.

Oh yeah, and two people died. Let’s briefly mention that, and get back to the supply issue:

The explosion killed two workers fixing the Enbridge Energy Inc. pipeline in northern Minnesota. “It is a major incident with major supply issues in an important area,” Paul Horsnell, head of commodities research at Barclays Capital in London, told Bloomberg. “It will put pressure on prompt demand in the Midwest.”

Due to the incident, four pipelines supplying 1.5 million barrels a day were closed till further notice, although the fire was extinguished.

Maybe I am hypersensitive about that point, but it annoys me how we just so casually mention the deaths.

The government is offering to tap the SPR:

U.S. says oil reserve ready to offset pipeline blast

WASHINGTON (Reuters) - The U.S. Energy Department said on Thursday it was prepared to make oil supplies from the Strategic Petroleum Reserve available to refineries to help offset the disruption in Canadian oil imports caused by an explosion at the Enbridge pipeline.

“Crude oil from the nation’s Strategic Petroleum Reserve is available to alleviate a severe supply disruption and remains available if necessary,” a department spokeswoman told Reuters. She said the department is “reaching out” to Midwest refineries to assess their supply situation and see if they need oil from the emergency stockpile.

She pointed out that the explosion occurred at one of the four Enbridge pipelines that was undergoing maintenance, and a second pipeline has shut as precautionary measure.

However, the other two pipelines are currently moving more than 650,000 barrels of Canadian crude oil a day to the U.S. market, down from the four pipelines’ normal combined rate of 1.1 million barrels a day, the spokeswoman said.

Did I mention that two people died?

Renewable Energy Tempts Workers

I saw an interesting little story today from The Glasgow Herald. I can’t find an online version, so here it is:

Renewable Energy Tempts Workers

By Mark Williamson

More than half of the skilled staff working in the oil and gas industry may be interested in switching to work for renewable energy, according to a survey which could heighten concerns about skills shortages for North Sea firms, writes Mark Williamson. In an online survey, Eden Scott found that 52% of respondents who were employed by oil and gas firms said that they had considered or were considering a move into the renewable energy sector.

The recruitment firm said almost one in five, 19%, of those respondents who were already working in the industry had come from oil and gas. The findings may concern North Sea industry leaders following repeated complaints that firms have been struggling to get enough skilled staff. Other sectors that had proved to be fertile sources for candidates for renewable energy companies included telecoms, aerospace, engineering, power generation, consultancy and nuclear.

Among people who said they were considering moving into renewable energy, some 71% said they thought the industry had good long-term prospects while 68% cited technical interest and 63% highlighted green concerns. Eden Scott said the number of jobs in renewable energy in Europe was predicted to increase from 30,000 to 200,000 across Europe in the next five years.

Interesting times ahead for the oil industry. I see the manpower shortage getting worse and worse, which is of course one of the issues leading to Peak Lite. Am I one of the 52% who has considered it? Of course. I have considered it several times.

I find LS9 appealing, but not living in California. Ditto for Tesla Motors. I found Range Fuels interesting (and I was talking to Vinod Khosla about this when my current assignment came up), but I didn’t want to live in Georgia. And I find Choren very intriguing, but don’t like the idea of living in Houston. (I also know some of the key Choren players, and they are quite a likeable bunch). I think all of the above have good prospects, yet each one had or has something that for me is a show-stopper. But I can see why people are drawn to the field.

This Week in Petroleum 11-28-07

2nd Update

Crude was down sharply following today’s release. The AP explains:

NEW YORK (AP) — Oil’s rise to $100 a barrel, which seemed a done deal as recently as two days ago, was dealt a severe blow Wednesday when the government reported an increase in supplies at the Nymex delivery terminal in Cushing, Okla., which is closely watched by traders as a benchmark of oil inventory tightness.

Overall crude supplies fell during the week ended Nov. 23 by 400,000 barrels, in line with the 500,000 barrel decrease analysts had expected. But that decline was overshadowed by a 600,000 barrel increase in inventories in Cushing, Okla. Cushing inventories are up 13.4 percent in two weeks.

Activity at the Cushing terminal is studied closely by oil traders because it is the physical delivery point for Nymex crude. Falling supplies there are seen as a symptom of a tight market, and those concerns ease when Cushing inventories rise.

At this point, I think the only chance oil has of reaching $100 this year is if OPEC comes out of the meeting next week and really spooks the market. Of course every time I say that, oil runs up $8. But I do expect it to drop into the $80’s pretty soon.

Updated following the release

Crude inventories fell less than expected, but mostly in line with expectations. Refinery utilization is picking back up. The one thing to note is that crude imports are now up over the same period last year, and with the reports of more OPEC shipments headed this way, this trend is likely to continue. This is the first time in a long while that I recall imports being up year over year.

Summary of Weekly Petroleum Data for the Week Ending November 23, 2007

Some excerpts:

U.S. crude oil refinery inputs averaged nearly 15.5 million barrels per day during the week ending November 23, up 573,000 barrels per day from the previous week’s average. Refineries operated at 89.4 percent of their operable capacity last week.

U.S. crude oil imports averaged nearly 10.4 million barrels per day last week, up 534,000 barrels per day from the previous week. Over the last four weeks, crude oil imports have averaged 10.1 million barrels per day, or 144,000 barrels per day more than averaged over the same four-week period last year.

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) dropped by 0.4 million barrels compared to the previous week. At 313.2 million barrels, U.S. crude oil inventories are in the upper half of the average range for this time of year. Total motor gasoline inventories increased by 1.4 million barrels last week, and are below the lower end of the average range.

Nothing earth-shattering in this report. I think now it’s a waiting game until OPEC’s meeting next week.

————————————

Here is the expectation for this week’s report:

NEW YORK (Reuters) - U.S. crude oil stocks probably fell last week on lower imports, a preliminary Reuters poll of nine industry analysts showed on Monday.

Analysts called for an average draw of 800,000 barrels for crude oil stocks, a 1.4 million barrel drop in distillates, which include heating oil and diesel fuel, and a 1.0 million barrel increase in gasoline stocks.

However, the estimates were all over the place:

Phil Flynn of Alaron Trading in Chicago, however, predicted that crude stocks rose on higher imports. Crude imports had fallen 667,000 barrels per day to 9.8 million bpd in the week to Nov. 16.

Imports last week could have fallen about 300,000 bpd to 9.5 million bpd, according to an estimate by Tim Evans, analyst at Citigroup Global Markets in New York.

But Peter Beutel, president of Cameron Hanover in New Canaan, Connecticut, estimated crude imports could have risen between 250,000 to 750,000 bpd last week.

Generally, you would expect that a draw this week should push prices back toward $100. However, there are other factors pulling crude in the other direction. Given that one of the major factors that pushed oil up has been a widely held belief that OPEC had nothing more to give (or couldn’t back up their promised 500,000 bpd increase), news like this should give traders pause in the short term:

OPEC oil exports, excluding Angola, will rise by 720,000 barrels per day (bpd) in the four weeks to December 8, according to Roy Mason of tanker tracker Oil Movements.

The increase will be the biggest this year, with most of the extra supply heading to Western refiners. Mason estimated that seaborne exports from the 11 OPEC countries would rise to 24.54 million bpd from 23.82 million bpd to November 10.

Based on these observations, I think it is very likely that a new all-liquids peak will be set in November. In fact the IEA’s new production numbers for October (the full report is now available for free) show a (preliminary) new record. The total liquids production rate in October was reported to be 86.43 million bpd (see Table 3). That is up almost 2 million bpd over August, and 300,000 bpd above the previous July 2006 record of 86.13 million bpd (thanks to Stuart Staniford for providing that number). The IEA doesn’t break out just crude + condensate, but with all-liquids in that neighborhood, C+C should be near record territory as well.

The other big question is the upcoming OPEC meeting. All year I have been in the (lonely) camp that OPEC is setting on some spare capacity. I think that question has been answered, although they were certainly slow to open the taps. The questions now are 1). How much more capacity do they have?; and 2). Can Saudi get the production increase that they reportedly desire? I think there is a lot of risk out there for short-term bulls. Supply appears to be increasing, there are projections that demand will soften at these prices, and OPEC is about to discuss another production increase.

Yesterday’s OPIS Report also had a blurb on this:

The list of market watchers predicting $100/bbl oil is growing, putting more pressure on OPEC to boost production at its Dec. 5 meeting. “The market is still not pricing in production increases. I would have thought today would have been a little more give-back,” said one trader who expects OPEC will boost supply.

Oil has certainly run up higher than I thought it would this year. However, the factors that helped with the price run-up are starting to shift. The long-term bullish factors remain. Short-term, I would heed the signs pointing to a more favorable supply/demand situation.

You Have to Admire Google

These guys just seem like they are really trying hard to do the right thing:

Google’s Goal: Renewable Energy Cheaper than Coal

Mountain View, Calif. (November 27, 2007) – Google (NASDAQ: GOOG) today announced a new strategic initiative to develop electricity from renewable energy sources that will be cheaper than electricity produced from coal. The newly created initiative, known as RE-C, will focus initially on advanced solar thermal power, wind power technologies, enhanced geothermal systems and other potential breakthrough technologies. RE-C is hiring engineers and energy experts to lead its research and development work, which will begin with a significant effort on solar thermal technology, and will also investigate enhanced geothermal systems and other areas. In 2008, Google expects to spend tens of millions on research and development and related investments in renewable energy. As part of its capital planning process, the company also anticipates investing hundreds of millions of dollars in breakthrough renewable energy projects which generate positive returns.

Lots more details at the link. Good stuff.

The OPEC Showdown

It has been clear for some time that OPEC members are deeply split over whether $100 oil is good for them in the long-term. Saudi Arabia, having been in this game a long time, probably understands better than most the effect that high oil prices will have. While short-term gains will be great, ultimately economies will falter and demand for their product will be destroyed. Iran and Venezuela, on the other hand, probably couldn’t care less whether the U.S. economy chokes on these prices. The Financial Times covers the impending showdown:

Opec rivals in sequel to oil production drama

The Opec summit show is over and the performers have left town. But the preparations for Act Two, the meeting of oil ministers in Abu Dhabi on December 5, are already under way.

The scene is being set for a contest over whether to accept an oil price close to $100 a barrel or try to bring it down by raising production, with Iran and Venezuela on one side and Saudi Arabia on the other. The ministers’ decision will be an important signal of whether the influence of Saudi Arabia, traditionally the group’s most powerful member, is on the wane.

I think that Saudi will win this round and get a compromise production increase, but this disagreement will continue to fester.

“They [Saudi Arabia] have been trying to soothe the market’s worries for two reasons: because they think that the high oil price will hurt the economies of consuming countries, and more importantly, because they think it will hurt demand for oil in the medium to long term,” she said.

Iran and Venezuela have no such concerns. Their priority is to maximise short-term revenues. Their industries probably lack the capacity to pump any more oil, so they would not benefit from any increase in Opec’s production limits. Unlike Saudi Arabia, they take little interest in safeguarding the health of the US economy.

Saudi Arabia demonstrated at the previous Opec meeting, in September, that it could still get its way in spite of strong opposition from other members.

Ali Naimi, the Saudi oil minister, convinced the rest of Opec to agree an output increase of 500,000 barrels a day, as a contribution to the world’s economic stability.

But resistance from even Saudi Arabia’s traditional allies, such as Qatar, highlighted its growing difficulties in managing Opec.

And if Saudi does want a production increase, they may end up shouldering the bulk of the increase:

There are signs that Saudi Arabia has been going it alone in increasing production; analysts estimate that it has accounted for the lion’s share of the Opec production increase agreed in September, and perhaps even more.

Mr Naimi said recently that Saudi Arabia’s output was now 9m barrels per day. Edward Morse, chief energy economist of Lehman Brothers, says that is about 600,000 b/d more than estimates of Saudi production over the summer.

If they don’t (or can’t) start to bump up production faster than they are currently doing so, by next summer we may think $100 oil is cheap.

Termite Power

When I was in graduate school at Texas A&M in the early 90’s, I selected chemical engineering Professor Mark Holtzapple as my research advisor. His work was exactly in my area of interest: Biofuels from cellulose. Even then, I was very concerned about the non-sustainable lifestyle we were living, and I was hoping to save the world. For a very good overview on what we were doing, see this PowerPoint presentation or this article. In brief, what we were doing was searching for naturally occurring biological systems that convert cellulose to organic chemicals.

The primary system we studied was the bovine digestive system. Cattle are very efficient digesters of cellulose. They eat grass, and break it down via microorganisms that live in their digestive systems. So what we did was extract those microorganisms and attempt to convert cellulose in reactors that emulated the chemistry of the cow’s stomach. And while we did have success, the conversion was never as efficient as it was inside the cow.

So, I spent time brainstorming other efficient cellulose digesters. It occurred to me that probably the most efficient digester of cellulose in the world is the termite. After all, even cattle can’t break down wood. So I discussed it with Professor Holtzapple, and he thought it was a great idea. I searched the literature, and as far as I could determine, nobody had ever done it before. Therefore, I had no guidance at all with what I was attempting.

I arranged a meeting with a termite expert in Texas A&M’s Entomology Department. He was very keen on the idea, so he supplied the termites. The next bit was tricky. The cellulose digesters that we were looking at were anaerobic microorganisms. Oxygen would kill them. Therefore we always had to take great care to get them into the reaction system without killing them. For the cows, it was easy. We filled up a bottle with nitrogen, stuck our arm inside a portal into the stomach of a fistulated steer, extracted about a liter of stomach contents, and poured it into the nitrogen-filled bottle. We then transferred the contents to reactors that were being purged with nitrogen.

But with termites, it wasn’t going to be quite so easy. The volume of material I would be extracting would be very small, and therefore it would be tough to extract it without exposing it to air (with the equipment I had to work with). The other problem I had was that there was virtually no information available on the chemistry of the termite gut. How was I going to know what kind of vitamins, salts, etc. to put in the reactor? What should the pH be? The final concern I had was that I didn’t know exactly what the product of the reaction would be. I wanted a reaction system that would convert the cellulose to acetic acid or ethanol, and not all the way to carbon dioxide. But I really had no idea what I would get.

So, what I did was use the same reactor conditions I used for the bovine microorganisms, and I threw in a combination of live termites, termites with their hindguts opened up, and just some extracts from the hindgut. I figured that I had a pretty good chance, given this approach, to have some of those desirable microbes survive the transfer. I then let that combination ferment in the reactor for about a week.

When I tested the contents of the reactor, I was disappointed. I was after acetic acid to turn into ethanol, but what I got was butyric acid (which can be turned into butanol). But I wasn’t interested in butanol, and the amounts I got were very small. Since I was nearly at the end of my research, and I didn’t really have the facilities nor the time to figure out the termite hindgut chemistry (the real critical piece, in my mind), I abandoned my termite investigation. I still thought it was an excellent idea, and if someone had 3 or 4 years it would have made a great Ph.D. research project. But I had to move on and graduate.

Since that time, I have seen the idea come up on a few occasions. Because of my previous attempt, news of these attempts always catches my attention. Last week, I saw a new story on this:

Fuel’s gold: Termites point way to new dawn of bio-energy

Here is an extensive excerpt, describing this latest line of investigation:

PARIS (AFP) - A team of US scientists poring over the intestines of a tropical termite have a gut feeling that a breakthrough in the quest for cleaner, renewable petrol is in store.

Tucked in the termite’s nether regions, they say, is a treasure trove of enzymes that could make next-generation biofuels, replacing fossil fuels that are dirty, pricey or laden with geopolitical risk.

Termites are typically a curse, inflicting billions of dollars in damage each year by munching through household timber with silent, relentless ease. But gene researchers say the hind gut of a species of Central American termite “harbour a potential gold mine” of microbes which exude enzymes to smoothly break down woody fibres and provide the insect with its nutrition.

Next-generation biofuels would use non-food cellulose materials, such as wood chips and straw. But these novel processes, hampered by costs and complications, are struggling to reach a commercial scale.

The termite’s tummy, though, could make all the difference. Like cows, termites have a series of intestinal compartments that each nurture a distinct community of microbes.

Each compartment does a different job in the process to convert woody polymers into the kind of sugars that can then be fermented into biofuel. The US team has now sequenced and analyzed the genetic code of some of these microbes in a key step towards — hopefully — reproducing the termite’s miniature bioreactor on an industrial scale.

Their work, published on Wednesday in Nature, required scientists to venture into the rainforests of Costa Rica, where they plucked bulbous-headed worker termites from a large nest at the foot of a tree.

Using fine forceps and needles, they extracted the contents of the third paunch, or hind gut, from 165 termites, and sent this to a lab in California for sequencing.

From this, some 71 million “letters” of genetic code emerged, pointing to two major bacterial lineages called fibrobacters, which degrade cellulose, and treponemes, which convert the result to fermentable sugars. Termite guts are incredibly efficient, said Andreas Brune of the Max Planck Institute for Terrestrial Microbiology in Marburg, Germany.

“In theory, they could transform an A4-sized sheet of paper into two liters (1.8 pints) of hydrogen,” he said.

To be sure, they are well beyond what I was attempting to do. They are sequencing genes, using an entirely different species of termite, and they are attempting to produce hydrogen. But the core concept is the same: Scale up the internal bioreactor of the termite to produce a desirable end-product.

I guess I was just ahead of my time.

Welcome Guardian Readers

Introduction

About a month ago, I was contacted by The Guardian, one of the major newspapers in the U.K. They were launching the Guardian Commercial Partners Network. While there is potentially some ad revenue involved, that wasn’t what interested me. I have never really tried to capture much ad revenue, even though I make a few dollars a month between the Google and Amazon ads. But the reason I started this blog was to make a contribution to energy and sustainability discussions. This is what The Guardian offered:

Exposure - we will promote your website from the Guardian Unlimited homepage, which attracts over 22 million page impressions a month, to send our readers your way.

The more viewers I can reach, the better. I want to influence the way people think about energy. I want to encourage government leaders to support more sustainable options, as our current situation is not remotely sustainable.

Yesterday evening, I noticed traffic coming from The Guardian, so it looks like the program has kicked off. Down on the bottom right of their front page is a rotating blogroll. Because there is no explanation at all for what the link actually is (it just says R-Squared), I thought I should take this opportunity to introduce the blog to readers coming in from the Guardian.

What I Want

You can see my mission statement over on the right sidebar. But I will elaborate. While I am by no means an extremist, I am gravely concerned that we are approaching an energy crisis. I think we are sleep-walking into this situation, because 1). Our political leaders are by and large monumentally ignorant about energy issues; 2). Ditto for the general public; 3). Because of this combination, we don’t adopt the policies that we really need. Therefore, I want to provide a small nudge in that direction.

What do I mean by sustainability? By that, I mean that I don’t want to see us depleting resources and harming the environment in such a way to put future generations at a severe disadvantage. I believe that this is exactly what our current policies are doing. And again, I believe that this is happening because people are misinformed on the potential consequences, and therefore unwilling to make major sacrifices.

Um, Don’t You Work for an Oil Company?

Yes, for the past 6 years I have worked for an oil company. And I think oil companies in general have done a poor job of communicating that we have a problem. For the most part, I think oil companies (but by no means only oil companies) have simply denied that there is a problem. This OP-ED by ExxonMobil is a prime example. I think oil companies have also been very slow to develop next-generation energy solutions. However, not only do the energy policies we have in place often fail to encourage oil companies to move forward, at times they have actually discouraged it.

I also recognize that even though oil companies are widely-hated, we have a society that is entirely dependent on oil. So, while the long-term goal is to move away from unsustainable options like oil, right now we need it during that transition. So, I am helping out with that need, while actively working to eliminate it. Some of the things that I am doing along that front are known, and some will be known within 6 months. One of the things that I have done extensively is to nudge various technologies along with technical input and advice. More on that will come to light in 2008.

My Writing

My writing tends to fall into several categories. The first - and the one the moves me the most - is to debunk misinformation. Sometimes this involves claims that the U.S. can be energy independent by following Brazil’s example. Sometimes I address the uber-optimism of various solutions to our problems. (I see this as very dangerous, as they lull everyone into complacency that everything will be OK. People are led to believe that we just need to give the entrepreneurs more time and money). Sometimes I write to defend the oil industry against various pieces of misinformation. I just feel like we are hated enough without having to put up with false claims, and nobody enjoys being hated.

Other times, I write about conservation, increasing the gas tax, or even things like composting. I have written quite a bit about Peak Oil, and I coined the phrase “Peak Lite” to explain what I think we are actually going to experience - and are currently experiencing. (I also coined the term “XTL”, which I see popping up on a regular basis, to generically categorize GTL, CTL, and BTL).

Yeah, But What Do You Drive?

I was asked this question last week. I was preaching the need to conserve, and someone asked “What kind of car do you drive?” Of course if the answer is a gas-guzzler, my message rings pretty hollow. I would be telling YOU to conserve, but unwilling to make that sacrifice myself. But I despise hypocrisy, so I try hard to walk the talk. This is an issue that I have with Al Gore. While he has served to raise public awareness on very important issues, he has also exposed himself as someone who doesn’t need to make those sacrifices himself. (Ironically, George Bush - who I am no fan of - is the one with an eco-friendly home). Oh, and I drive a Nissan Micra.

Summary

So, that’s my blog in a nutshell. Feel free to jump into the conversation. No level of technical knowledge or expertise is expected. After all, that’s what I am trying to do here: increase knowledge and encourage discussion on energy and sustainability issues. All viewpoints are welcome, and no posts are deleted unless 1). It is an ad; 2). It is a personal attack; 3). It attempts to identify my employer. I have an agreement with my employer with respect to my blog. They don’t have a problem with it, as long as I am not doing it from work and I am not overtly discussing who I work for. They don’t want an impression that they endorse my positions. (Some they would, some they wouldn’t). So, while it is not a secret who I work for, I will delete comments that specifically name my employer.

Oh, and thanks for stopping by.

Britain Defers Coal Plant

Coal-based power has had a rough run lately:

Coal power plant decision deferred

A decision on whether to build Britain’s first coal-fired power station in more than 20 years has been deferred to a later date.

Energy giant E.on UK sought permission from Medway Council to replace existing coal-fired units at Kingsnorth power station in Medway, Kent.

E.on UK says the £1 billion investment to build two new cleaner coal units would produce power from coal more efficiently and more cleanly than ever before in the UK.

The units would produce enough energy to supply about 1.5 million homes and lead to a cut in carbon emissions of almost two million tons a year, E.on UK says.

However, more than 9,000 people have objected to the plans.

Activists staged a protest at the plant last month by climbing a 200m-high smokestack and chaining themselves to the station’s conveyor belt to prevent it burning coal.

I have said before that I think we will see a lot more coal in our future. Not that I want to see more coal, as it is the wrong direction to go if we are going to reduce our greenhouse gas emissions. But until consumers are willing to pay a premium for greener options - or unless society becomes more tolerant of nuclear power - I see a lot more coal in our future. This was my major point in XTL: Promise and Peril. I am afraid we will turn to the cheap and dirty options before we embrace the cleaner, more expensive ones.

A recent Wired interview with Stanford’s Jeremy Carl from their Program on Energy and Sustainable Development sums it up:

WN: Can you give us an idea of the scale of coal power? Can you put coal in context as an energy source?

Carl: Only oil makes a bigger contribution to global energy. In terms of energy in the industrial world, it’s about 40 percent of electricity production.

WN: How dirty is coal?

Carl: Coal is as dirty as it gets. Coal has every element in the periodic table. And depending where in the world you get it from, “coal” can mean 100 different substances. If you sent the sort of coal you might use in a typical Indian plant to a supermodern boiler in Japan, it would shut the place down.

WN: But there’s got to be good things about coal.

Carl: It’s cheap.

So, as oil depletes, what else are we going to turn to? Solar? Wind? Tidal? Geothermal? Yes, to some extent. But are the masses going to be willing to pay a premium for these options? Are they going to be willing to take draconian conservation measures? No, I don’t think so. Not unless they are forced to. They are going to scream for cheap power. That’s why we can’t get gas taxes increased in the U.S. Even though people in theory want to reduce greenhouse gas emissions, they don’t want to do so if there is any significant personal cost.

Why Oil Prices Defied Expectations

Happy Thanksgiving to all! It was a normal work day here in Scotland for me, which stinks. But I am now home, the turkey just came out of the oven, and soon I will be sitting down to watch the Dallas Cowboys on my Slingbox. What a great invention that thing is!

A lot of people - including me - were very surprised that we didn’t break through the $100/bbl barrier on Wednesday. After all, analysts had expected a large crude build, and instead there was a large draw. Given that on Tuesday night WTI had traded as high as $99.29 - and as nervous as the markets have been - I thought $100 was a sure thing given the bad news.

Yesterday’s OPIS report has an explanation for why traders may have discounted the news:

Crude oil overnight traded up to $99.29/bbl, but only got as close as $98.70 during the pit session even after the DOE reported a draw in crude oil inventories. However, a closer look shows that Cushing crude oil stocks grew by more than 1 million bbl. After yesterday’s big gains, today’s losses were relatively minor in scope with the January contract settling at $97.29/bbl loss of 74cts.

Crude oil inventories dropped by 1.1 million bbl last week, but a look at the Cushing stocks, the NYMEX WTI delivery point, inventories grew by 1.2 million bbl. A large chunk of the drop came on the Gulf Coast as stocks there fell by 1.9 million bbl, but the stock draw could be a result of a decent sized drop in crude oil imports. Crude imports fell to 9.82 million b/d a drop of more than 600,000 b/d.

The report also raised concerns over distillate supplies:

While most of the attention this holiday weekend will be placed on gasoline prices and the driving public, it’s the retail price of diesel that is setting all the records and global tightness is contributing to strong heating oil futures.

Distillate demand over the last four-weeks has been red hot and is running some 3.2% over the same time last year. Sources tie the strong demand to exports heading mostly to Europe from the East Coast and Gulf Coast as refinery glitches across the Atlantic have opened the export window.

East Coast heating oil inventories last week saw a drop of 1.4 million bbl as the first real cool weather headed into the Northeast. There is cause for concern if there is an extended cold snap as current East Coast heating oil inventories are nearly 9 million bbl behind the same time last year.

I’ll worry about that tomorrow. It’s turkey time.