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My Top 10 Energy Related Stories of 2009

Here are my choices for the Top 10 energy related stories of 2009. Previously I listed how I voted in Platt’s Top 10 poll, but my list is a bit different from theirs. I have a couple of stories here that they didn’t list, and I combined some topics. And don’t get too hung up on the relative rankings. You can make arguments that some stories should be higher than others, but I gave less consideration to whether 6 should be ahead of 7 (for example) than just making sure the important stories were listed.

1. Volatility in the oil markets

My top choice for this year is the same as my top choice from last year. While not as dramatic as last year’s action when oil prices ran from $100 to $147 and then collapsed back to $30, oil prices still more than doubled from where they began 2009. That happened without the benefit of an economic recovery, so I continue to wonder how long it will take to come out of recession when oil prices are at recession-inducing levels. Further, coming out of recession will spur demand, which will keep upward pressure on oil prices. That’s why I say we may be in The Long Recession.

2. The year of natural gas

This could have easily been my top story, because there were so many natural gas-related stories this year. There were stories of shale gas in such abundance that it would make peak oil irrelevant, stories of shale gas skeptics, and stories of big companies making major investments into converting their fleets to natural gas.

Whether the abundance ultimately pans out, the appearance of abundance is certainly helping to keep a lid on natural gas prices. By failing to keep up with rising oil prices, an unprecedented oil price/natural gas price ratio developed. If you look at prices on the NYMEX in the years ahead, the markets are anticipating that this ratio will continue to be high. And as I write this, you can pick up a natural gas contract in 2019 for under $5/MMBtu.

3. U.S. demand for oil continues to decline

As crude oil prices skyrocketed in 2008, demand for crude oil and petroleum products fell from 20.7 million barrels per day in 2007 to 19.5 million bpd in 2008 (Source: EIA). Through September 2009, year-to-date demand is averaging 18.6 million bpd – the lowest level since 1997. Globally, demand was on a downward trend as well, but at a less dramatic pace partially due to demand growth in both China and India.

4. Shifting fortunes for refiners

The Jamnagar Refinery Complex in India became the biggest in the world, China brought several new refineries online, and several U.S. refiners shut down facilities. This is a trend that I expect to continue as refining moves closer to the source of the crude oil and to cheap labor. This does not bode well for a U.S. refining industry with a capacity to refine 17.7 million barrels per day when total North American production is only 10.5 million bpd (crude plus condensate).

5. China

China was everywhere in 2009. They were making deals to develop oil fields in Iraq, signing contracts with Hugo Chavez, and they got into a bidding war with ExxonMobil in Ghana. My own opinion is that China will be the single-biggest driver of oil prices over at least the next 5-10 years.

6. U.S. oil companies losing access to reserves

As China increases their global presence in the oil markets, one casualty has been U.S. access to reserves. Shut out of Iraq during the recent oil field auctions there, U.S. oil companies continue to lose ground against the major national oil companies. But no worries. Many of my friends e-mailed to tell me that the Bakken has enough crude to fuel the U.S. for the next 41 years

7. EU slaps tariffs on U.S. biodiesel

With the aid of generous government subsidies, U.S. biodiesel producers had been able to put their product into the EU for cheaper than local producers could make it. The EU put the brakes on this practice by imposing five-year tariffs on U.S. biodiesel – a big blow to U.S. biodiesel producers.

8. Big Oil buys Big Ethanol

I find it amusing when people suggest that the ethanol industry is a threat to the oil industry. I don’t think those people appreciate the difference in the scale of the two industries.

As I have argued many times before, the oil industry could easily buy up all of the assets of ethanol producers if they thought the business outlook for ethanol was good. It would make sense that the first to take an interest would be the pure refiners, because they are the ones with the most to lose from ethanol mandates. They already have to buy their feedstock (oil), so if they make ethanol they just buy a different feedstock, corn, and they get to sell a mandated product.

In February, Valero became the first major refiner to buy up assets of an ethanol company; bankrupt ethanol producer Verasun. Following the Valero purchase, Sunoco picked up the assets of another bankrupt ethanol company. If ExxonMobil ever decides to get involved, they could buy out the entire industry.

9. The climate wars heat up

There were several big climate-related stories in the news this year, so I decided to lump them all into a single category. First was the EPA decision to declare CO2 a pollutant that endangers public health, opening the door for regulation of CO2 for the first time in the U.S.

Then came Climategate, which gave the skeptics even more reason to be skeptical. A number of people have suggested to me that this story will just fade away, but I don’t think so. This is one that the skeptics can rally around for years to come. The number of Americans who believe that humans are causing climate change was already on the decline, and the injection of Climategate into the issue will make it that much harder to get any meaningful legislation passed.

Closing out the year was the United Nations Climate Change Conference in Copenhagen. All I can say is that I expected a circus, and we got a circus. It just goes to show the difficulty of getting countries to agree on issues when the stakes are high and the issues complex. Just wait until they try to get together to figure out a plan for peak oil mitigation.

10. Exxon buys XTO for $41 billion

In a move that signaled ExxonMobil’s expectation that the future for shale gas is promising, XOM shelled out $41 billion for shale gas specialist XTO. The deal means XOM is picking up XTO’s proved reserves for around $3 per thousand cubic feet, which is less than half of what ConocoPhillips paid for the reserves of Burlington Resources in 2005.

Honorable Mention

There were a number of stories that I considered putting in my Top 10, and some of these stories will likely end up on other Top 10 lists. A few of the stories that almost made the final cut:

The IEA puts a date on peak oil production

The statement they made was that barring any major new discoveries “the output of conventional oil will peak in 2020 if oil demand grows on a business-as-usual basis.”

AltaRock Energy Shuts Down

Turns out that deep geothermal, which the Obama administration had hoped “could be quickly tapped as a clean and almost limitless energy source” – triggers earthquakes. Who knew? I thought these were interesting comments from the story: “Some of these startup companies got out in front and convinced some venture capitalists that they were very close to commercial deployment” and “What we’ve discovered is that it’s harder to make those improvements than some people believed.” I am still waiting to see a bonafide success story from some of these VCs.

The biggest energy bill in history was passed

In total, $80 billion in the stimulus bill earmarked for energy was a big story, but I don’t know how much of that money was actually utilized.

The Pickens Plan derails

The website is still there, but the hype of 2008 turned into a big disappointment in 2009 after oil prices failed to remain high enough to make the project economical. Pickens lost about 2/3rds of his net worth as oil prices unwound, he took a beating in the press, and he announced in July that we would probably abandon the plan.

So what did I miss? And what are early predictions for 2010’s top stories? I think China’s moves are going to continue to make waves, there will be more delays (and excuses) from those attempting to produce fuel from algae and cellulose, and there will be little relief from oil prices.

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December 24, 2009 - Posted by | biodiesel, China, climate change, ethanol, ExxonMobil, geothermal, global warming, Media coverage, natural gas, oil consumption, oil demand, oil prices, oil refineries, T. Boone Pickens, valero

27 Comments

  1. Your thoughts on Bakken?

    Comment by takchess | December 24, 2009

  2. There is oil there, and people have been trying to economically extract it for over 50 years. There is some production there today, but the amount of commercially recoverable oil is far lower than many of the wild numbers that are often thrown around.RR

    Comment by Robert Rapier | December 24, 2009

  3. Robert,Probably a sub-bullet to your item on EPA's Endangerment Finding, but I would have added that regulation limits have been proposed for light-duty vehicle CO2 emissions. The way this is happening is pretty interesting. CAFE, the existing vehicle mileage standard, will remain and be enforced by the National Highway Traffic Saftey Administration, as a Mile/Gallon standard. However, in addition EPA will have a standard for CO2 in Grams/Mile.These both come with their own reporting requirements of course. Regulatory efficiency at its best.This may seem like engineering details related to the Endangerment Finding, but it will certaiinly affect what consumers will be able to purchase and at what price.

    Comment by SamG | December 24, 2009

  4. Good list, RR.I wonder if, when people look back in about 10 years time, the long-term important story of 2009 will turn out to have been the rumblings through the financial world, basically caused by excessive government spending around the world. Greece goes bust. Credit agencies warn about downgrading UK sovereign debt, etc.If this continues (and there is every reason to think it will), it may have a long-term impact on demand. And it may put an end to expensive follies like Alleged Anthropogenic Global Warming, with all its regulatory impediments.We live in interesting times!Here's wishing you & yours all the best for 2010.

    Comment by Kinuachdrach | December 24, 2009

  5. Story number 11 : Robert Rapier's blogging stays excellent.Merry Christmas Mr Rapier. Many thanks for your great blogging.

    Comment by Nick de Cusa | December 24, 2009

  6. Closing out the year was the United Nations Climate Change Conference in Copenhagen. All I can say is that I expected a circus, and we got a circus. It just goes to show the difficulty of getting countries to agree on issues when the stakes are high and the issues complex…Whatever they did in Copenhagen it must have worked. I spent a couple of hours last night cleaning snow off my driveway and as I look out the window, it needs it again. Plus I've got about two feet of snow on the roof and big icicles hanging off the eaves.Message to Al Gore: How about sending a little of that global warming my way?

    Comment by Wendell Mercantile | December 24, 2009

  7. The Bakken is a pretty big deal, but probably not the panacea that a lot of people think.For a Bakken proxy, see North Dakota production profile below.http://tonto.eia.doe.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCRFPND1&f=MNorth Dakota production has just about tripled in the last 5 years (data only goes through July), and has increased by well over 100,000 bopd in the last few years. Very good… but that 100,000 barrel growth is still under 1% of US consumption. I think if this had potential to wean us away from OPEC, we'd see much bigger numbers than these and more dramatic growth.Still, it takes a while to build a strong lease position and secure funding, and the downturn late last year probably deferred a lot of drilling, so we can expect some pretty impressive numbers ahead.

    Comment by armchair261 | December 24, 2009

  8. “And as I write this, you can pick up a natural gas contract in 2019 for under $5/MMBTU.”That is an incredibly misleading statement. One price just popped up for $4.35/MMBTU for October 2019 delivery. This October is was $2.50/MMBTU and now it is $5.59/MMBTU. It is more interesting to know what the price of something when demand is high. NG is only a cheap fuel compared to oil.

    Comment by Kit P | December 24, 2009

  9. Pretty good list, RR! Some minor comments:That's why I say we may be in The Long Recession.I just don't see it. The higher oil prices go, the less we'll use. As is already happening.China is much more vulnerable to high oil prices, as it a) does a lot of heavy manufacturing and b) has a government that tries to do the impossible in setting the prices for refined products.To the US economy, high oil prices present this major economic risk: instability due to a Chinese meltdown. Stay tuned.China was everywhere in 2009. They were making deals to develop oil fields in Iraq, signing contracts with Hugo Chavez, and they got into a bidding war with ExxonMobil in Ghana. My own opinion is that China will be the single-biggest driver of oil prices over at least the next 5-10 years.Right. But no mention of Sudan? China's support allows the Sudanese government to keep killing all non-Arabs (read: blacks), while the China keeps the UN neutered. Can't be racism, at least, because there are no whites involved.Big Oil buys Big EthanolMore significantly, if biofuels ever take off we'd be buying it from Big Oil. To be honest, that's better than Big Ag.Closing out the year was the United Nations Climate Change Conference in Copenhagen. All I can say is that I expected a circus, and we got a circus. It just goes to show the difficulty of getting countries to agree on issues when the stakes are high and the issues complex. Just wait until they try to get together to figure out a plan for peak oil mitigation.Copenhagen just served to illustrate that you can't trust the government to solve the really big problems. And it you involve more governments, well, as you say, get the popcorn and enjoy the circus.Peak Oil? Leave that to the free markets (or what's left of the the free markets). That's why Peak Oil has the potential to kill China and seriously hurt India.We'll see.Merry Christmas, everybody!

    Comment by Optimist | December 24, 2009

  10. Relative to #8 – Big Oil buys Big Ethanol – this bitter-sweet (for ethanol enthusiasts) investment recommendation showed up in my inbox today:"Biofuels: Why do we suggest this dubious investment play? Because your profits are guaranteed by the government."I won't mince words. Biofuels are a marginal idea. Founded on a politically correct wish list . . . paid for by your tax dollars . . . and propelled by a Federal juggernaut that is impervious to facts."… So, yes, we have severe doubts about the wisdom of letting senators play the role of farm gods, badly distorting markets by paying farmers to raise nothing but soybeans or corn. "… The Energy Bill of 2005 mandates that by 2012, 30% of U.S. corn must go to ethanol, and the use of biofuels like ethanol must double. Even more startling, the blend rate for gasoline spiked with ethanol is likely to rise from 10% to 15%. If all this is not a governmental guarantee of profits, we don't know what is. "That's why we're pushing such a dumb investment idea: We expect obscene returns– like Las Vegas on a good day. We expect biofuel profits in the range of 30-50% in the next 12 months. …""THE ENERGY LETTER is a bi-weekly e-zine written by Elliott H. Gue and published by KCI Investing."

    Comment by Kinuachdrach | December 24, 2009

  11. That is an incredibly misleading statement. One price just popped up for $4.35/MMBTU for October 2019 delivery.You know Kit, these games of yours have gotten incredibly tiresome. You are on the verge of becoming only the 2nd person I have ever banned – and the other person was a certifiable nut job. And when I do it, you won't ever be allowed to post "Hello" on here again.There was nothing misleading about the statement. That contract was for December 2019, exactly 10 years from now. The price right now – I just checked – for December 2019 delivery is $4.47. So you better get your facts in order before you come on here accusing someone of making misleading statements. That is my final warning to you.RR

    Comment by Robert Rapier | December 24, 2009

  12. “You know Kit, these games of yours have gotten incredibly tiresome.”No, I do not know, my crystal ball is a little cloudy on natural gas futures. It seems to be a very volatile commodity. To be fair to RR, I do not think all the people in the NG industry who were trying to mislead people with predictions to years ago, but they were sure wrong. I am however 100% certain of my motives. I stand by my original statement. If you are going to think every time I disagree with you that it is a personal attack, get over it. I am questioning your analyses not your honesty.If it makes you feel better to ban me because you think I an a dishonest SOB, that is okay I have a thick skin.

    Comment by Kit P | December 24, 2009

  13. I am however 100% certain of my motives. I stand by my original statement.Then congratulations. You are banned. If you want to accuse me of misleading my audience – when the statement I made was backed up any way you can slice it – then you are no longer welcome here.If you are going to think every time I disagree with you that it is a personal attack, get over it. I am questioning your analyses not your honesty.You accused me of making a misleading statement, when I made a crystal clear statement backed up by the facts. My statement was "And as I write this, you can pick up a natural gas contract in 2019 for under $5/MMBtu."Now, if you want to disagree with that, you need to show how it is wrong. Or, you could have shown that this was a summer contract, in which case your misleading comment might have been true. But given that it was December 2019, your complaint has no basis in fact, and once again I am wasting time babysitting someone who can't seem to understand that groundless accusations are not proper forum decor.So you can find another place to hang out. You are banned not because of your opinion, but because you don't know how to behave. You were issued numerous warnings, but did not have the sense to heed them.RR

    Comment by Robert Rapier | December 24, 2009

  14. I believe we will be in a long recession for several years or even decades, just based on the world's unsound banking systems. We are still close to the cliff, regardless of what the MSM may say. We could have an oil glut for the next 20 years and it wouldn't matter. JMO. OD

    Comment by Anonymous | December 25, 2009

  15. 9. China was everywhere in 2009 Not just in oil, but in energy in general.In 2009 China installed 10 GW of wind power, passing the US to become the top installer of wind power. Several years ago China used to import most of the wind turbines they installed. Now they build most of them in China. In 2009 China's polysilicon industry has gained market share from about 30% in 2008 to about 40% in 2009, though most of it gets exported.China is currently planning an 11,950 MW renewable energy park, the Ordos New Energy Industry Demonstration Zone (NEIDZ), including 6,950 MW of wind energy, 3,900 MW of PV, 720 MW of concentrating solar power plants, 310 MW of biomass and 70 MW of hydro storage.http://www.renewableenergyworld.com/rea/news/article/2009/10/companies-see-shining-opportunities-in-chinaChina has 13 nuclear power units under construction, more than any other country, with 11 more planned.China continues to build coal plants at a fast rate, some not very efficient, but some are among the most advanced in the world.http://www.nytimes.com/2009/05/11/world/asia/11coal.html

    Comment by Clee | December 25, 2009

  16. “China has 13 nuclear power units under construction, more than any other country, with 11 more planned.”It is amazing how far behind China is, only 30 or 40 years. Back then 30+ reactors were under construction in the US.Four of the nukes in China are being built by US companies. More than 4 would be under construction in the US except the US is a democracy and we have to debate these things ad nasuem (Latin for we, the government, can not shoot anti-nukes). Two of the nukes in China are being built the French who have two under in the EU that are nearing completion. Four of the French design would be under construction in the US but are not for the same reason. The remaining reactors under construction are older designs mostly a cloned French design from a cloned US design.In the US 30+ nukes are planned and I am not sure about the EU but it is a bunch. It is nice that China is going to produce some of its electricity without slave labor, thanks to western countries but it is not leadership.

    Comment by Kit P | December 25, 2009

  17. Robert:Some unplanned carbon emissions yesterday at your former place of employment.Refinery operating at 'normal' after tank firehttp://billingsgazette.com/news/local/article_58389e92-f0db-11de-853f-001cc4c002e0.html

    Comment by Anonymous | December 25, 2009

  18. It is amazing how far behind China is, only 30 or 40 years. Back then 30+ reactors were under construction in the US.Merry Christmas, Kit. I think you have something to offer here, but in 2010 I have zero tolerance of you antagonizing other posters. Give your posts a read before you hit "Post", and if you think something you wrote might be insulting or antagonistic if the same was directed at you, then don't post it. Your posts are subject to deletion without warning from this day forward.RR

    Comment by Robert Rapier | December 25, 2009

  19. Some unplanned carbon emissions yesterday at your former place of employment.I had not seen that, but oddly enough I dreamed about the refinery last night. I dreamed that I was visiting my old friends and colleagues. RR

    Comment by Robert Rapier | December 25, 2009

  20. Aww. I thought our Christmas present was that you had finally banned Kit P after over a year of his gratuitous insults.

    Comment by Anonymous | December 25, 2009

  21. Your Christmas present is that there will be no more gratuitous insults. In fact, if I fail to delete something that contains anything resembling an insult, call it to my attention and I will zap it.RR

    Comment by Robert Rapier | December 25, 2009

  22. Excellent list, perfect pitch and content.I feel fortunate to read such an excellent blog, to compare against my own rambling thoughts.I remain optimistic that the real boom is starting right now, and Asia will lead the way for another 20 years. I see a "Long Boom," and no Long Recession.Higher living standards and a cleaner world are on the cusp. Engineers and scientists such as RR can take credit, along with investors, teachers, and other people who show up for work and do their jobs.I am happy to be a fan, and wish top of the season to all. I enjoy everyone's commentary.

    Comment by Benny "The Long Boom" Cole | December 25, 2009

  23. Well actually my Christmas was two WWII submarine movies. My wife is easy to shop for, plane tickets to get the kids home. This year I had to put chains on the truck and drive to an open air port 100 miles south. It took 4 hours the day before just to see if I could get to the main road and back.When I got main road it was clear so I planned to take off the chains at the gas station. Unfortunately, it was in the next county over which is not very good with basic services. I was happy to see the US highway was open since it was closed the night before and the National Guard had to be called out to rescue the unprepared. At the next county line, 4 lanes of cleared highway demonstrating that some governments are more competent than ohers.Life is full of trials and tribulations, some more important than others. I am now golden for another year.

    Comment by Kit P | December 25, 2009

  24. Related to China possibly being the single biggest driver of oil prices over the next 5-10 years, in 2009 China passed the US to become the largest market for automobiles. Though they might barely miss meeting the 2008 US sales number.More on China being everywhere, not just in oil,… In 2009 China signed deals to invest over a billion US$ to build hydroelectric and coal power plants and major transmission lines in Tajikistanhttp://www.cacianalyst.org/?q=node/5141T. Boone Pickens has cancelled his wind farm in Texas. Instead China will be a partner in building a 600 MW wind farm in Texas using turbines made in China. To me this has nothing to do with leadership, or lack of it. I see it as a sign that China sees energy as an important growth industry and it wants to play a big part.

    Comment by Clee | December 26, 2009

  25. I am sorry Clee but I do not understand your fascination with China. The government of China is a repressive government and I think it is good that they are becoming less repressive.Energy is freedom. Freedom from backbreaking labor of heating and cooking with wood and washing cloths by hand. Freedom to travel to where your talent takes you. EDF, the French electric utility, just invested $4 billion if 5 US nuke plants. South Korea is the leading bidder in a huge nuke deal with UAE. Lot of people are lots of places but China is not a mover of shaker in energy. There is a about a billion people in the world that will die without ever having access to clean water or electricity. South Korea made the transition maybe China can do it.

    Comment by Kit P | December 26, 2009

  26. I think you should rename this "Top 10 Oil/Gas Related Stories of 2009".

    Comment by doggydogworld | December 26, 2009

  27. Doggy — Oil & Gas provide something like 60% of the global energy which (among other things) lets you comment on a blog like this. Throw in coal, and fossil fuels provide about 90% of global energy. (The rest is mostly nuclear and hydropower).So any list on energy-related stories is likely to be high on fossil fuels, and on oil & gas in particular.Of course, there were other stories — such as Shell's decision to stop investing in uncompetitive intermittent wind & solar. Was that the kind of story you think should have been included?

    Comment by Kinuachdrach | December 26, 2009


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