No wonder...

Sen. Baucus is headed for Japan.  He's going to take some heat from Big Ethanol for his energy tax reform plan.

Baucus's proposal would be to get rid of those 42 energy tax incentives and, in their place, create two broad credits:1) First, any facility producing electricity that is at least 25 percent cleaner than the average for all electricity production facilities would receive a tax credit. The cleaner the facility, the larger the tax credit. (By "clean," Baucus is referring to greenhouse-gas emissions per unit of electricity produced.)This credit starts at 2.3 cents per kilowatt of generation and rises to a maximum of 20 percent of the total cost of the investment. Companies couldn't get the credit until they started producing power, and then they'd get the break for 10 years.All of these credits, meanwhile, would phase out in four years once the greenhouse-gas intensity of the entire U.S. electricity sector is 25 percent below current levels. So there's an overall limit.2) Likewise, any transportation fuel that is at least 25 percent cleaner than conventional gasoline will generally receive a credit. Again, the cleaner and more energy-efficient the fuel, the larger the credit — and the bill would take the entire life-cycle into account when judging the fuel. So if, say, corn-based ethanol wasn't cleaner than gasoline, no tax credit.(Note that the credit for transportation fuels would likely need to be paired with a repeal of the Renewable Fuel Standard that requires refineries to blend a certain amount of ethanol into gasoline. It wouldn't make sense otherwise. But Baucus's committee doesn't have jurisdiction over that fuel standard, so this part isn't in the proposal.)  [More]

Ya live by the mandate, ya perish by the mandate.

Bright lights...  

No big city. Where there once was a dark hole, behold the rigs and flares of the Bakken field.

[More astonishing photos of Kuwait on the Prairie]

Only off 4 years...  

In speeches this winter, I often mentioned the prediction that natural gas would pass coal as our primary electricity source by 2016. I had to move it down from 2019 due to new projections.

It appears I was still a little off:

 [source]

This is breathtaking speed for conversion. I don't think we know what it ultimately means for our economy and culture. For agriculture, I wonder what freeing up all those coal trains could imply for grain movement. I was often told out West that grain got short shrift because coal was so much more lucrative to move.

Or it could be they will head west to move the coal to China, instead.

Game-changer...  

This chart gets more incredible every time it is updated.

This is the Blackest of Swans, IMHO.  And the outlook right now appears even better. Consumption is not forecast to rise much at all, and domestic production could increase mightily in the very near future.

The net economic result of not sending so much money outside our borders is enormous. It also ratchets back the urgency for military foolishness in the Mideast. Let China and Europe deal with the Saudis, for once.

Even with BRIC demand growing, I see no reason to countenance doomsday scenarios of $200 oil. Also our domestic oil/gas production certainly undercuts ethanol mandate expansion, and if we punt this corn crop, it provides grounds for mandate waivers by the EPA.

It also spells a grim future for Big Coal, especially after the court ruling on new EPA emission limits for new power plants.

As I have said before, this is a big fracking deal.

Not all pennies are the same...  

A truly curious economic research finding: we react differently to a gas price increase when it is caused by taxes than when it is simply supply/demand driven. In fact, we cut consumption more for a penny increase in taxes compared to a penny in intrinsic gas price.

That's from a new NBER working paper by Shanjun Li, Joshua Linn, and Erich Meuhlegger. As the authors note, this has some interesting implications. It suggests, first, that estimations of the revenue that can be raised from petrol tax increases that are based on elasticities with respect to petrol prices will overstate assumed revenue gains. On the other hand, it means that reductions in consumption driven by tax changes should be less painful than those driven by movements in the price of oil. If America is interested in cutting its dependence on oil, then weaning consumers off petrol via tax rises will be easier on the economy than simply letting market-price variation do the work.
The paper suggests that more work is needed to understand the causation, but they point toward one logical factor: consumers may be more likely to read tax changes as permanent. A household that observes what looks like a permanent increase in petrol costs due to tax rises will quickly adjust its behaviour to minimise the burden—by driving less or purchasing more efficient vehicles. The household may delay such action when market movements send prices up as it waits to see how persistent the change will be. That delay represents more profit for producers and more of a hit to other household consumption than we'd get with a straightforward tax hike. [More]

Regardless, I think we are learning we will cut consumption when the cost increases. In fact, between Boomers slowing down, young people driving less and later, and better cars we may surprise ourselves how low we can go.

On the other hand, that's not good news for volume based gas taxes, unless we raise them commensurately.

The trouble with North Dakota...  

Is, as we all have realized, it's too close to where North Dakota is. Simply put: Location, location, location.

This recent gem of verification of this hard fact.

Our top export last year was (drum roll, please) FUEL.  That's right, citizens, we're importing oil and exporting gasoline/diesel. While much of that is due to consumption decline, the other biggy is the ND problem.

Nevertheless, something real is happening here. What accounts for the new-found U.S. competitiveness? I think a key factor is that abundant new supplies of crude oil from Canada and North Dakota are now coming into the central United States. Between 1987 and 2008, West Texas Intermediate, the benchmark light, sweet crude oil for sale in Cushing, Oklahoma, sold for $1.50/barrel more than Brent, its North Sea counterpart. That differential vanished in 2009-2010, and so far in 2011, WTI has sold at an average price that astonishingly is almost $17/barrel cheaper than Brent. [More]

Since there aren't good ways to get this shale oil to the ports, but there are pipelines from Midwest refineries for fuel, the obvious is happening.

Meanwhile (sigh) I may have been a little too optimistic about shale gas which is currently propelling the energy boom elsewhere.

By the same logic, you can claim to be a multibillionaire, including all your "probable, possible, and speculative resources."

Assuming that the United States continues to use about 24 tcf per annum, then, only an 11-year supply of natural gas is certain. The other 89 years' worth has not yet been shown to exist or to be recoverable.

Even that comparably modest estimate of 11 years’ supply may be optimistic. Those 273 tcf are located in reserves that are undrilled, but are adjacent to drilled tracts where gas has been produced. Due to large lateral differences in the geology of shale plays, production can vary considerably from adjacent wells.

The EIA uses a different methodology to arrive at its resource calculations, offering a range of estimates. In the most optimistic, "high shale resource case," it estimates there are 1,230 tcf in the “estimated unproved technically recoverable resource base.” It also offers several production forecasts through 2035, ranging from 827 tcf in their Reference case, to 423 tcf in their Low case—one-fourth the headline number. In the Low case, which certainly could be correct, the EIA says the United States could once again become a net natural-gas importer by 2035. [More]

I'll keep checking on the estimates, and maybe much of the predicted reserves will be shifted into the solid column, but I should have looked a little harder at where the numbers were coming from.  Maybe it was the "infographic misinformation syndrome" that helped me leap to a possible overly rosy outlook.

Now that Obama's dog has won the War on Christmas, or something, it's time to get down to a war that really matters: the war on terrible, lying infographics, which have become endemic in the blogosphere, and constantly threaten to break out into epidemic or even pandemic status.
The reservoir of this disease of erroneous infographics is internet marketers who don't care whether the information in their graphics is right ... just so long as you link it.  As a Christmas present to, well, everyone, I'm issuing a plea to bloggers to help stop this plague in its track.
Below the break, a tour of some of the more egregious examples, and some thoughts on why they've become so prevalent.
For those of you who can't sit through all that boring writing, however, I will first deliver my message in--ahem!--a more visual format:

 McArdle's identification rules:

If you look at these lovely, lying infographics, you will notice that they tend to have a few things in common:

1. They are made by random sites without particularly obvious connection to the subject matter. Why is Creditloan.com making an infographic about the hourly workweek?
2. Those sites, when examined, either have virtually no content at all, or are for things like debt consolidation--industries with low reputation where brand recognition, if it exists at all, is probably mostly negative.
3. The sources for the data, if they are provided at all, tend to be in very small type at the bottom of the graphic, and instead of easy-to-type names of reports, they provide hard-to-type URLs which basically defeat all but the most determined checkers.
4. The infographics tend to suggest that SOMETHING TERRIBLE IS HAPPENING IN THE US RIGHT NOW!!! the better to trigger your panic button and get you to spread the bad news BEFORE IT'S TOO LATE! [Same for all above]

It should be obvious the energy business is in the same turmoil as the rest of the global economy, as new demand and precarious economic situations make all sorts of information hard to get and even harder to verify. But either some better minds than mine are investing way too much on a overblown idea of NG reserves or stubborn pessimism will be slowly proven wrong. That said, I no longer assume that richer people are probably smarter people. (And it's not because I think I've gotten smarter)

A Big Fracking Deal...  

I'm officially naming the explosion (heh) in natural gas production as the The Big Thing for 2011. Although I was impressed at the time I first heard of it, it continues to create huge side-effects that wil rock our world.

• NG exploration has helped the steel and construction industries.

For example, estimates of Pennsylvania job creation due to increased shale gas production since 2009 range from 44,000 to 72,000. In Bradford County, Pa., the 2009 unemployment rate of 10 percent has been halved because of Marcellus Shale gas development. New York’s economically depressed Southern Tier is also benefiting from gas field development in nearby Pennsylvania. Case in point: RB Robinson Contracting, Inc., a family construction business in Candor, N.Y., had eight full-time employees in 2009. Today, it provides full- and part-time work for 120 people.

Ohio’s steel industry has also felt the economic impact of the revival of shale production. More than 400 workers in Youngstown are constructing a new $650 million steel mill for Vallourec & Mannesmann Holdings, Inc. It will annually produce a half million tons of seamless steel well tubing used in drilling and “fracking” natural gas wells. U.S. Steel is spending $95 million to expand and upgrade its tubular steel mill in Lorain, Ohio, and Timkin is spending $50 million on a similar project at its Canton mill." [More]

• NG is replacing coal and oil (especially in the East)for electricity.

Natural gas will replace coal as the leading fuel for generating electricity in the U.S. by 2025, when it will also become the world's No. 2 overall fuel source thanks to its abundance and a drive for cleaner-burning energy, according to the latest long-term outlook from Exxon Mobil Corp. [More]

Here in the US, NG will become the #1 electricity fuel even sooner: 2019. And while it is not a panacea for carbon emissions, it does have big advantages in transportation, distribution, and its own environmental plusses.

• NG may be pulling the plug on wind farms even with their subsidies. I'm not counting this as a plus, just acknowledging I was wrong about the effect of more NG.  I thought peaker plants would help to stabilize the grid with lots of fickle wind turbines and their fluctuating output, but it seems it's easier to just build the NG generators.

General Electric saw a drop in demand for its wind power turbines to around half of its 2009 sales levels as power companies turned to natural gas for cheaper alternative energy forms, the company said on a conference call. GE is the top supplier of wind turbines for some of the nation’s largest wind power farms — huge swathes of land dotted by giant windmills that use the wind to generate anywhere from 1 to 3 megawatts of power per windmill. Each turbine and wind farm typically carries enormous upfront capital costs that can take several years before the power company can recoup its costs. [More]

• NG could spawn more basic chemical production, as it is an excellent feedstock for all kinds of basic chemical needs.

Officials in Appalachian states are hoping the natural-gas boom will attract more than just controversy to their economically struggling region. Pennsylvania, Ohio and West Virginia are offering tax breaks and incentives to "ethane crackers," or the multi-billion dollar plants that start the chain of making ethylene, a basic feedstock for chemical plants, reports Gabriel Nelson of Energy and Environment News.

No ethane cracker has been built in the U.S. since 2001 because natural-gas prices were too high, and most production was sent overseas. Since new deposits, such as those in the Marcellus Shale, have been tapped, crackers are now cheaper in the U.S. than anywhere except the Middle East. The U.S. ethane supply has grown by 25 percent over 10 years, and because it's harder to transport than methane, cracking plants must be located close to drilling sites. Nelson reports if ethane supplies stay at current levels, petrochemical companies will spend over $16 billion on pipelines and crackers. [ More]

I still am not sure how this will play our for transportation fuel, but this close the the East Coast, where oil is still used for home heating and electricity, replacing both with NG could dampen demand for oil enough to keep gasoline prices lower than might be expected. This is not good news for ethanol, and would seem to cap upside potential to the mandate.

I'm OK with that possibility, especially since we can't seem to match our predictions for corn production, and it is rapidly becoming clear cellulosic ethanol is a joke.

Like I predicted. [Apologies for shameless, gratuitous self-congratulation, but getting something right happens soooo rarely...]

Peak ethanol...  

Perhaps.

Drivers of the approximately 16,500 highway-worthy electric vehicles in the U.S. can choose from 4,448 public charging stations should they want to plug in someplace other than home or work, according to U.S. Energy Department data.
That's one per 3.7 electric cars, such as Nissan's Leaf or Tesla's Roadster. That compares with 2,468 places to fill up the 7.6 million vehicles that can run on E85, a fuel that is 85% ethanol. E85-capable vehicles, also known as flex-fuel vehicles, can run on either E85 or traditional gasoline.
The Obama administration is pushing for still more charging stations, with $230 million worth of support from the Energy Department and private investment:
Ecotality received funds under the federal program to install 14,000 chargers in 18 metropolitan areas in six states and the District of Columbia.
"Electricity is the flavor of the month, just as others have had their time in the sun, electricity is now there," said Brett Smith, co-director of manufacturing, engineering and technology at the Center for Automotive Research in Ann Arbor, Michigan. "Is this a long-term technology or is it just that flavor of the month?"
Smith cited E85 and hydrogen fuel-cell cars as examples of technologies that have been favored by the government before the Obama administration chose to promote electric vehicles through policy and spending. [More]

And of course, ethanol is not wildly popular with the Republican Tea party base outside farm states.

But this year is an exception because the party, under increasing influence from the Tea Party, has pivoted on the subsidy. This summer, many Republicans in Washington voted to end the $6 billion-per-year ethanol subsidy. Though it ultimately survived, subsidies have become a rallying call for fiscal conservatives looking to cut waste and Tea Partiers who don’t want government ‘picking winners and losers.” No other candidate is as uncompromisingly for the subsidy than Newt. Mitt Romney, who has been vague on the issue, most recently says that while he initially supported the subsidy, should not “go on forever” — hardly a comforting position for Iowa farmers. Rick Perry, Michele Bachmann, Rick Santorum, and Ron Paul have all come out against the subsidy.  [More]

Finally, the antipathy on the right for the EPA doesn't really reassure ethanol producers either.

You live by the subsidy, you die by the subsidy, I guess. In this case it looks like the whole political spectrum is a threat.

Baby, we are drilling...  

Once oil companies began including the full costs of sourcing in developing nations, the economics of producing at home, or at least countries with functioning democracies, looked a little better.

Now, in a sense, the choice has been made for them. Big onshore fields in the world's most prolific hydrocarbon provinces are increasingly the preserve of national oil companies, state-owned behemoths like Saudi Aramco and Russia's OAO Rosneft and OAO Gazprom. For foreign majors like Royal Dutch Shell PLC and BP PLC, their former heartlands in the Gulf sands are now largely off-limits.
Shut out of the Middle East, they have responded with a huge push into new areas, both geographic and technological. Over the past few decades, they have built vast plants to produce liquefied natural gas, or LNG. They have drilled for oil in ever-deeper waters, ever farther offshore. They have worked out how to squeeze oil from the tar sands of Alberta. And they have deployed technologies like hydraulic fracturing, or fracking, and horizontal drilling to produce gas from shale rock.
Wood Mackenzie, an oil consultancy in Edinburgh, says that more than half of the international oil companies' long-term capital investments are now going into these four "resource themes"—a huge shift, considering how marginal the companies once considered them.
There are also drawbacks to the new focus on nontraditional kinds of hydrocarbons. Environmentalists strongly oppose shale-gas extraction due to fears that fracking may contaminate water supplies, the oil-sands industry because it is energy-intensive and dirty, and deep-water drilling because of the risk of oil spills like last year's Gulf of Mexico disaster.
There are financial considerations, too. While conventional assets are relatively easy to develop and historically have offered good returns, projects in some more technically difficult sectors—like deep-water and LNG—typically take longer to bring on-stream, and are higher cost, meaning returns are lower.
But there is an upside for the majors. "The silver lining is the shape of the profile of these projects, which is different than conventional ones," says Simon Flowers, head of corporate analysis at Wood Mackenzie. LNG ventures, for example, can deliver contract levels of gas at a steady rate over 20 years. "So the returns may be lower, but overall you have a more dependable cash-flow stream," he says.
By pursuing these nontraditional fuels, the oil companies are committing themselves ever more deeply to the wealthy nations of the Organization for Economic Cooperation and Development. Wood Mackenzie says $1.7 trillion of future value for all the world's oil companies—52% of the total—is in North America, Europe and Australia. The consultancy has identified a "significant westward shift" in oil-industry investment, away from traditional areas like North Africa and the Middle East "towards the Brazilian offshore, deepwater oil in the Gulf of Mexico and West Africa and unconventional oil and gas in North America." And then there's Australia, far out east, "which is in the early stages of a spectacular growth phase." [More]

While I was impressed with the possibilities for domestic natural gas production, once again I was several beats behind the march away from the Mideast.

It would be ironic if after pouring enormous resources of every kind into that area, it becomes a auxiliary supplier for the US.

Meanwhile, the mismanagement of Russia's resource-based economy seems to have been noticed by its citizens.

First, political optics are particularly important in Russian politics. Mr. Putin has always promised stability, and this was based to a significant degree on his perceived invincibility and the power of deterrence that his rule, via the “power vertical” system, conveyed. There was a sense of inevitability to his policies, reinforced by the strength of both his personality and of the political machinery supporting him. Mr. Putin, therefore, looked to elections as in part a legitimizing ritual in a political order that – as it moved ever further away substantively from Mr. Medvedev’s declarations of fealty to democracy – has come to occupy an increasingly thin border between limited democracy and full authoritarian rule. Yet, with the regime’s invincibility now severely dented, critics and opponents will undoubtedly be emboldened in opposing government policies, challenging the pervasive corruption, and demanding a fairer distribution of incomes and resources at a time when Russia’s one-dimensional, resource-driven economy, is confronting growing challenges.
Second, Mr. Medvedev’s future itself has become cloudy. He had to deliver the votes during the parliamentary election if he was to be given the prime ministership. He had already lost whatever credibility he had with the electorate with the closed-door decision to switch the two top governing positions. Now, despite all of the administrative advantages that the ruling party had – where it could mobilize workers; control the television medium; use its judicial connections to fine Russia’s leading independent vote monitor, Golos, for alleging electoral violations; employ other connections to mysteriously shut down communications broadcast from independent radio stations such as Ekho Moskvy, and blogging platforms such as LiveJournal; as well as the widespread, scathing allegations of thousands of violations of electoral rules by external and internal observers – United Russia still had a relatively poor showing. Mr. Putin has a history of not tolerating politicians who do not deliver as he expects.
Third, the election is also an indicator of a brewing legitimacy crisis in Russia. As the late Harvard scholar Samuel Huntington wrote, “performance legitimacy” plays a critical role in authoritarian regimes. When Mr. Putin was able to deliver growth and increasing public goods to the population, the legitimacy of his rule seemed solid because he reinforced it with an image of personal vigour and determination. Given Russia, however, is confronting massive structural problems due to its reliance on energy, with the vast Reserve Fund used to prop up the economy during the recession now largely depleted, and a demographic time bomb of extremely low birth rates, a shrinking population and a disintegrating health care system, not to mention an outflow of funds to Western safe havens, performance legitimacy is an increasingly less viable option within Mr. Putin’s social contract that trades freedom for security. [More]

While not the only vehicle, I think this is another piece of evidence that the Internet will increasingly play a bigger though as yet undefined role in public policy development and politics. And I mean everywhere.

[Note: Re-reading this, I realized it maybe should have been two posts, but one thing reminded me of the other. And you learn to write it down immediately. This is how 60+ year-old minds work.]

[Oh yeah - yours will too.]

Another feckless prediction...  

Fertilizer prices may have peaked. 

No, seriously. 

Aaron and I are revising our P & K apps in light of the outcome of our cash rent negotiations. My pattern has been to simply slow the buildup on fields that need it.

But whether the Fertilizer Oligopoly can repeat their slowdown to limit supplies is to be seen.

According to the International Fertilizer Industry Association (IFA), there are currently 250 fertilizer production capacity expansion projects under way globally and planned investments of approximately $88 billion through until 2015, including huge projects in China, the Middle East and Latin America.

...

Among the minerals, nitrogen production capacity is growing particularly quickly.

Capacity is seen 19% higher at 229.6 mmt by 2015, driven by expansion in China, India and Latin America, where authorities are seeking to increase self sufficiency and in Africa, where there are the most accessible deposits, according to the IFA.

Meanwhile, regarding urea, the Middle East and North Africa are set to become more important because of the energy cost advantages.

"New capacity is being built to take advantage of cheap gas in Qatar Saudi Arabia and Iran, among other spots," said Calum Findlay of UK fertilizer merchant Gleadell Agriculture.

Another area in which heavy investments are being made is potash and, as a result, large potash surpluses are expected from 2015 onward, according to the IFA. Canada will have the biggest surplus, providing a readily available source of potassium for U.S. farmers. By 2015, North America will produce 39% of the world's potash.

In the area of phosphates, rock mining capacity is expected to grow 26% between 2010 and 2015 with the largest growth areas in Africa, which has the most readily accessible reserves.

In the short term, phosphoric acid supply remains tight but that should ease in the next three to four years as 34 new plants are planned for completion between 2010 and 2015.

With food and feedstuff prices still near all-time highs, demand for fertilizers remains buoyant. But affordability will keep a lid on demand. That's because, at current levels, fertilizer prices are around 30% higher than what is considered a natural equilibrium point against agricultural commodity prices, according to CRU analysis. [More]

Another curious development is the glut of crude in the Midwest and the unusual reaction.

The decision to reverse the flow of a key oil pipeline should alleviate a supply bottleneck that has trapped crude in the Central U.S. for the better part of this year.

It will also raise the price of oil in the U.S., and could restore some of the lost legitimacy of the main U.S. crude benchmark.
Benchmark crude on the New York Mercantile Exchange jumped above $102 a barrel after Wednesday's announcement that Enbridge Inc. (ENB) and Enterprise Products Partners LP (EPD) would reverse the direction of the Seaway pipeline to transport crude from the oil hub of Cushing, Okla., to refiners on the Gulf Coast.
The reversal should help drain the brimming tanks of oil in the Midwest, where elevated inventories and a shortage of outgoing pipelines have depressed the price of crude on the Nymex, also called West Texas Intermediate, compared with Europe's Brent benchmark for much of this year.
...
Pending regulatory approval, the 500-mile pipeline could ship an initial 150,000 barrels of oil a day from Cushing to the Houston-area refining market by the second quarter of next year, Enbridge and Enterprise said.
After pump station additions and modifications, the capacity could rise to 400,000 barrels a day by early 2013, the two companies said.
That flow should help reduce oil inventories in the Midwest, which have been elevated for much of the year. Over the past 12 months, commercial crude held in storage in the Midwest has risen 4% to 91.2 million barrels last week, according to Department of Energy data.
"It enables the increasing amount of oil production to get to the refining centers on the Gulf coast in an economical way," said Andy Lipow, president of the Houston oil-industry consultancy Lipow Oil Associates.
Seaway isn't the only pipeline in the works that will transport crude out of the Midwest. TransCanada Corp.'s (TRP) expansion of its Keystone pipeline, which carries Canadian crude into Cushing, will offer an outlet to the Gulf Coast as well. [More]

I am embarrassed to say I thought they were one-way pipelines.

Fuel for thought...  

I have never really followed the argument that higher fuel costs were a big deal for my budget. To be sure, they rippled through input costs (especially fertilizer), but otherwise never moved my needle for cropping decisions. 

Hence my puzzlement at statements like this:

Agricultural production is sensitive to changes in energy prices, and higher energy prices could cause acreage shifts.

With higher energy related expenses from 2012 to 2018 (fuel up an average of 2.6% to 5.3% and fertilizer up 4% to 10%), total acreage for corn, sorghum, barley, oats, wheat, rice and upland cotton would decrease by an average of 0.2% (under the lower energy price change scenario) to 0.4% (higher price change scenario). [More]

Really? In my world, those figures show almost complete INsensitivity to energy prices. In fact, 0.2% strikes me as outside the error band for projections five years out.

Now add in the increased efficiency of Tier 4 engines that will start populating our farms.

But give tractor manufacturers credit. They met the EPA's January 2011 deadline for Tier 4A compliance. (Final Tier 4 compliance is due by January 2014.) Not only that, they created engines that are more powerful and more efficient than what came before. Trials at the Nebraska Tractor Test Lab confirm that.

A few months ago, CNH proudly announced that some of its Tier 4A tractors had set records for fuel efficiency during preliminary trials at the Nebraska Tractor Test Lab. [More]

I will note in passing that this boost - while expensive upfront - also demonstrates the possibility that environmental protection can prompt regulation that nudges us in a better direction.

I am not now actually using less fuel per acre the longer I farm. It's down below 4 gpa, where it has been for years.  

The more interesting energy question for me is why propane isn't dirt cheap like natural gas. The reason is the production process.

Propane is produced as a by-product of two other processes, natural gas processing and petroleum refining. The processing of natural gas involves removal of butane, propane and large amounts of ethane from the raw gas, in order to prevent condensation of these volatiles in natural gas pipelines. Additionally, oil refineries produce some propane as a by-product of cracking petroleum into gasoline or heating oil. The supply of propane cannot easily be adjusted to meet increased demand, because of the by-product nature of propane production. About 90% of U.S. propane is domestically produced.^{[citation needed]} The United States imports about 10% of the propane consumed each year, with about 70% of that coming from Canada via pipeline and rail. The remaining 30% of imported propane comes to the United States from other sources via ocean transport.
After it is produced, North American propane is stored in huge salt caverns located in Fort Saskatchewan, Alberta; Mont Belvieu, Texas and Conway, Kansas. These salt caverns were hollowed out in the 1940s,^[9] and they can store 80 million or more barrels of propane. When the propane is needed, most of it is shipped by pipelines to other areas of the Midwest, the North and the South, for use by customers. Propane is also shipped by barge and railway to selected U.S. areas.^{[citation needed]}

[More]

So instead of propane being made from NG on purpose, it is more what you have left over after extracting the NG. This makes the economics of production a little more complicated that I thought.

Increased liquids prices can lower gas producers’ breakeven costs by $2 per million Btu, which may boost U.S. output by more than 8 percent through 2014, according to Sriram Vasudevan, a New York-based director at Macquarie Energy Markets.
Propane at the Mont Belvieu hub in Texas gained 3 cents, or 2.3 percent, to $1.36 a gallon on Jan. 10, the highest price since Feb. 3, according to DTN, a unit of Telvent GIT SA, a Madrid-based information provider. Ethane at Mont Belvieu was unchanged at 60.75 cents a gallon. Ethane fell to 43.5 cents on June 23. Butane climbed 31 percent since early July to $1.70 a gallon. [More]

(The "liquids" refer to propane, butane and ethane.)

I also think the no-till claims of drastic fuel usage decreases to be less useful than at first glance. "Rolling" fuel is a $10-15 expense, which today isn't a real biggy or subject to major savings by shifting production methods.

Another reason I think no-till will probably continue its stagnant or diminishing share of acres.

All things considered, this may be all I think about fuel for this year. There are way bigger fish to fry, economically.

Another hopeful discovery...  

Watered down.  My belief that fracking had uncovered a legitimate "bridge fuel" to replace coal is still solid, but diminished. As always there are some detail problems.

But if natural gas is, in fact, cleaner than coal, why would it accelerate climate change in the near-term? The key fact here is that burning coal emits two different types of pollutants. First, there’s carbon dioxide, which traps heat. But dirty coal plants also emit aerosol pollution — sulfates and other particles that stay in the air for a shorter amount of time and cool the planet by reflecting incoming sunlight back into space. These particles are bad for human health and cause problems like acid rain, but they do have a short-term cooling effect. (Since aerosols linger in the atmosphere for a shorter period than carbon dioxide, the warming effect eventually prevails.)
Since natural gas is cleaner and emits fewer sulfates, you’d actually get more warming in the short term. Now, since natural gas emits less carbon dioxide, you would get relatively less warming over a longer timeframe, although even then the net climate impact is fairly small. Ultimately, that’s not an argument against natural gas — after all, a slight improvement is still an improvement. Plus, reducing that sulfate pollution would lead to large public-health benefits. But the climate upside, at least, may not be as sweeping as advertised. [More]

Still, it is cheaper and easier to transport, much easier to build plants to burn, and capable of coming online remotely almost instantaneously. These advantages seem sufficient to use NG to replace coal to the maximum extent possible.

But we better still work on adapting to warmer temps and weird rainfall patterns.

Name the world's largest...  

Oil producer.

Nope.

The grid adjusts...  

To all the wind and solar projects. As I have discussed before, one big obstacle to alternative energy is the fluctuation problem - wind speeds, cloudy weather, etc. To accommodate more variable energy generators the grid has to be able to balance the voltage and frequency with varying supplies and demand.

This is a hot new area for investment and research.

If you think twirling the mass of a family car hundreds of times a second is an unlikely way to keep power grids humming at perfect pitch, think again. Flywheel developer Beacon Power Corp., based in Tyngsboro, Mass., is already making money that way in Stephentown, N.Y., where it operates more than 160 1150-kilogram magnetically levitated flywheel motor-generators. These machines continuously accelerate and decelerate to balance electrical supply and demand and thus keep New York state's grid tuned to 60 hertz.
AC frequency fluctuates from second to second as generators turn on and off and consumer demand varies. When demand exceeds supply, the extra load slows down power plant turbines, thus depressing frequency. Meanwhile, the turbines accelerate whenever supply is in excess. Frequency regulators add or remove power to restore balance.
Beacon's flywheels can regulate frequency with superior speed relative to the dominant method today—throttling power generators up and down. And grid operators are changing outdated rules to favor faster-acting regulators, including flywheels and grid-scale batteries. The prize: priority access to a frequency regulation market worth US $495 million in the United States last year and growing with the expansion of ever-varying wind and solar power.
...
One challenge will be competition from battery-based frequency regulators, which are cheaper per megawatt to install. Several battery systems are testing the market, including a 20-MW frequency regulating facility that Arlington, Va.–based power firm AES is building in Johnson City, N.Y. The $22 million plant uses lithium batteries from A123 Systems.
...
Kema's Hawkins agrees that batteries will lose their edge over flywheels under that level of use. "A battery really doesn't like to be totally charged and discharged," says Hawkins, "whereas flywheels can handle a pretty severe duty cycle." But he says that another threat looms, one that could eviscerate the market for frequency regulation: millions of electric vehicles. Plugged in to the grid, they could respond to frequency deviations at the local level.
Pacific Northwest National Laboratory, a unit of the U.S. Department of Energy, proved a similar concept a few years ago, showing that electric water heaters and dryers could correct frequency dips by temporarily turning off their heating elements. In March, PNNL licensed the concept to Texas-based semiconductor start-up Encryptor, which hopes to make chips for appliances.
So in the future, the frequency regulator could be you. [More]

It is developments like this that renew my belief in our ability to weather storms and adapt to new circumstances. It also makes me want to keep an eye on plug-in sales.

The NG Black Swan...  

Cast your mind back to the days of yore when Enron was swindling the state of California for natural gas supplies. Remember the panic about this vanishing resource?

In 2009, the US used some 22 trillion cubic feet of NG (Tcf), moving ahead of Russia to again become the world’s largest producer and consumer. In that year the greatest production came from five Southern and Western states.
...
One of the most powerful drivers in the growth of demand for natural gas has been as a result of its increased use in generating electricity. This is particularly evident as it takes market share from coal-fired power stations due to concerns over the emission of greenhouse gases.

Nationwide, coal-fired electric power generation declined 11.6 percent from 2008 to 2009, bringing coal's share of the electricity power output to 44.5 percent, the lowest level since 1978. Coal consumption at U.S. power plants paralleled the decline in generation, dropping 10.3 percent from 2008.
In sharp contrast, natural gas-fired generation increased 4.3 percent in 2009, despite the 4.1-percent decline in overall electric generation. The natural gas share of generation increased to 23.3 percent—,the highest level since 1970. Electricity's share of the total U.S. natural gas consumption has also risen rapidly, growing from 17 percent in 1996 to over 30 percent in 2009

There is a greater capacity for gas-generated power than these numbers reflect, since the utilities still tend to use coal over NG for longer-term operation as the costs are lower. [More]

To get this new bonanza of energy to consumers we can expect a whole lotta pipeline building.

In fact, we had one go through our farm just last year (they are still fixing the drainage in neighbors' fields) and the talk is another could follow, because it's easier to crowd into a ROW already established than negotiate a new route. [See also I-69]

At the same time, efforts to upgrade our grid are making some regulatory progress.

Solar and wind industry leaders are hailing interstate transmission line regulations adopted Friday by the Federal Energy Regulatory Commission (FERC) as a move that could boost renewable developments across the rural parts of the U.S.

The move by FERC on Friday paves the way for new planning and cost requirements that are expected to ultimately lower the price of transmission, especially to metropolitan areas where most of the power in consumed. Organizations like the American Wind Energy Association (AWEA) and the Solar Energy Industries Association (SEIA) say the move will help update an aging grid and will allow proposed developments in remote regions to push forward.
Many projects have struggled to gain financing because of questions surrounding who will pay for transmission projects. The new rules state those receiving the power will share in the costs, rather than being paid for only by those building the power development. The vote also creates a more regional planning and regulatory approach to the future of interstate transmission based on individual state policy.
According to the North American Electric Reliability Corporation (NERC), whose stated mission is to ensure the reliability of the North American bulk power system, approximately 60 percent of all new resources added to the grid by 2019 will come from wind and solar. [More]

The issue was the same as the nuclear waste hangup. Allowing states individual veto power on projects instantly made them harder to play with. States where lines (waste) would simply cross became extortionists, freezing projects on the drawing board.

I can understand the anger at the size of our federal government, I suppose. But in a complex and increasingly parochial political world, One Ring is often the only way to solve many of our problems as a nation.

I wonder which side...

Big Ethanol is lobbying for. Oil subsidies could actually be in trouble.

In a letter to congressional leaders this week, Obama urged “immediate action” on the tax subsidies, arguing that the revenue generated from the move should be invested in clean energy programs to reduce America’s dependence on foreign oil.
In the letter, Obama said he was “heartened” by the “openness” House Speak John Boehner (R-Ohio) expressed on April 25 to the idea of eliminating tax subsidies for energy companies. “Our political system has for too long avoided and ignored this important step, and I hope we can come together in a bipartisan manner to get it done,” Obama wrote.
Later in the week, House Budget Committee Chairman Paul Ryan (R-Wis.) said he agreed that federal oil subsidies should be eliminated. “We’re talking about reforming the safety net, the welfare system; we also want to get rid of corporate welfare,” Ryan said at a town hall in Waterford, Wis. “And corporate welfare goes to agribusiness companies, energy companies, financial services companies, so we propose to repeal all that.”
[More]

I did some simple math a few months ago to show how a real btu-to-btu comparison reveals the considerably higher subsidy levels for ethanol compared to gasoline.

So if we use 51% as gasoline's share (allocated below), here is what the subsidy levels per gallon look like, using Todd's numbers.  I think this is fair because Todd counts home heating oil subsidies, for one example, in the mix, which don't have anything to do with the 140 B gallons of gasoline he divides by.  The last column using the energy difference between gasoline and ethanol (80%) for an energy equivalent number.

		DTN	Allocated	Allocated
	$B	$/gal	$/gal	$/eqiv gal
Oil (low)*	133.2	$0.96	$0.49	$0.49
Oil (high)*	280.8	$2.01	$1.03	$1.03
Ethanol	16.1	$1.24	$1.24	$1.55

[*These labels were stupidly reversed in the original post] 

It is fair to report the huge total number oil gets, but as I noted before, most farmers still believe the bigger you are the more subsidies you deserve.  And oil is a really big industry.
So for this observer, I think the idea oil is getting "more" subsidies is an artful arrangement of fact.  At the very least, oil gives the taxpayer more energy bang for his/her subsidy buck.

While I am skeptical of actual oil subsidy cuts, should it occur, enormous pressure would come to bear on the blender credit and tariff. Not to mention the revenge factor from the oil lobby.

Of course, we delay planting another three weeks or so and ethanol is toast, IMHO.

Word of the Day: Elasticity...

I often think I understand price elasticity because I used to sometime back in the Dawn of Time.  But a refresher is not a bad idea, especially when the subject is oil:

"Price elasticity" is a measure of how people react to rising prices. A high number means they cut back sharply when prices rise. A low number means they just suck it up and keep buying.So what's the elasticity of oil prices? This is important, because it tells us, for example, how people are likely to react to higher taxes on gasoline. Will they use less and find other ways to get around? Or is it damn the torpedoes, keep burning the stuff, and figure out other places to cut back? [More]

So how do we react to oil prices. Hardly at all.

If these numbers are right, they're pretty stunning. Even in the rich world, it apparently takes massive price increases to significantly reduce the demand for oil, even over a 20-year horizon. In the developing world, forget it. As long as incomes are going up, demand will go up. Urk. [Same - also: the figures]

I was equally surprised, but my thinking was clouded by the effects of the recession that followed the last oil spike. We did cut back consumption, but it obviously was not driving to jobs we had been laid off from, not a reaction to prices.

This insensitivity - the gotta-have-it nature of gasoline - perhaps explains why presidential political fortunes are so impacted by pump prices.

What is forgotten is that rising gas prices have been one of the most consistent threads of the Obama administration. The average retail price when he took office was $1.61 a gallon. A year later, it was $2.61. Now, it's $3.86 -- an increase of 140 percent under Obama.
Obama's policies haven't had much to do with the increase. But if gas is still this dear come November 2012, he's the one who'll get the blame. [More]

In fact, the recovery here and around the world could perversely be bad news for Democrats. We have essentially lost empathy for the unemployed (unless they are we), so gas (and food) prices will be major factors in how we evaluate how we're doing. I'll bet even the deficit won't poll as high.

Besides on the deficit front, it's becoming pretty obvious we won't stand for the cuts we need to make.

Just on the edge...

Maybe I can fall victim the the resource curse after all*.  My farm lies (if you squint) right at the edge of a shale gas play.

If you haven't heard the buzz in the energy world, it's all-shale-gas-all-the-time.

Natural gas is up now — way up — and it's changing how we think about energy throughout the world. If its boosters are to be believed, gas will change geopolitics, trimming the power of states in the troubled Middle East by reducing the demand for their oil; save the lives of thousands of people who would otherwise die from mining coal or breathing its filthy residue; and make it a little easier to handle the challenges of climate change — all thanks to vast new onshore deposits of what is called shale gas. Using new drilling methods pioneered by a Texas wildcatter, companies have been able to tap enormous quantities of gas from shale, leading to rock-bottom prices for natural gas even as oil soars. In a single year, the usually sober U.S. Energy Information Administration more than doubled its estimates of recoverable domestic shale-gas resources to 827 trillion cu. ft. (23 trillion cu m), more than 34 times the amount of gas the U.S. uses in a year. Together with supplies from conventional gas sources, the U.S. may now have enough gas to last a century at current consumption rates. (By comparison, the U.S. has less than nine years of oil reserves.) [More]

This could be a game changer. According to energy experts there could be extractable shale gas under me.

[Source] [Click to enlarge]


Shale gas is not easy to uncork, and the process (fracking) stirs considerable controversy. Oddly this controversy seems to usually divide people almost exactly along the same lines as the shale gas deposits. There is nothing like unexpected windfalls - in this case - literally buried treasure - for stirring up strong emotions. (Ask anyone who has settled an estate)


But natural gas is better than coal for electricity and also fuels peaker plants that can make wind energy less unreasonable. My hunch is there is enough to frustrate energy conservation fans for several decades. But it could help shift us to hybrids and plug-ins if electricity suddenly becomes a comparative bargain and the technologies involved keep advancing.

We have two energy problems in the medium to long term, climate change and peak oil. (In the very long term, all bets are off.) Consequently, shale gas has been proposed as a temporary (a few decades) solution to both. We can—

• use natural gas to replace liquid fuels in transportation, especially as a replacement for diesel in long-haul trucking. This is the (T. Boone) Pickens Plan, which is currently dead in the water. Pickens expressed his excitement about the PGC reports, saying that “the 2,074 trillion cubic feet of domestic natural gas reserves cited in the study is the equivalent of nearly 350 billion barrels of oil, about the same as Saudi Arabia’s oil reserves.” Pickens is selling his plan—he knows better than to spout nonsense like this. ASPO-USA commentator Tom Standing did an excellent job of analyzing the energy density issues and practicalities (e.g. compressed natural gas versus liquefied natural gas) of replacing diesel with gas. It would take decades build out the supply chain (e.g. swap petroleum gas stations for natural gas stations). Robert Rapier also wrote an analysis worth reading on this subject.

• use natural gas to replace coal in electricity generation to reduce CO₂ emissions. Dr. Joseph Romm of the influential Center for American Progress is already calling the potential shale gas play a game-changer. The imminently practical idea is to ramp up under-utilized natural gas power generation capacity to replace base-load coal. Geoffrey Styles’ analysis Shale Gas and Climate Change provides an excellent overview, so I won’t repeat the details here. Even if you don’t believe we are going to make an 80% reduction in our emissions by 2050—I don’t believe it—official policy is to act as though we are going to do so. We now have the makings of a de facto moratorium on coal (and here). We seem to be unwilling to build new nuclear capacity. It is theoretically possible for wind to provide 20% of our electricity by 2030, but there are many practical, economic & political barriers to success. Thus it would behoove us to switch to natural gas at large-scales if we want to maintain a functioning electricity grid 10-15 years from now. This is my current view, but the political winds could change quickly as the Great Recession grinds on. [More]

As the economics get better, coal is ripe for replacement. Big Coal won't take this lying down, so it will be curious to see how they play it. They mantra so far has been, "OK, coal is little dirty, but there is lots of it and it's here". Given a cleaner domestic choice, I think officials could use shale gas as an end run around no-win climate change arguments and energy costs. The effect on transportation fuels could be significant as well, since fewer oil-fired plants in the East and more electric vehicles could sharply decrease demand.

Wonder how ethanol would pencil out with $7 corn and declining gas prices?


*Maybe not - we don't have big enough water supplies.