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112 comments on Weekend Open Thread...

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Nate Hagens on October 2, 2005 - 8:03am Permalink | Subthread | Parent | Comments top
Dave, as a former commodities trader (well, are we ever 'former'?), I would like to THINK that the thousands of executives in the oil industry understand how much GOM production is offline and if it was going to be over 50% for an extended time, whispers of such would send next years oil/products significantly higher. These prices are about the same as 2 months ago, before either hurricane. SO that tells me a)damage either is less or will be fixed b)market is certain it can get increased supply from elsewhere c) people are truly unaware of the problem and TOD has scoop or d)something else is moving the market that we are as yet unaware (this is often the case).

The market she is a fickle beast - if I had to guess-whats holding oil down (relatively), we are still so close to Peak production (meaning we are still increasing on a global level) that any meaningful demand destruction or energy switching (Im heating with wood this winter FYI), will cause near term contracts to drop, possibly sharply. Since the mkt is priced at the marginal barrel - we really could see Mike Lynchs prediction of $30, at any time, at least in the front months. IMHO, the next few months will be a race between measuring how much supply we have lost vs how much demand we are losing. This FIRST oil crisis will be a fire-drill because we are still on the Hubbert upslope - lets hope its a wake up call for stark policy changes- Id rather have to eat a nasty pill than get a nasty disease.

But of course I need to see a different doctor for natural gas....

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louGrinzo on October 2, 2005 - 9:09am Permalink | Subthread | Parent | Comments top
TLS (great handle, by the way): I'm not and never was a trader, but I think you've broken it down accurately.  My hunch is that the current price level is caused by your option (A), and that traders have been told (or believe for some other reason) that while the shut-in capacity is high right now, it will be restored before it influences markets enough or for long enough to move the price.

My only "inside" information is what I read on TOD, but if my guess is correct, it seems to me that the traders (or the people feeding them information) are overly optimistic.  I think it's still possible that enough of the damaged infrastructure can be repaired in time to avoid outages or very high prices (meaning at least 50% higher than they are today) this winter.  But the odds are looking worse by the day that the energy companies can pull off that miracle.

My fear in the very short run is what happens if the conventional wisdom toggles from "everything will be fine" to "we're in a crisis".  That's when markets go nuts, to use a technical term.

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Engineer-Poet on October 2, 2005 - 1:44pm Permalink | Subthread | Parent | Comments top
Lou, do you have any idea how expensive gas will have to get before it starts paying to take manure-digester gas and landfill gas and clean it to pipeline quality?  Those are sources that aren't likely to have the sliding production and would tend to change the decline curve.
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NC on October 2, 2005 - 3:54pm Permalink | Subthread | Parent | Comments top
I am looking for conformation but was told Midamerica energy is doing this now in the midwest, particularly Iowa.
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Jerry Van Polen on October 2, 2005 - 4:56pm Permalink | Subthread | Parent | Comments top
Engineer, your question is about direct substitution in NG supply, but in general could there be a sea-change associated with present NG prices with more consequence for infrastructure than $70/barrel oil?

At $14 per million BTU, and 3412 BTU/kWh, even a (generous) 70% efficient peaking plant implies 6.8 cents/kWh. Shouldn't that be enough to tip many scales toward growth in reliance on wind, for example, with or without subsidies, with or without successful green marketing, with or without top-level political will?

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Engineer-Poet on October 2, 2005 - 9:37pm Permalink | Subthread | Parent | Comments top
Try 35-40% efficiency for a simple-cycle peaking plant, 55-60% for a combined-cycle plant (which I understand cannot be throttled fast enough for peaking).  You're looking at a minimum fuel cost in the 8¢ range for combined cycle, 12¢ to 13.6¢ for simple-cycle.

Yes, I expect wind to be driven very strongly over the next few years where generation previously relied on gas (though solar follows the A/C load peaks a lot better).  If coal winds up in demand for Fischer-Tropsch synthesis of motor fuel and it becomes hard to increase production, wind will wind up being valued where generation is coal-fired too.

It may still be a good idea to have production credits for the next few years (perhaps 5).  It pays to think of the future even if utility accounting rules won't let them, and a tax credit is probably easier than un-screwing the screwy system in time for next year.  When conditions suddenly switch over to wind, solar or cogeneration being a REALLY good idea due to whatever event, I'd much rather that installation had begun 5 years before than 18 months after the crisis.

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NC on October 2, 2005 - 10:44pm Permalink | Subthread | Parent | Comments top
My mistake.  Alliant Energy not Midamerica has methane capture up and running commercially. http://www.alliantenergy.com/stellent/groups/public/documents/pub/012042.pdf

A quick search shows that the midwestern electric and energy companies are investing heavily in alternative sources.  Very large windfarms, ethanol, biodiesel and methane are on line in Il, IA, MN, SD, and Ne.

For those interested, Midamerica is owned by Warren Buffet's Berkshire Hathaway. http://www.mindfully.org/Energy/2005/Buffet-Berkshire-PacifiCorp24may05.htm

Berkshire has been buying lots of electric/energy companies recently and investing in alternatives.

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Engineer-Poet on October 2, 2005 - 10:53pm Permalink | Subthread | Parent | Comments top
That Alliant PDF claims bio-methane to electricity, not to the pipeline.  If the local generation is coal-fired the net cost reduction is quite a bit less than would otherwise be possible.
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NC on October 3, 2005 - 2:31pm Permalink | Subthread | Parent | Comments top
Alliant is the natural gas distributer in central Iowa as well as electricity.  I believe they control at least one main pipeline so they can feed their electric generating plants.  Alliant and Midamerica have built NG electric generating plants recently because they come on line faster than coal and have a tax advantage due to lower total emissions.  You have a valid point per onsite production if that is the case.  I was told and am trying to confirm that Alliant has a methane pressurizing station feeding a main east-west pipeline.
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