OPIS’ Tom Kloza Discusses Energy Markets

nec16-klozaDuring the 21st Annual National Ethanol Conference (#RFANEC) this week, one of the hot topics was the energy and ethanol market outlooks especially with the low oil prices the globe is currently experiencing. Tom Kloza with the Oil Price Information Service (OPIS) offered attendees the outlook for ethanol, oil and natural gas markets in his presentation, “Wronger for Longer – sideways look at North American Energy Supply.”

“What would you have imagined would be more unlikely 3 or 4 years ago?” Kloza asked in his introduction. “That a hip-hop version of Alexander Hamilton would win the Tonys on Broadway? That America’s Dad Bill Cosby would be America’s serial rapist? Or that the person who was the greatest athlete in the world in 1976 Bruce Jenner was now a woman? Or that oil prices were a $110 a few years ago and now are struggling to get out of the 20s?”

Your answer may change after you listen to Kloza’s remarks here: Tom Kloza, OPIS, Energy Markets Outlook Remarks
View Power Point presentation.

2016 National Ethanol Conference Photo Album

Price of Oil Crushes Liquid Transportation Fuels

This is a special editorial authored by Joanna Ivancic, executive director for Advanced Biofuels USA. It is based on a two-part series looking at how low crude prices are affecting biofuels.

Price of Oil Crushes Liquid Transportation Fuels–Renewable and Not — Now What?

“Europe should promote the development of home-grown alternatives to imported oil and gas,” according to former NATO Secretary General Anders Fogh Rasmussen, who was Joanne-headshotcropped-196x300Danish Prime Minister from November 2001 to April 2009 in an interview with Bloomberg’s Ewa Krukowska about Russian domination of European energy resources. “Wind and solar are well-known success stories but I’d also point to biofuels as an example of an alternative energy source with a lot of potential.”

In the US, in a two-part series, Advanced Biofuels USA correspondent Robert Kozak identifies the same concerns for energy security and the same solution–development of home-grown alternatives.

In addition, his analyses of the effect of low oil prices on the liquid transportation fuels industry and the potential for a reinvigorated US shale oil/gas industry with and without government subsidies reflects this growing international appreciation that we are at a crossroads, at a moment when the energy choices we make will have far-reaching consequences.

Either we will continue in an energy resource system where the energy czars have their boots on the necks of importing countries; or we grab the reins of freedom to become self-sustaining. Either we continue to pollute our air and water to the point that unrest threatens or we use the technologies that science gives us to reverse our harmful stewardship of the planet.

In Part 1 of the series, Why Oil Is Cheap in October 2015, Kozak points out that the bottom fell out of business-as-usual in the oil industry not only due to oversupply, but due to that oversupply being offered at below market prices to finance continued conflict in the Middle East.

In Part 2, “After the Fall: Rebuilding US Liquid Fuel Production – Invest in Our Land or the Shale Oil Fields?” Kozak reviews recent experts’ predictions about the trajectory of oil prices, analyses how they went wrong and the current situation of debt and decline in the US shale oil/gas industry. Continue reading

GFRA Calls to End Fossil Fuel Subsidies

Global Renewable Fuels Alliance (GRFA) President Bliss Baker is calling on national leaders to eliminate all fossil fuel subsides, especially in light of the current low price per barrel costs. According to the International Energy Agency (IEA), the estimated global fossil fuel subsidies are worth $490 billion. IEA is also predicting global oil demand will drop 25 percent in 2016 to 1.2 million barrels per day. Theoretically fossil fuel subsidies are supposed to increase energy access during periods of high prices; however, with the current state of global energy markets these subsidies, says Baker, are only succeeding in discouraging investment in energy efficiencies and renewables.

GRFA logo“The persistent oversupply of oil, and the resulting low prices, gives countries an opportunity not seen in recent memory to eliminate fossil fuel subsidies and encourage a transition to viable low-carbon energy sources like ethanol,” Baker said. “World leaders couldn’t ask for better circumstances to take action.”

A landmark agreement on combating climate was reached in Paris last December during COP21. The goal is to keep the global temperature rise from exceeding 2°C above pre-industrial levels in this century. This is to be achieved by shifting to a global low carbon economy and encouraging the development of clean technologies as the basis for future development.

Baker notes that over the past year 30 countries have reduced their fossil fuel subsidy programs (the U.S. is not included in this number) in recognition of the fact that current low oil prices reduces the impact of eliminating consumer fossil fuel subsidies. Baker adds that these subsidy reductions also results in lower domestic national emissions of greenhouse gases.

“It is blatantly counter productive for governments to continue to subsidize the industry that contributes the majority of global greenhouse gas emissions, especially after 195 countries agreed that drastically cutting back GHG emissions was necessary to combat climate change.” Baker concluded, “It’s time to take the brakes off of clean technology development and meaningfully begin the transition to a sustainable future.”

Former Oil Company President at #RFANEC

The former president of a big oil company was very critical of the oil industry during his keynote address at the 2016 National Ethanol Conference in New Orleans Tuesday.

nec16-hofmeisterJohn Hofmeister was president of Shell Oil Company for three years, but after he left the company in 2008 he founded Citizens for Affordable Energy and wrote a book called “Why We Hate the Oil Companies: Straight Talk from an energy insider.” Straight talk was definitely what Hofmeister shared with attendees at the NEC.

“Oil is a contrived market,” Hofmeister began, talking about the current state of low oil prices and how Iran and Russia are impacting the situation with Saudi Arabia. “This is a contrived situation that has been created because of geopolitical considerations…and which can’t last very much longer.”

“What does this have to do with ethanol?” he asked. “I think it has everything to do with the United States’ absolute requirement to become fully energy independent to not be the victim of a contrived oil market.”

Hofmeister questioned why the United States imports seven million barrels of oil a day instead of developing “the alternative fuels we have in this country that can dismiss any dependency on foreign oil forever.”

Listen to Hofmeister’s insights here: John Hofmeister NEC16 Keynote Address

2016 National Ethanol Conference Photo Album

Study Raises Doubts About Dev of New Fossil Fuels

A new study is raising doubts about future development of new fossil fuel resources. Published in Global Environmental Change and authored by Richard Heede and Naomi Oreskes, the report looks closely at the potential of global warming emissions that could be unleashed from carbon reserves held by the globe’s largest fossil fuel producers.

Screen Shot 2015-11-30 at 12.04.41 PMSome key findings of the study include:

  • Burning the reserves of the world’s largest fossil fuel producers will result in emissions of 440 gigatons of carbon—far in excess of the 275 gigatons of carbon scientists say can be emitted this century if global mean temperature increases are to stay at or below 2 degrees Celsius.
  • The future emissions from the proven reserves of the largest 28 state-owned entities, including the National Iranian Oil Company, Saudi Aramco and Russia’s Gazprom, collectively make up more than three quarters (76 percent) of the world’s remaining carbon budget.
  • The future emissions from the proven reserves of the largest 42 investor-owned companies collectively make up 16 percent of the world’s remaining carbon budget.

Funded in part by the Union of Concerned Scientists (UCS) also found that “profound risk” to the climate exists from the prospect of development of these reserves.

“This study shows just how important it is that the world reaches a strong international climate agreement in Paris next month,” said Alden Meyer, the director of strategy and policy at UCS who has been involved in the climate negotiations for 25 years. “The fact is, Russia, Iran, Saudi Arabia and other oil producing counties are continuing to ramp up production, despite the threat climate change poses to communities around the world.”

The study shows the reserves of most of the 42 investor-owned companies will be exhausted in 15 years or less. But oil and gas companies are investing hundreds of billions of dollars to explore for and develop new reserves to extend production in the decades to come. Heede says the threat of exceeding the 2 degree Celsius target comes primarily from the investor-owned companies tapping new reserves and he states the study’s findings can help inform shareholder action.

“The threat of exceeding the 2 degree Celsius target comes primarily from the investor-owned companies tapping new reserves, less so from their relatively small existing reserves,” said Heede, the principal of Climate Mitigation Services.

Oreskes, a Harvard history of science professor and former exploration geologist, added, “The bottom line is that if we’re to have any hope of avoiding a 2 degree temperature increase, the largest state-owned companies cannot fully tap all of their proven reserves and the big investor-owned companies need to decrease rapidly, and ultimately eliminate, their capital expenditures for exploration and development of new reserves.”

BIO Analysis: Oil Companies Set to Lose Trillions

A recasting of oil industry data from a recent NERA Economic Consulting study prepared for the American Petroleum Institute (API) found the oil industry would be economically harmed by more than $12.3 trillion in potential profits in 2015 if the Environmental Protection Agency (EPA) sets the Renewable Fuel Standard (RFS) obligations below statutory levels. The analysis, “Economic Impacts Resulting from Failing to Implement the RFS2 Program,” was conducted by the Biotechnology Industry Organization (BIO), and finds the same result; however, views the information slightly differently.

“The Renewable Fuel Standard was designed to drive investment in renewable fuel production, and some oil companies have partnered with biofuel producers to do just that,” said Brent Erickson, executive vice president of BIO’s Industrial & Environmental Section. “Since many of the oil refiners are publicly owned companies, they have a fiduciary responsibility to their shareholders to maximize earnings and generate a return on that investment.”

dreamstime_xs_23776976Erickson continued, “The oil industry reported earnings of a paltry $77.2 billion for 2014, as prices at the pump fell during the year. But if EPA sets the RFS at the statutory volumes in 2015, the industry would be able to earn $12.3 trillion in profits this year by again raising the price of gasoline and diesel. The oil companies owe it to their shareholders to urge EPA to set RFS volumes at the statutory levels.”

According to BIO, the oil industry study from NERA Economic Consulting assumes that if EPA sets the RFS at levels established by the U.S. Congress, oil refiners will elect to export their products rather than sell them to American drivers. The resulting artificial shortage of fuels within the U.S, NERA’s proprietary economic modeling predicts, will raise gasoline and diesel prices to “outrageously high” levels – $93.64 per gallon for regular gasoline and $103.00 per gallon for diesel. NERA’s data indicates that ethanol is the lowest cost fuel component and that higher renewable fuel blends such as E85 would be the lowest priced fuel choice for consumers. Continue reading

Ethanol Groups Attack API Report

Ethanol organizations responded Wednesday to what they say is a “flawed study” released by the American Petroleum Institute (API) that concludes “statutory biofuel mandates under the Renewable Fuel Standard (RFS) are infeasible to achieve in 2015 and beyond and could cause severe harm to consumers and the U.S. economy.”

rfalogo1Renewable Fuels Association (RFA) President and CEO Bob Dinneen says the talking points in the study commissioned by NERA Economic Consulting (NERA) are nothing new from the oil industry.

“It’s déjà vu all over again,” said Dinneen. “This study is virtually identical to a study that NERA published for API in 2012. The conclusions of both analyses are completely divorced from reality… API was wrong in 2012, and it’s wrong in 2015.”

“This newest API study contains many of the same fatal flaws that plagued the 2012 study. This study claims that gas prices will rise by $90 a gallon and diesel will rise by $100 per gallon. It foolishly assumes EPA will not ever utilize its cellulosic waiver authority to partially reduce the advanced and total RFS volume requirements. And it also assumes obligated parties would purchase a RIN credit at any price rather than making modest infrastructure investments to expand renewable fuel distribution.”

growth-energy-logo1Growth Energy CEO Tom Buis says that API is “repackaging stale, false talking points” about the RFS. “(D)espite what API claims, over 84 percent of cars on the road today are approved to use E15,” said Buis. “Regardless of what API claims, the bottom line is that ethanol blends help clean the environment, are higher performing, less expensive and directly benefit the consumer by providing a choice and savings.”

Fuels America stressed that API doesn’t speak for fuel retailers who tell a story about the benefits of higher blend fuels. “When consumers have a choice, there is no blend wall,” said Dave Sovereign, owner and operator of the Cresco Fast Stop.

“We need to be supporting homegrown renewables. We need to be blending more ethanol into our fuel supply, not less,” said Cheryl Near, owner of Jump Start gas station in Wichita, Kansas. “We need blender pumps, we need to buy direct from the ethanol plants, and then we can pass our savings on to the consumers.”

EIA: Outage Increased Midwest Gas Prices

eia-outageNew data from the Energy Information Administration (EIA) confirms that the unplanned outage earlier this month of a 240,000-barrels-per-day unit at a refinery in Whiting, Indiana, caused gas prices to spike throughout the Midwest.

The outage occurred on August 8 and EIA notes that regular gasoline prices in the Midwest increased by 32 cents a gallon within the following week, from $2.47 the week of the outage to $2.79 a gallon on August 17. EIA says it was “the largest weekly increase for Midwest gasoline prices since the aftermath of Hurricane Katrina in 2005.”

“The EIA data show that the refinery outage made a serious dent in the wallets of consumers,” said Bob Dinneen, President and CEO of the Renewable Fuels Association, which released a statement in response to the unplanned shutdown. “The Environmental Protection Agency and the Obama Administration have all the tools they need at their disposal to assist in blunting the consumer impacts of the refinery outage. We, once again, call on EPA to immediately waive RVP requirements for E15 and also allow E12 blending in the Midwest region.”

According to EIA, it can take markets days or weeks to adjust to the sudden loss of production during unplanned outages, often resulting in sudden price increases. The severity and duration of the higher prices depend on how quickly the refinery problem can be resolved, how soon alternative sources of supply can arrive, and the marginal cost to bring alternative supply to the region.

RFA to EPA: Provide Consumers Relief at Pump

In light of a refinery shutdown of the BP plant in Whiting, Indiana that produces 240,000-barrels-per-day, the Renewable Fuels Association President and CEO Bob Dinneen is asking the Environmental Protection Agency (EPA) to provide consumers relief at the pump. Late last week, gas prices jumped an average of 80 cents per gallon overnight in several states including Illinois, Michigan Indiana, Ohio, Missouri and Wisconsin as well as other states including Iowa.

BP refinery in Whiting, Indiana. Photo Credit: GasBuddy.com

BP refinery in Whiting, Indiana. Photo Credit: GasBuddy.com

“The Whiting refinery outage demonstrates, once again, the folly of relying too heavily on one source of motor fuel. It’s worth noting that the refinery represents just 6 percent of the Midwest region’s refining capacity (and just 1 percent of national refining capacity); yet retail gas prices in some Midwest markets have spiked by 50 cents per gallon or more,” said Dinneen. “This is exactly why we need to further diversify our nation’s fuel supply and allow more renewable fuels by removing arcane barriers erected by the oil companies and the Environmental Protection Agency (EPA). Using more low-cost ethanol would absolutely help insulate consumers from these kinds of price shocks.”

Dinneen said that the total lost gasoline output, nearly 120,000 barrels per day, could be offset by increasing ethanol blends from E10 to E15. He sourced ethanol prices in the Chicago wholesale market as around $1 per gallon lower than gas. It should be noted that during the summer months, E15 is only allowed to be used by flex fuel vehicles although the rest of the year the ethanol blend can be used by all vehicles manufactured in 2001 or newer.

“That means, Dinneen said, “if refiners and blenders serving the Midwest market immediately switched to producing E15 to blunt the impacts of this refinery outage, gas prices would instantly fall by at least 5 cents per gallon and drivers in the Midwest would save about $6 million per day. In reality, the price impacts would likely be even more significant, as ramping up ethanol blending would immediately take the pressure off tightening gasoline stocks and ease wholesale gasoline prices.”

Dinned added, “EPA and the Obama Administration have all the tools they need to help alleviate this situation quickly. We call on EPA to immediately waive RVP requirements for E15 and also allow E12 blending—based on the fact that it is substantially similar to E10—in the Midwest region to facilitate expanded ethanol blending and blunt the consumer impacts of this refinery outage.”

Renewables “Rock” U.S. Energy Growth

The SUN Day Campaign’s Ken Bossong, has noted once again that renewable energy sources are dominating the new energy landscape according to the latest “Energy Infrastructure Update” report from the Federal Energy Regulatory Commission’s (FERC) Office of Energy Projects. The reports shows wind and solar accounted for all new generating capacity placed in-service in April. For the month, two “units” of wind (the 300 MW Hereford-2 Wind Farm Project in Deaf Smith County, TX and the 211 MW Mesquite Creek Wind Project in Dawson County, TX) came on line in addition to six new units – totaling 50 MW – of solar.

In addition, wind, solar, geothermal, and hydropower together have provided over 84 percent (84.1%) of the 1,900 MW of new U.S. electrical generating capacity placed into service during the first third of 2015. This includes 1,170 MW of wind (61.5%), 362 MW of solar (19.1%), 45 MW of geothermal steam (2.4%), and 21 MW of hydropower (1.1%). The balance (302 MW) was provided by five units of natural gas.

Hereford Wind ProjectFERC has reported no new capacity for the year-to-date from biomass sources nor any from coal, oil, or nuclear power.

The reports finds the total contribution of geothermal, hydropower, solar, and wind for the first four months of 2015 (1,598 MW) is similar to that for the same period in 2014 (1,611 MW – in addition to 116 MW of biomass). However, for the same period in 2014, natural gas added 1,518 MW of new capacity while coal and nuclear again provided none and oil just 1 MW. Renewable energy sources accounted for half of all new generating capacity added in 2014.

“Members of Congress and state legislators proposing to curb support for renewable energy, such as Renewable Portfolio/Electricity Standards and the federal Production Tax Credit and Investment Tax Credit, are swimming against the tide,” noted Bossong, executive director of the SUN DAY Campaign. “With renewable energy’s clear track record of success and the ever-worsening threat of climate change, now is not the time to pull back from these technologies but rather to greatly expand investments in them.”

Today renewable energy sources now account for 17.05 percent of total installed operating generating capacity in the country: water – 8.55 percent, wind – 5.74 percent, biomass – 1.38 percent, solar – 1.05 percent, and geothermal steam – 0.33 percent (for comparison, renewables were 13.71 percent of capacity in December 2010 – the first month for which FERC issued an “Energy Infrastructure Update”).

For renewable energy supporters, what may be the best news: renewable energy capacity is now greater than that of nuclear (9.14%) and oil (3.92%) combined. In fact, the installed capacity of wind power alone has now surpassed that of oil. In addition, total installed operating generating capacity from solar has now reached and surpassed the one-percent threshold – a ten-fold increase since December 2010.