What Is the Dept of Energy and Environmental Protection Hiding?

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On December 24, 2012 the Connecticut Energy Marketers Association [formerly ICPA], filed a Freedom of Information Act [FOIA] request on the Office of the Commissioner of the Dept of Energy and Environmental Protection and the Executive Secretary of the Public Utility Regulatory Authority. We requested all documents and communications and work products concerning the state’s comprehensive energy plan.

Last week, the staff of the Public Utility Regulatory Authority [PURA], requested an extension of time to comment on the state energy plan from its parent organization – DEEP, and DEEP denied their request. We find it strange that DEEP’s staff would deny the staff of their own subagency the opportunity to comment on the state energy plan.

Read the DEEP denial of the PURA request for additional time to comment on the state energy plan here http://www.icpa.org/newsletters/2012_newsletters/Dec_24_2012/PURA_Request_DEEP_Denied.pdf

Then again, DEEP’s political staff prevented the PURA professional natural gas staff from participating in the development of the state energy plan from the beginning.

What is DEEP trying to hide when it prevents its own PURA professional natural gas staff from commenting on the DEEP natural gas plan?

Let’s find out. Hence, CEMA [ICPA] filed the FOIA request to bring to light what the rest of us in Connecticut have been prevented from reading by DEEP Commissioner Esty.

We will find out what PURA wanted to tell everyone about the plan but were denied that opportunity by their political bosses at DEEP.

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ICPA Becomes the Connecticut Energy Marketers Association [CEMA]

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On January 1, 2013 the Independent Connecticut Petroleum Association [ICPA] becomes the Connecticut Energy Marketers Association [CEMA].

We maintain the same dedication and commitment to outstanding service to the Connecticut petroleum industry and its associated companies as we have since 1950 – with a new look and new name reflecting the breadth and depth of companies and services we represent.

We’re proud of our heritage and looking forward to a future of growth and service to the people of Connecticut.

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A Simple Act of Kindness

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christmasMark and Jackie Barden recently lost their 7 year old son Daniel in the Sandy Hook tragedy.

On Thursday last week, Sippin Energy of Monroe, CT received a phone call from them with a heating system problem. Sippin’s technician Bill McNamara responded, remedied their issue, but notice that the heating system was in imminent need of replacement. After Bill contacted Gary Sippin that night, he immediately called Al Breda and asked him to mobilize resources and make phone calls.  By early the next morning, Al was able to secure full backing from Oil Heat Cares, Energy Kinetics, and a volunteer staff of Sippin energy technicians to provide the Barden’s with a new heating system at no cost.

Gary and everyone at Sippin, and Oilheat Cares, are proud to be part of an industry that lives to help others.

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Connecticut Needs an Energy Policy That Is Balanced, Responsible and Market-Driven, Not One Focused only on Natural Gas

On behalf of Connecticut’s 600 heating oil and propane retailers and their Connecticut-based 13,000 employees, we are pleased to offer our initial reaction to Governor Malloy’s announcement today regarding the beginning of the state’s energy policy plan.  We welcome the coming debate concerning energy issues and will be an active participant in the evolution of what should be market-based, consumer driven decisions without the influence of government.

Connecticut Needs an Energy Policy That Is Balanced and Responsible, Not One Focused only on Natural Gas

  • No one knows what the price of energy will be into the future. In 17 of the past 20 years heating oil has been less expensive than natural gas. Even Yankee Gas states in their disclaimer at the end of their commercials that current prices are not a guarantee of future pricing that consumer will pay.  Since Yankee Gas cannot guarantee sustained lower prices to potential customers they are trying to persuade to switch from oil to natural gas, then why should the state pursue a policy that makes that very assumption?
  • The Expansion of Natural Gas use in Connecticut worsens the already overly-reliant position of the State with respect to Natural Gas. Connecticut should avoid a “One-Fuel Fits All” energy strategy. Both ISO-New England and the Federal Energy Regulatory Commission have warned this year about New England’s over-reliance on natural gas and Connecticut should heed these warnings. No one four years ago believed that the economics of natural gas would be where they are today. Hence, no one today can tell you where the economics of natural gas will be four years from now. Connecticut needs to avoid the potential pitfalls of over-reliance on one fuel;
  • The state needs to strengthen its requirements on the utilities to replace old, outdated and leaking existing natural gas infrastructure before agreeing to expansion of that infrastructure. Yankee Gas, in a filing with the state Department of Public Utility Control in January, 2011, estimated it would take 67 years to replace its remaining inventory of cast iron gas mains and nearly 15 years to replace its bare steel gas mains. Yankee’s own data shows that the rate of leaks in its system — a key indicator of the structural stability of the pipeline — have more than doubled in a 20-year period and that the company has failed to keep up with government requirements that leaks be swiftly corrected;
  • All utility expansions should be strictly financed by utility ratepayers and shareholders – never on the backs of taxpayers. Any economic risk the utilities refuse to bear on their own should not be borne by the taxpayers;
  • Natural gas is not clean. The principle component of natural gas is methane. Methane (CH4) is a greenhouse gas that remains in the atmosphere for approximately 9-15 years. Methane is over 20 times more powerful in trapping heat in the atmosphere than carbon dioxide (CO2) over a 100-year period.  This leaking methane contributes more to climate change than does the emission of carbon dioxide, contributes global warming and to the killing of trees and other vegetation and is posing a health and safety hazard to human beings in the areas where the leaks occur;
  • The utility monopoly should end. Connecticut’s utilities are guaranteed a rate of return that guarantees their profitability. Connecticut’s utilities are given preferential access to capacity for the provision of natural gas in the state. Now Connecticut’s utilities want a guarantee of a growing customer base through a state policy tilted toward them for no reason other than a temporary advantage of price – even though Northeast Utilities is the second most disliked corporation in America. None of this makes any sense in the world of competitive economics. Connecticut should divide up the utilities into two functions; [a] transmission and distribution of energy, and [b] the sale of the energy itself. The transmission and distribution of energy should remain under the control of PURA, while the sale of the energy itself should be left to an open, transparent, truly competitive marketplace where a number of companies can compete for consumer’s business. Connecticut’s state government should avoid the pitfalls of the type of crony capitalism energy policy being recommended by utilities.
  • State government should stay out of the business of picking winners and losers in the energy markets because [a] it has a poor track record of success and [b] consumers in a free market make decisions about what they want to buy and from whom and it is not government’s role to take the place of consumers. We hear the calls for “choice,” and “fairness.”  Utilities know where the customers are just as we do – they don’t need government to lead them down the path of success or certainly not have a state government handing utilities customers that they can’t get on their own.
  • To the extent that the state believes it necessary and appropriate to develop a role for natural gas as a motor fuel, we strongly encourage such development of the delivery of natural gas to the driving public to be done though a collaborative effort between the natural gas utilities and the existing motor fuels infrastructure of the state. State policy should be directed toward enhancing existing motor fuels businesses with more than $6 billion invested in the state, not creating alternatives to those businesses. These existing motor fuels businesses currently remit some $1.3 billion in state taxes and fees – 6% of the total state budget – and employ approximately 4,600 Connecticut citizens.
  • Connecticut has among the top 5 most expensive electricity rates in the nation, despite the fact that most of our electricity is generated with natural gas and nuclear with very little oil. Our state’s high cost of living is exacerbated by the fact that fees and charges on the transmission and distribution of electricity outweigh the cost of the electricity itself and this problem needs to be solved in order to lower the overall cost of electricity;
  • Connecticut has among the top 5 most expensive gasoline costs in the nation and this is entirely attributable to the fact that Connecticut levies the highest gasoline taxes in the nation. Lowering our cost of living can be achieved by lowering our gas taxes;
  • Connecticut has the highest diesel fuel excise taxes in the nation, resulting in Connecticut having the nearly highest cost diesel fuel in the nation as well. This imbalance results in higher transportation costs for all goods and services and contributes to our state’s high cost of living. Reducing the diesel excise tax, therefore, reduces our cost of living.
  • We strongly support energy conservation efforts everyday, with all of our customers. Long before Connecticut decided on this deeply flawed energy policy; Connecticut’s Oilheat retailers had reduced per-consumer consumption of oil by 40% and continue to support energy conservation through state programs. State energy conservation programs, including but not limited to on-bill financing and other measures should be applied on a fuel-neutral basis without preference or emphasis of one fuel over another. Funding state energy conservation programs is most efficiently done off of electric bills, not a multiplicity of fees and charges across different fuels where consumers pay the fees multiple times.
  • This temporarily “cheap” natural gas has done little for the economic development of the center cities of Hartford, Bridgeport or Waterbury, among others. Connecticut has had an extensive natural gas infrastructure for decades and yet Connecticut has had zero net job growth over the past twenty years. The availability of natural gas and plentiful vacant space and buildings in our major cities add up to natural gas being a net-zero job creator. In light of the state’s economic record over last twenty years, the trend is not shocking. Connecticut is one of just three states to experience a net job loss since 1990, including the loss of 77,712 jobs between 2000 and 2010. Connecticut perennially ranks among the worst in the United States for business climate, tax burden, and cost of living. Elected officials exacerbated these problems in 2011 by enacting the largest tax hike in state history, increasing 77 taxes and fees by $1.9 billion annually. Our economy’s problem is not that enough of us don’t have access to natural gas – our economy’s problem is with our state and national economic policies.

Every action has unintended consequences. Let’s avoid another energy boondoggle handed to us by government and utilities like the all-electric home, based on the assumption of “too cheap to meter” electricity prices from the 1950’s – that turned out to be false. Energy markets change and this one is changing too. Consumers decide who wins and who loses – government should stay out of those decisions. Government should never assume present circumstances will last for long periods of time, as they never do. Government should never pick winners and losers because when Government does – Government fails and consumers lose.

Consumers Recognize the Advantages of Clean, Reliable, High Efficient OilHeat

  • Over the past 10 years heating oil has been 6% lower in price than natural gas. Over the past 15 years heating oil has been 15% lower in price than natural gas. Over the past 20 years heating oil has been 16% lower in price than natural gas. Heating oil consumers have saved an average of $1,059 by using heating oil rather than natural gas over the last 10 years; over the last 20 years, those same consumers saved an average of $2,946. In 17 of the past 20 years Oilheat has been less expensive than natural gas and consumers have saved money by being Oilheat consumers;
  • The Connecticut Oilheat industry has more than 600 intensely competitive companies and their 13,000 Connecticut-based employees working for the privilege of serving 650,000 consumers every single day. We do not seek the hand of government to aid us in gaining more customers, nor do we believe multi-billion dollar utilities with their guaranteed profits deserve any assistance from the state;
  • Connecticut’s oil industry has a multi-billion dollar investment in Connecticut through our shoreline and inland terminals that contribute millions of dollars in property taxes to virtually every city and town in the state – in addition to supporting 13,000 good paying, high technology jobs. Trading a job in one industry for another industry is not an economic development strategy;
  • BioHeat, when a blend of low sulfur heating oil with renewable fuel, is cleaner burning, domestically produced fuel that is as clean as natural gas. BioHeat has the advantage of being renewable while natural gas is not. BioHeat reduces our carbon footprint by 30% and is available in Connecticut right now;
  • Connecticut Oilheat consumers have reduced their per-consumer consumption of heating oil from 1,200 gallons thirty years ago to 700 gallons today. This reduction has come from the Oilheat industry’s high technology energy solutions that reach efficiencies of 90% or higher and dramatically reduce consumption, emissions and save energy dollars. No other energy source has reduced per-consumer consumption of energy as successfully as Oilheat. The Oilheat industry has brought new, improved technologies to the marketplace that enable today’s consumer to be just as warm and comfortable as ever while using 41% less fuel;
  • Utilities don’t perform their own service. You call the natural gas utility for help and if gas isn’t leaking – they tell you to call a plumber. The Connecticut oil industry’s 4,500 professional, licensed energy conservation technicians serve consumers and underscore how your full service oil heat retailer’s trusted professionals evaluate your heating system and make recommendations for how to become as efficient as possible, while reducing emissions and saving money;
  • With natural gas and electric utilities, consumers are stuck with one company and have no choice between energy providers. With heating oil, the consumer may choose between dozens of companies who all compete for the right to serve the consumer. This competitive marketplace has created choices for consumers in price, payment plans, and service. If the consumer doesn’t like one oil heat company, he or she can switch to another company;
  • Your heating system is a 20-year investment. If you’re an Oilheat customer, you’ve saved money over the last 20 years. Since future energy costs are impossible to predict with certainty, the wisest strategy is to focus on conserving energy and reducing consumption. Conservation is clearly less expensive. And it has the fastest “pay-back” or return on investment of any option you have to control your energy costs. Investing $8,000 or more to convert to another fuel makes no economic or energy sense at all.
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State of Connecticut’s Looming Energy Policy Debacle

There is much being made of an evolving state energy plan. While we support encouragement for energy conservation as we encourage it with our customers every day, we do not support government making choices for consumers or picking winners and losers.

There are ten pillars of economic wisdom and Number 6 is – Every action has unintended consequences. This is especially true in dynamic energy markets where change is constant and where government has a particularly poor track record where it chooses the flavor of the month. Remember in the 50s and 60s we were told electricity was to be “too cheap to meter,” and that led to the all-electric home? That decision turned out badly, especially in a state with the fourth highest electric rates in the nation.

In 2005 the natural gas industry managed to convince Congress to grant exemptions to several important environmental protection laws, among which are the federal Safe Drinking Water Act, the Clean Air Act, and the Clean Water Act. Without the restraint of federal laws protecting the environment, there has been a dramatic increase in the production of natural gas since 2008 from shale, and that new production has driven natural gas prices down significantly – but not without consequences.

The consequences of all this new natural gas being drilled is that the boom in horizontal drilling and hydraulic fracturing that gave access to enormous gas-rich shale formations around the nation has led to record production. With record production, prices crashed. As prices have crashed, drilling activity has collapsed: Natural gas drilling rig counts, down 45% from last year, have hit the lowest level since July 1999.

In early January, while gas traded for around $3/MMBtu at the Henry Hub, New York experienced a spike and paid nearly $12/MMBtu! In March, as natural gas was drifting towards its decade low at the Henry Hub, Boston briefly paid nearly $9/MMBtu. Natural gas got massacred in one place and spiked in another!

Four years ago, there was a proposal to build a liquefied natural gas import facility in the middle of Long Island Sound. With natural gas prices over $8 mmbtus, someone figured they could take natural gas from Algeria, cool it to a liquid and put it on a boat and dock it in Long Island sound and earn a return. Now, with natural gas prices under $3 just four years later, the discussion in the energy industry is not about IMPORTING natural gas, but instead EXPORTING natural gas. With natural gas prices over $14 mmbtus in Europe and approaching $18 mmbtus in Asia, shipping all this “cheap” natural gas here in the U.S. to foreign markets makes sense for gas producers. Meeting that foreign demand will, inevitably, cause U.S. natural gas prices to rise as well.

Even with the multi-billion merger of Connecticut utilities with NStar in Massachusetts, we hear discussion of the State of Connecticut putting “incentives” in play for the multi-billion dollar utilities for this highly dubious energy play in natural gas. So the state that is broke, just raised $2 billion in new and higher taxes and still gas a budget deficit looming ahead, is actually planning yet another economic development boondoggle by giving away our tax money to multi-billion dollar utilities? Worse yet, the state that has the highest per-capita state debt from borrowing is thinking of borrowing more on our children’s future for multi-billion dollar utilities? They can’t be serious – or are they? Haven’t we all had enough of government bailing out businesses?

In early August this year the opening paragraph of a Hartford Business Journal article entitled “Booming demand for natural gas pushes up prices,” said it best, “The commodity price of natural gas leaped more than 70 percent this summer, firing a warning shot throughout the region that New England — and Connecticut, in particular — is over-relying on one fuel source.” [natural gas] The 2007 state energy plan intelligently pointed out that a dynamic, privately-held and privately funded oil and natural gas industry competing against each other kept both in check for both prices and services to consumers. Now, apparently, the state wants to put its thumb on the scale of success or failure of Connecticut businesses. This is wrong.

A heating system is a twenty-year investment, not one to be taken lightly or for a short-term savings. When oil had a twenty-year advantage and saved consumers money, switching to another fuel needs to have a more sound basis than just this month or this year’s estimate of savings out fifteen or twenty years.

On September 5th, federal regulators weighed in on the issue of the growing reliance on natural gas for electricity generation. A deep Arctic freeze socks in the Northeast, and every home’s furnace is working overtime. The surge of natural gas use for furnaces means power plants can’t get enough fuel. Power fails, and furnaces can’t start. Gas pipeline compressors lose power, and natural gas flow stops. What then? That’s the nightmare scenario both regulators and industry are struggling to avoid, as the electric and gas industries quickly become more interdependent.

But no one is finding easy answers. The issue is particularly acute in the Northeast, where gas pipelines from the South have gone empty in cold winters past. In 2011, more than 50% of New England’s electricity and more than a third of New York and New Jersey’s power came from gas.

The Federal Energy Regulatory Commission (FERC) spent August holding five regional conferences, where commissioners discussed local situations directly with electric grid operators, utilities, power generators, natural gas pipeline operators and gas producers and distributors. “There’s no crisis now,” said FERC Commissioner Philip Moeller, citing last year’s unusually warm winter, “but there is clearly a challenge down the road” as coal plants nationwide are being replaced with gas-fired generation.

“There is an electric problem,” agreed FERC Commissioner John Norris. “We have to make sure there is a consistent fuel supply to meet electricity needs.”

State government should stay out of the business of picking winners and losers in the energy markets because [a] it has a poor track record of success and [b] consumers in a free market make decisions about what they want to buy and from whom and it is not government’s role to take the place of consumers. Oh, we hear the calls for “choice,” “balance” and “fairness.” Balderdash.  Utilities know where the customers are just as we do – they don’t need a seeing eye dog government to lead them down the path or certainly not have government handing utilities customers they can’t get on their own.

Every action has unintended consequences. Let’s avoid another energy boondoggle handed to us by government and utilities like the all-electric home. Energy markets change and this one is changing too. Consumers decide who wins and who loses – government should stay out of those decisions.

Posted in Energy Conservation, Energy Prices, Energy Production, Energy Taxes | Leave a comment

Gas Prices Are Too High – Why and What We Can Do

This week the U.S. Department of Energy announced that America has seen the largest decline in demand for refined petroleum products since 1997. In fact, as a nation we have reduced our demand for gasoline every year since 2007, and by 2.5% last year alone – a reversal of a growth trend for the first time since World War II.  Yet, at the very same time, we also learn gasoline prices are at their highest point ever for this time of year. What is happening, and why?

The run-up in gas prices has occurred only since mid-December, as evidenced by the graphic below that shows the latest CME/NYMEX Wall Street gasoline contract. As all energy prices begin at the commodity markets, this shows that something has been driving up gasoline prices [and crude oil] since mid-December.

1. Our First Problem – Look at Government Monetary Policy. We have pointed out since 2010 that governments’ role in debasing the value of their currencies, especially in the US with the dollar, has the effect of driving the financial services community to look for ways to hedge against the decline in the value of the dollar by plowing billions into investing in commodities. These investment banks, hedge funds and similar financial services entities and the majority of those for whom billions in commodities are invested have no intention of taking delivery of the paper they’re investing in – they’re merely hedging the decline of the value of their dollars by investing in commodities whose value is rising.

Both the US Federal Reserve and the European Central Bank [ECB] have engaged in and are continuing to pursue inflationary monetary policies that artificially inflate commodity asset values and drive up the cost of food and energy. This is a particularly difficult problem in Europe as refiners use European Brent crude as the benchmark for crude acquisition costs. As the ECB deals with collapsing economies in Italy, Portugal, Greece, Ireland and elsewhere in the EU through inflating the EU economies, this has the tangential effect of inflating energy and agricultural commodity prices. Much of what the ECB has done, with our US Federal Reserve, to stem the collapse of our own economy as well as Greece and other EU economies has been done since late last fall. Hence, one major contributor to the rise of gasoline prices since December.

As the world central banks have turned on the liquidity pumps to support the Eurozone and the U.S. economy; the most logical place for that excess liquidity to go is into highly liquid, highly leveraged, commodity contracts.  The rising number, the second highest peak on record, of oil contracts outstanding continues to push prices higher.  In turn those higher prices draw more speculation into the market – so forth and so on. The chart below illustrates this point. As the number of reportable crude oil contracts has risen, oil prices have risen commensurately. 

[From Business Insider]

Note that much of the rise in crude contracts and crude prices has occurred since 2000. So, while the gasoline price increases we’ve seen since December, 2011 are recent we are in a longer-term trend that started in 2000. Look at various parts of the economy and inflation since the year 2000. The trend grew even more volatile with the onset of the world financial crisis in 2007 and since, as central banks have pumped trillions of dollars into failing economies in the US and Europe in an attempt to revive them, albeit artificially.

Only college tuition costs have outpaced the cost of energy since 2000. In fact, energy costs have risen at 3 times the rate of the increase in the consumer price index since 2000 [CPI-34.3% versus energy at 110.6%]  As long as the US Federal Reserve and European Central Bank continue to artificially inflate their economies by debasing the value of their currencies, we will continue to see agricultural and energy commodities’ values to also be artificially inflated. Defend the dollar, strengthen its value, and as energy commodities around the world are priced in dollars, the price of energy and agricultural commodities will decline.

2. Our Second Problem – Look at Commodity Market Regulation. The 2010 federal Dodd-Frank law contained powerful tools to enable the Commodities Futures Trading Commission [CFTC] to restrain the degree to which investment banks, hedge funds and the like may invest billions in commodities without ever intending to take the delivery of the commodities in which they are investing. This is also the area of regulation that is effected by every snort and grump that comes from the activities around the world that make commodity traders nervous and causes panic contract buying.  Frankly, a federal law prohibiting commodity traders from watching the news might help here as well. Back to reality.

The first effort of the CFTC was to have finalized a position limits rule,which is a regulation limiting the degree to which those who have no intention of taking delivery of the commodities in which they are investing, may invest in those commodities. This rule, finalized late in 2011, is now the subject of a federal District Court lawsuit filed by two associations of the financial services industry, seeking a stay. The position limits rule needs to be implemented and strengthened to limit the effects of speculative investments, by those with no intention of taking delivery of what they invest in, in commodities and the artificial inflation in the cost of the 28 agricultural and energy commodities that are the object of the rule.

Second, the SEC and CFTC have both issued their proposed “Volker Rule” restrictions. The financial services industry needs to be restricted in their proprietary trading practices such that they cannot use the FDIC-backed funds they hold or funds accessed from privileges by borrowing at the Fed for speculative adventures, much of which is in commodities both as paper as well as physical investments. There is no reasoned argument that the financial services industry should be allowed to take advantage of taxpayer-backed funds for speculative investments. Glass-Steagall prohibited these practices by law from 1933 until it was repealed in 2000 [remember why 2000 was important, see above].

Energy commodities need to become 100% deliverable, which is to say that the inflated paper values that are used as asset investments need to become physical commodity transactions where each purchaser is involved in a transaction that is 100% deliverable, backed by actual physical energy not simply a paper transaction.

3. Our Third Problem – Look at Energy Policy.  For the first time since Truman was President, the US has become a net exporter of petroleum. Stunning as that may be to hear, it is true. Between the decline in our economy and decreases in energy demand from that and enhancements in energy efficiency from better energy use in transportation to housing to manufacturing, coupled with increases in US domestic production of energy, the US is in a far better position on traditional energy than we have been in many decades.  Just ten years ago the US exported 40 million gallons of refined petroleum [jet fuel, gasoline, diesel fuel, etc] per day and by the end of 2011 that was 117 million gallons per day.

So what’s the problem? For every 3% of economic growth there is a 1% increase in energy demand. As our economy recovers, and that of the rest of the world, energy demand will increase and the US needs to do its part to contribute toward increasing world energy supply.

That means building the nation’s ongoing, consistent and growing demand for physical energy by expanding domestic supply. Projects such as the Keystone pipeline adds physical crude to a marketplace and furthermore, moves US Bakken crude to the Gulf Coast in a pipeline instead of more expensive truck and rail.  Bakken crude is heavily discounted off even the WTI quote, evidence average retail gasoline prices at 40-50 cents a gallon less than the national average in states such as Wyoming, Idaho, Colorado, Montana and Utah. Plentiful and less expensive US crude from the upper midwest and west needs to be more broadly used in a market that needs less expensive crude than the Brent benchmark. The US is in a world market for most of what touches consumers every day including agriculture, high technology, transportation as well as energy. The US cannot build a wall around itself or insulate itself from world events or the world economy. As the world consumes 86 million barrels a day of crude oil, the US needs to play its part to build additional domestic supply which adds to world supply, which acts to dampen crude prices.

The United States already has extensive pipeline networks throughout the area of the Midwest where the proposed Keystone pipeline would be built. There is no excuse why in 2012 this project cannot be completed successfully and in an environmentally sound way.

 

Yesterday the President mocked those who say “drill, drill, drill.” Well Mr. President, the US creates 25% of the world’s total economic output of goods and services. Doing that requires  long term, consistent and reliable sources of affordable energy based on energy policies that don’t change week to week but remain intact for decades.  There is no excuse why the US cannot manage to build a crude oil pipeline where there are already pipelines carrying energy of all types in the very same areas. These projects are not about today, but they are about planning for the future – something government does not do well. We need to demand better.

Government is not helpless to act.  Government can and should act and act now. Energy prices are crushing American consumers and whatever benefit may have come from a payroll tax cut have already been wiped out by the increase in just the cost of gasoline.

Do these things, now:

  1. Stop debasing the value of the US dollar, defend it and strengthen the value of the dollar to reduce commodity cost inflation now;
  2. Restrain the financial services industry from further inflating commodity costs by sensible commodity market regulation, much of which has been proposed already and is in the process of being finalized in Washington. Politicians should stop attempting to gut the budgets of agencies trying to engage in market regulation for the benefit of the American people;
  3. Energy commodities need to become 100% deliverable, which is to say that the inflated paper values that are used as asset investments need to become physical commodity transactions where each purchaser is involved in a transaction that is 100% deliverable, backed by actual physical energy not simply a paper transaction.
  4. Expand domestic production capacity and enact policies for the “All-Of-The-Above” energy strategies that begin with traditional energy as those sources will be with us for 100 years or more and starving the economy is no way to encourage economic growth, putting millions back to work or reducing energy prices. We need long-term, stable, reliable and consistent traditional energy supply and policy while government encourages the evolution of biofuels, wind, solar and other technologies.

Now.

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NYT Wrong On Heating Oil

An article in the Sunday, January 22, 2012 edition of the New York Times comparing heating oil and natural gas prices betrayed a bias and naiveté that could cost homeowners thousands of dollars chasing savings which may never materialize.

In their article “As price of oil soars, users can only shiver and cross their fingers,”  authors Diane Cardwell and Clifford Krauss essentially take as a given that today’s lower gas prices will stay low,  higher oil prices will stay high.  Where have we heard that before?

The electric industry, which once promised electric prices so low they would be too cheap for homeowners to meter, encouraging “all electric” homes. That was a serious mistake.  And of course, to natural gas, which has in the past made the same claims, only to see their prices become more expensive.

The fact of the matter is that energy prices are notoriously difficult to predict, even in the short term. A few cases in point:

  • In 2008, customers heating with oil were told prices could rise to record levels, only to see those prices drop by more than $2 per gallon.
  • In 2002 natural gas prices were about where they are today, only to see them rise to more than $14 a million BTUs by 2008 – a nearly 600% increase! Low prices in 2002 were not a guarantee of low prices a few years later.

Now to some of the omissions from the article:

  1. In 17 out of the last 20 years heating oil has been less expensive than natural gas. A heating system is a 20 year investment, not something changed for a temporary advantage of one fuel over another.
  2. The EIA comparison of costs to heat a home with gas, oil and electric, overstates the real differences and misleads consumers. Costs to heat with electricity in Connecticut are twice as high as the cost of heating with oil. Citing an annual cost of $957 to heat with electricity in the Northeast is simply wrong – and actually exceeds more than $5,000 annually based on 19c per kilowatt hour for electricity here in CT.
  3. When you compare apples and oranges, don’t expect to like the taste.  The authors cited the savings of homeowners who converted to another fuel. What they’re leaving out is that they replaced an outdated system with a brand new heating system.  Switch out an old oil unit for a brand new one, and you could also cut your heating bills by 30-40%.
  4. Natural Gas is going to be increasingly liquefied so it can be exported. Natural gas sells for more than $12 mmbtus in Europe and upwards of $16 mmbtus in Asia, while currently less than $3 mmbtus in the US – driving the gas export market.  That can’t help but drive up the cost to homeowners. Further, the boom in drilling for natural gas is starting to drop off as gas companies cannot earn an economic return for the current commodity cost of gas.  As the CEO of Anadarko Petroleum said on January 18th “The price of natural gas, which this week hit its lowest level in more than a decade, won’t continue to be depressed for much longer as companies will have to stop drilling due to economic reasons.”
  5. The authors missed another recent EIA statement concerning future natural gas prices.  Just last week, EIA came out with a projection that Natural Gas prices here could rise 54% within 6 years due to increased exports.
  6. Heating oil continues to get more efficient and environmentally friendly.  The principle reason for the drop in heating oil use is due to improved efficiency. The average Oilheat consumer used more than 1,100 gallons per year 30 years ago and today that same consumer uses about 700 gallons.  Today’s modern oil heat systems are up to 40% more efficient than older units.  A cleaner fuel, mandated for use in New York State beginning this July, will allow the use of even higher efficiency heating systems and which can reduce oil bills by 25% or more.  And with renewable BioFuel, also mandated for use in New York City this year, you get fuel emissions with less global warming impact than natural gas, whose principle component is the powerful greenhouse gas – methane.

Energy markets are highly dynamic and the circumstances we see today were not in evidence three years ago and no one can predict that is where they will be three years from now.

This prompts us to remember the most important message of all.  When it comes to predicting the future of energy costs and placing a $6,000-$8,000 dollar bet on conversion, buyers beware. The US Government has consistently failed to accurately predict the future of energy and the New York Times will not have any better record.

Posted in Energy Prices | 2 Comments