P60. Pick Points

There seems to be a fair bit of chat in the blogs at the moment about the fate of the “cap and trade” legislation that has appeared in the House. It has drawn an editorial comment from the Houston Chronicle, and a column at U.S. News It is beginning to be viewed as only a first step, without likely passage this year. Kevin Drum feels that it is too weak to start with, open to abuse, and unlikely to get any stronger as it progresses through the process. On the other hand Grist is disappointed that it doesn’t deal with agricultural waste, the literal BS, which is specifically exempted. The intent is to have something to take to the Climate Change Meeting in Copenhagen in December, and the Huffington Post thinks it is better as a job creator than in dealing with climate change. At Climate Progress the feeling is that there aren’t enough votes to get it through the Senate. And Democrats from coal states are leary.

Despite the warm words for renewable energy, and the comforting thoughts of the legislature, in the real world companies out there trying to build market share are finding it tough going. Biofuel Energy is one of the latest that has to face this reality after losing $84 million in 2008, and without the needed margins between the prices of corn and ethanol, it is facing bankruptcy. The company produces some 230 million gal/year of ethanol. (15,000 bd). Renew Energy, another ethanol producer, went bankrupt in February. A calculation on relative profit has recently suggested that planting corn would yield $89 per acre, while soybeans would yield $108 per acre. Demand for corn is anticipated to exceed that which can be grown on 80 million acres this year, but the relative costs argue against planting corn after corn (as opposed to soybeans) and thus it is anticipated that less than 80 million acres will be planted. (Which will turn some of the economics around, but not favorably if you are trying to make ethanol).

Oops! The smooth relationship between Turkmenistan and Russia (er, Gazprom) seems to have just sprung a bump.

Ashgabat has expressed interest in participating in the US-supported trans-Caspian pipeline (TCP) project, which would become part of an export route to Europe that evades Russian control. But so far, Turkmen officials have made no firm commitments to the TCP route. The East-West spur is estimated to cost about $1.5 billion to build. The April 3 statement took repeated swipes at Russia, but gave no indication that Turkmen leaders were ready to embrace the US-backed TCP route. In not so subtle terms, the statement accused Russia of trying to bully Turkmenistan on energy-related issues.

It is not Gazprom’s week, since Moody has just lowered their debt rating, and with the slump in demand for natural gas, the company is talking about reducing its investment program. On the other hand it sold $350 million worth of bonds on Friday, and is now selling gas directly to Ukrainian industrial customers. However it is still expected that Turkmenistan will ultimately sign that contract with Russia.

After several months of falling numbers, the number of rigs exploring for oil and natural gas went up by 4 (to 1,043) this week, though it still fell a couple for natural gas (808 for natural gas, 224 for oil). Four wells, including three horizontals have just been completed in Illinois in what is claimed to be an innovative new layout (among other things the horizontals intersect the vertical) but the main plays continue to be in the gas shales. Even though activity in the Barnett shale, for example, has been cut 40% over last year, it still affects some 70,000 jobs, according to a recent report. Development is still going forward with the Marcellus Shale. Normally there would be some increase in demand over the summer, since about 25% of electricity is now fueled by natural gas, but with stocks high and lots of gas currently available, this may not help stop the falling gas price.

With the glut in natural gas, this may not be the best of times to note that Sakhalin finally shipped the first LNG cargo, bound for Tokyo on April 1, and (marking the change from Shell management) they toasted in vodka, not wine. The LNG market is revising some opinions about Shtokman and Norway would like to be considered as a place to build the tankers.