Even in the wake of the collapse of several government "fast tracked" (ie subsidized) projected winners in the energy industry (think Solyndra, Evergreen Solar, et al) and the imminent declaration of bankruptcy by taxpayer supported Fisker Automotive on the horizon, several Northeastern States are proposing "fast tracks" to expand natual gas pipelines courtesy of the taxpayer.
Many of those in the heating oil and/or propane industries are upset by the proposals as they perceieve them to be benefiting one segment of the industry on the backs of another. Additionally, since heating oil has been progressively moving towards cleaner, lower sulfur fuels and even embracing BioHeat - the enviornmental impact of heating oil versus natural gas in terms of emissions is not the same equation it may have been 10-15 years ago. That's important because when you factor in the continual reduction of the environmental impact of heating oil, the high cost of these sponsored Nat Gas infrastructure projects, and the potential impact on employment facing heating oil dealers (mostly small to mid size businesses) - the economics on subsidized Natural Gas pipeline expansion make less and less sense.
For example, Maine is "fast tracking" natural gas pipeline expansion into rural areas. The issue seen here is two fold - arguably, the reason the government is subsidizing the expansion into rural Maine is there isnt sufficient ROI incentive for the utility to do it itself. Rule number one of public funding - if there were sufficient business and profit to be gained, the private sector would have made the investment itself. Additionally, propane and heating oil dealers have been servicing these areas sans government funding without issue. These companies, many of whom are small businesses, employ thousands of Maine residents gainfully, on private capital and could now be forced to face laying off employees with the necessitated drop in revenue from a smaller customer base. It doesnt seem like a winner in terms of big picture economics/employment for the state.
Vermont has proposed a variety of "Heat Taxes" to encourage lower use of heating oil. The proposals suggest that customers pay either a Carbon Tax of .10/gal on Heating oil and.05/gal on propane, or a BTU based tax of .012/gal Heating Oil and .08/gal on Propane, or worst yet, a Heating Oil Sales Tax that would amount to about 20 cents per gallon. Given the state of the economy, and the price of heating your home these days, it's hard to imagine asking the average person in Vermont to pony up an extra 20 cents per gallon.
Connecticut is proposing converting hundreds of thousands of homes in the state to Natural Gas at the projected price tag of almost 7 billions dollars. With zero explanation of where said billions will come from, its fair to assume it will either come from the taxpayer, or be passed down to the consumer. Converting hundreds of thousands of homes to Natural Gas will impact Connecticut small to mid size petroluem businesses the same way the proposed expansion in Maine could affect businesses there - namely, negatively.
Natural Gas is definitely going to be a huge part of the picture in terms of where American Energy is headed in the future, especially given the obvious success of domestic fracking, and the huge positive impact fracking has had on city and state economies. I for one am all for the expansion of affordable energy - especially when its domestically produced and provides huge employment opportunities for Americans at all skill and education levels from laborers to engineers.
The issue at hand is not Natural Gas, but short sighted governmental policies that attempt to aid one sector of an industry at the cost of another. It seemed during the 2012 Presidential Debates, we are all pretty much in agreement that what America needs is an "all of the above" energy policy. The best way for that to happen in the most efficient and sustainable way, is for market demands to drive advancements in supply logistics and innovation. Case in point, fracking did not arise from governmental "fast tracking" and it's changing the way we look at energy production in the United States in a major way. Back to the thesis: if it makes sense, and it's profitable, it will progress on its own without government funding.
Anyway, I wrote an article on fuel dealers and the proposed Energy topic for a recent issue of Oil & Energy Magazine, if you would like more info you can read the full article online here: Oil & Energy Magazine , or as a PDF Here
In a move that was semi-surprising given the budget cut debates surrounding this years fiscal cliff talks, not only did law makers reinstitute the Biodiesel Blender Tax Incentive of $1 per gallon, but they did so retroactively to 2012.
The positives - or potential positives - of this decision are an estimated 30 thousand jobs sustained by the cut (112,000 versus a projected 82,000 jobs without the credit in place). Additionally in theory the credit serves to make domestic biodiesel competitive with Brazilian corn ethanol - currently ethanol blending into gasoline is the cheapest method of generating advanced biofuels to satisfy the EPA's RFS mandate. However, even with the credit in place, biodiesel still runs a significantly higher cost than ethanol. If biodiesel production does step up as a result of the credit and the RFS mandate, that could potentially prove a benefit for the United States economy, especially given that biodiesel is domestically produced, whereas we import most of the corn used for ethanol from Brazil because domestic corn does not satisfy the RFS "advanced" biofuel requirement.
On the negative side - given that ethanol is often cited as contributing to corn pricing spikes on commodity and consumer product levels, it is reasonable to assume that increased biodiesel production and demand would have the same effect on soybean commodity prices as well as food items. Additionally, most of the projected benefits of reinstating the credit rest at least somewhat on the assumption that it will make biodiesel pricing competitive enough to compete with Ethanol - this is not really the case currently, and pricing structures on both products could prove unstable due to market volatility and competing uses for each items base commodity.
At the end of the day - my thought is a tax incentive on a mandated item is uneccesary, and appears more so given the uncertain nature of the benefits, and the solid $2 billion dollar price tag attached to this cut.
I wrote an article for Oil & Energy Magazine on this topic, if you want more info on the details of how the RFS mandate's ins and outs relate to this tax credit and why Brazilian ethanol's competitive advantage is tough to beat even with a dollar per gallon tax incentive. You can read the article online here: Oil & Energy Magazine - Feb 2013 or as a PDF by clicking here: Biodiesel Blender Tax Credit
In the wake of the record breaking snow in Portland and nearly two feet of accumulation in Boston, now is a good time to revisit the topic of winter fuel and fuel additives. Very few things are more critical than ensuring your fleets winter operability. From Boston to Portland, and over in Albany, kerosene blended diesel is still largely the winter diesel of choice, from standard 70-30 in NY, to blends over 50% in Maine. There are a myriad of other options for additives however, whether used in place of or in addition to blended fuel. I wrote an article for Oil & Energy magazine on the topic of winter fuel and additives, you can read it on their website here: Oil & Energy Magazine
On October 29th, Hurricane Sandy slammed down on New York and New Jersey, leaving a wake of destruction in its path, including demolished houses, flooded subways, and thousands of families without power. In the immediate aftermath, Dennis K Burke began dispatching fuel trailers to help support utility vehicles responding to the widespread power outages in New York and New Jersey. Shortly after, we responded to FEMA's need for operational support refueling emergency vehicles. In New York City, the focus was on FEMA refueling operations for light towers, generators, heaters, and mobile command centers.
Several of our dedicated drivers were in it for the long haul, working countless hours, sleeping in their trucks at the FEMA command centers, refueling critical locations to support the storm recovery. They worked all day and night, powering up generators for local police stations, fueling the Army and National Guard response vehicles, and delivering to LaGuardia and JFK International Airports to support ground and emergency equipment. Our drivers were fueling generators that powered local housing complexes and tent cities, and providing fuel for huge dewatering pumps to work at clearing the flooded subways.
We could not have been more honored and proud to take part in the recovery effort. Our hearts go out to all the families and individuals impacted by Hurricane Sandy, and we look forward to continuing to support their efforts at rebuilding their lives and their communities.
(Photo Courtesy of PRNewswire, Burke Relief Convoy leaving Chelsea MA Headquarters on display in Times Square)
Interesting timing - yesterday I linked to my article in Oil & Energy Magazine giving an overview of the state of the Cellulosic Ethanol Industry and the EPA's mandate that 2012 production hits 8.65 million gallons per the 2011 Renewable Fuels Standard (RFS). I mentioned that critics argued that commercial production of Cellulosic remains at low enough levels that many argue they cannot possibly hit the target set by the EPA, despite steps forward that have been made in production.
The American Petroleum Institute (API) filed a lawsuit against the EPA on July 24th 2012 in D.C. Circuit Court arguing the Cellulosic portion of the Renewable Fuels Standard mandates the use of “nonexistent cellulosic biofuels”. API’s Director of Downstream and Industry Operations, Bob Greco stated that the “EPA’s unattainable and absurd mandate forces refiners to pay a penalty for failing to use biofuels that don’t even exist. The mandate is effectively an added tax on gasoline manufacturers that could ultimately burden consumers.”
You can read API’s news statement describing the lawsuit on their website using the following link: http://www.api.org/news-and-media/news/newsitems/2012/jul-2012/api-files-lawsuit-against-epa-for-mandating-use-nonexistent-biofuels.aspx
The EPA has mandated that in 2012 Cellulosic Ethanol production hits 8.65 million gallons
What is Cellulosic Ethanol anyways? Cellulosic, unlike Corn Ethanol, is a second generation Biofuel (corn ethanol is a first generation) which means it comes from cellulose contained in non food plant material, either remnant products of food crops, or entirely non food crops.
A drawback of first generation Biofuels is that since they come from food crops, they potentially stand to impact food prices due to increased demand. Today there are headlines on the news regarding the drought in the Midwest, and other natural events driving up the cost of food – the impact of events like this could become much more pronounced when there is a competing demand for the same commodities like soybeans, corn, and so on. Second generation Biofuels, being from non-food crops or remnants, take the food price issue out of the equation. Additionally, from an environmental standpoint, although Corn Ethanol stands to reduce emissions up to 52% over gasoline, Cellulosic Ethanol could drop greenhouse gas emissions by up to an impressive 86%.
I wrote a piece this past month for Oil & Energy Magazine discussing the positive moves the Cellulosic Industry has made towards production, the science behind production, and obstacles in the way of moving forward. You can read the article in Oil & Energy HERE or read it as a PDF HERE
Below you can link to an article I published the in May 2012 issue of Oil & Energy Magazine on the importance of Safety in the industry. In my mind, it is critical to prioritize safety and compliance in order to foster not just a safety program, but a Safety Culture. In the article, I run through why I think Safety is so critical, a little about how we created and fostered the strong Safety Culture present at Dennis K Burke, and how our company and employees have benefitted.
Click here to read the Article as a PDF or Click here to Read Oil & Energy Online
The April 2012 Issue of Oil & Energy Magazine features an article by yours truly on the East Coast refinery closures, and what expected future impact may be. You can read the full article here: Oil & Energy Magazine (or if you prefer, open it as a PDF by clicking here )
Factoring into the closures, and the soon-to-be resultant price increases is the Northeast's traditional import of Brent crude vs WTI. Historically, Brent and WTI have traded fairly close, so the price impact at the refinery level was essentially equivalent. However, due to geopolitical and other factors, the crack spread on Brent vs WTI has been trending wide, as shown by these real time tickers:
Lets put it in actual dollars - as of May 2nd, WTI is trading around 105ish, Brent 118ish... to figure out what that equates to in dollars per gallon (what refiners work on) we look at the crack spread. The crack is essentially “what do I get per gallon for every barrel coming in?”
So how do you know the crack spread? You calculate it this way:
($ per barrel/ 42 (gal per barrel)= X).. you then take current trading price of HO (~3.14) and subtract X. Then you multiply by 42 to get gain or loss per barrel.
($ per barrel/42 gal per barrel= X)
(Current HO trading $ - X)*42 = gain/loss per barrel
Refiners will say they need at least a $5 crack to operate. To put it in real numbers, the current WTI crack is around $26.88 a barrel; the current Brent crack is around $13.88. Here’s how we get that:
WTI= $105/42g=2.50 base cost for crude to make HO at refinery
JUN HO= ~3.14
Equates to = .64 margin on current economic conditions (3.2018-2.5238=.64)
Multiply that by 42 gallons per barrel and you get $26.88 profit for every barrel of HO produced from WTI crude.
Do the same math for Brent:
Brent = $118/42=2.8095
JUN HO= ~3.14
(3.2018-2.976=.3305 x 42= $13.881 per barrel)
[Interestingly, the same math on these two products in April yielded a WTI crack spread of $28 to Brent's $9.50. (JP Morgan has predicted that the spread will drop further, before widening to new records as reported in the Economic Times Here )]
Which product would YOU rather have access to?
There is a massive push to not only improve the pipeline system in the US but the rail system as well, in order to take advantage of this crack spread. If you’re a northeast refiner and have access to WTI, you have a huge advantage vs. your competitor in the Northeast because they’re based on Brent.
I wrote an article in March's issue of Oil & Energy Magazine adressing the issue of RIN Fraud and the impact the EPA crackdown on the fraud is having in the biodiesel world.
Ironically, 2011 was a pretty great year in a lot of ways for biodiesel and biodiesel producers - production was up, green jobs were being created, we were making progress. RIN Fraud hitting the news late in the year really shook things up however, understandably, considering the fines and penalties at play and the difficulty facing smaller firms currently who have legitimate RIN credits to trade and are facing a marketplace full of cautious (at best) buyers.
Long story short, there have certainly been ripples throughout the industry over the fraud, with more to come likely. It will be interesting to see how it all shakes out.
You can read the full article in pdf format by clicking here
January 1 2012 saw the expiration of the Volumetric Ethanol Excise Tax Credit (VEET).
For the end gasoline user (non retail), this would have been the 4.5 cent per gallon discount on the invoice you recieved for all gas purchased product that featured the standard 10% Ethanol blend.
For the retail end user filling up at the station, this credit was a large part of what allowed you to fill your Ford or GMC Flex Fuel car or truck with E85 at a substantial savings over standard E10.
However, if you had purchased E85, the credit would have been 38.25 cents per gallon (due to the 85% Ethanol).
What happens when youre a high volume E85 retailer or dealer and you stop getting 38.25 cents back on the gallon? This credit was critical to maintaining the price spread between E85 and RBOB, or regular unleaded gasoline, especially at the retail level. The spread has been what has really fueled the growth of E85 use, as flex fuel vehicle drivers, who can fuel their vehicles on either E85 or standard E10 gasoline can literally choose which product to fill their car with at the pump, depending on the pricing.
I spoke with CSP regarding this issue in a recent article they published. My view is that the spread between E85 and RBOB needs to be in the vicinity of 25% in order to fuel growth, unless you see larger segments of municipal fleet type end users, which may make the spread less critical. To read the whole article you can go here: http://www.cspnet.com/news/fuels/articles/e85s-price-crunch
Below is a shot of our biofuels center before the opening, and a shot of us trying to figure out this whole flex fuel vehicle thing way back in probably 2005/early 2006 with a loaner GMC "live green go yellow" Impala