Breaking: Rate Hikes Approved. Hold On to Your Wallets - or Hold Your Nose for Pipeline Approvals

Posted by Ed Burke on Sep 26, 2014 4:58:33 PM

Oil pipline in the snow

 National Grid announced Thursday that it is proposing to raise electricity rates by 37% starting November 1, with other utility companies to follow suit. The rate increases are not a profit but a response to the increased cost to the utility companies on the wholesale market. National Grid cites that the price increases are a result of New England moving to deriving more and more electricity from Natural Gas, without the region investing in any supply expansions. Today, the proposed rate hike was approved.

 So what does the rate hike mean for you? The average residential customer in MA is looking at a bill around 40 dollars higher monthly (assuming similar usage year-on-year)

 So whats going on, why is electricity spiking like this?

It’s all about Natural Gas supply.

 The supply crunch we saw with Nat Gas in the region last winter forced many power generation stations to run alternatively on oil or liquid gas for generation, which costs more. Given the polar vortex dominated winter we had this past season, and the lack of any forward progress on infrastructure improvements, it makes sense that rates are skyrocketing in anticipation of another cold season.

 Then why isn’t my natural gas heating bill going up? Basically, long term contracts versus spot pricing – natural gas often gets locked in over longer periods, so it doesn’t necessarily hit you in the wallet right away when prices bounce.

 There are supply solutions potentially on the horizon, but even if approved it would be a couple years before they were fully operational. Two vying pipeline options are being proposed to relieve the Nat Gas supply pinch in New England. The first is Kinder Morgan's Proposal, the Tennessee Gas Pipeline Northeast Energy Direct Project. T he Tennessee pipeline would be through Pennsylvania and Upstate NY, then run through Massachusetts from Richmond on the NY border to Dracut on the NH side. It would run 177 miles, with a 3 foot diameter.

On the other side, Spectra Energy & Northeast Utilities are planning to expand pipeline access to New England on the existing Algonquin pipeline, which will terminate in Everett (right outside of Boston). The project would replace the existing 26 inch pipeline with a new 42 inch one, essentially along the same route it already takes, but the expanded diameter and system upgrades would result in higher yields.

Senators Markey and Warren are both appearing to oppose the pipelines, and many activist groups are also protesting any pipeline expansion ala "not in my back yard"……. but the question becomes - if we dont upgrade the infrastructure to allow more nat gas to flow, aren't we condemning ourselves to continually increasing rates and supply problems? Probably.

One irony of the pipeline protests is that as a region, we’e moved to Nat Gas over environmental concerns (ie replacing coal fired plants). And although there may be some environmental concerns with pipelines, the lack of supply during cold snaps means that power plants etc have to burn other fuels for electricity generation which both drives up cost, and has its own environmental impact. Essentially, the spike in reliance on natural gas for power generation (versus heating) is a result of closing power plants in the region based on their environmental impact - notably the Somerset Station (coal burning)  a few years ago, the Salem Harbor Station (coal burning) closed this year, and the planned shut down of Vermont Yankee (nuclear).

The bottom line is the power has to come from somewhere, and with New England counting on  over 60% of our electricity generation coming from Nat Gas sources, we’ve really painted ourselves into a corner.

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Topics: natural gas, Utility Rates, algonquin pipeline, tennessee pipeline, national grid, electricity rates

US Carbon Emissions Still on the Decline - Guess Why?

Posted by Ed Burke on Jul 11, 2014 5:03:24 PM

fracking equipment

In June, the White House released a 15 page report on the status of its' Climate Change Initiative. In 2009, Obama stated the goal would be to drop US carbon emissions to 17% below 2005 levels - an ambitious figure that the country is not only on track to meet, but should easily surpass.. In fact, in 2012, US carbon emissions hit a 20 year low. Why?

Is it all the wind power? Solar? Emissions mandates? Not even close. Its thanks to fracking.Yes, fracking. 

In fact, according to information from a meeting of the Council of Europe in Strasburg in June - fracking in the US alone has reduced carbon emissions by significantly more than the entire world's wind and solar projects - COMBINED. (You can read the whole article on that here: Oil and Gas Online)

Even the Intergovernmental Panel on Climate Change's most recent report in April (as quoted in the daily caller) states that “A key development since AR4 is the rapid deployment of hydraulic‐fracturing and horizontal‐drilling technologies, which has increased and diversified the gas supply and allowed for a more extensive switching of power and heat production from coal to gas … this is an important reason for a reduction of GHG emissions in the United States"

So basically what is happening is the abundance of natural gas we now have domestically, plus its very attractive price level, is causing massive levels of companies and consumers to switch to natural gas. This in turn is causing a natural phase out of coal and other more carbon intensive methods of power generation. Nat Gas emits 45% less carbon per unit than coal, so naturally, carbon emissions drop drastically with a large population shift to a cleaner burning fuel. 

 

 

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Topics: Natural Gas Pipeline Explosion, Fracking, climate change, carbon emissions, emissons

By The Numbers - How Would the Proposed "Oil Barrel Tax" Impact You?

Posted by Ed Burke on Jun 27, 2014 12:42:08 PM

Picture of a hand holding a gas handle with Gas Tax overlaid on the image

(Image credit: http://www.foxandhoundsdaily.com/2014/03/californias-gas-tax-nightmare/ June 25 14)

Representative Peter DiFazio (D, Oregon) has put forth a bill in the House called the "Repeal and Rebuild" Act which proposes to remove the at-the-pump gas tax (currently 18.4 cents per gallon) and replace it with a $6.75 per barrel tax on oil sales.

The Highway Trust Fund is slated to go broke by August without Congressional action to secure funding – the current gas tax generates around $34 billion annually, but the transportation budget needs around $50 billion. A bill sponsored earlier in the year proposed to adjust the current gas tax for inflation and set it at 33 cents per gallon – almost double its current level (.184). However, the Obama administration and House Republicans had a rare moment of agreement that nearly doubling the gas tax on consumers, especially given the sorry state of the economy, was a less than brilliant move prior to midterm elections in November.

So anyways, what would this proposed tax mean to you personally, and what would it mean to your business?

Well, at first blush it seems exciting on a personal finance level – who wouldn’t want to save 18.4 cents per gallon, or say $20 or $30 per top off at the local gas station? But will it work that way in practice? Unfortunately, probably not.

Put it this way -  if you were buying a standard full contract (42K barrels) of gasoline for your company, in addition to the current federal and state taxes you are subject to, you’d be paying $6.75 additional per 42 gallons (1 Barrel). That works out to and extra $6750 per contract in taxes. Yikes.

Say you are a Wholesale/under-the-rack dealer with one hell of a business model and nothing ever goes wrong, and you’ll make a whopping 3 cents per gallon on the entire contract (unrealistic, I know, but bear with me for a minute). That only works out to $1260. In other words you’d have to deliver at a loss of 13 cents per gallon, or more than FOUR TIMES your target margin to absorb the fee.

If you're a commercial business targeting an optimistic 6 cents a gallon, you're looking at a max of $2520. So that would leave you having to deliver at a loss of a little over 10 cents a gallon to absorb, rather than pass on, the fee. 

All of this is to say that it will have to be passed onto the consumer, like pretty much any upstream tax eventually is. Seems like a good idea until you factor in the trickle down consequences. DiFazio has admitted it will be passed on in fact, he reportedly said "I don't understand why they (oil companies) are fighting it when they can pass every penny on".... but if it ends up passing on to the consumer, why bother persuing it in the first place?

Long story short,  $6.75 per barrel works out to a little over 16 cents per gallon (.1607 to be exact). So best case scenario, you may see a penny or two per gallon savings, theoretically, when the cost is passed down to the retail level... but I wouldnt hold your breath on that. 

DiFazio is right however that Congressional action is needed desperately on the Highway Trust Fund issue, beyond the stop gap 6 month measures that have been dabbled with in recent weeks. The Hill quotes him as saying “I introduced a proposal today because I am tired of Congress being all talk and no action” – a sentiment most of us can probably get behind, at least on this issue. 

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Topics: Tax Increases, Gas Tax, Highway Trust Fund, Oil Barrel Tax

Progress on Keystone XL? ....Don't Get Your Hopes Up

Posted by Ed Burke on Jun 25, 2014 2:49:09 PM

Oil pipline in the snow

 

Tuesday the House passed bipartisan legislation to speed up the approval process for cross-border energy projects (ie Keystone XL), despite a promised veto from President Obama.  The bill is known as the “North American Energy Infrastructure Act”, featuring 12 Republican and 8 Democratic co-sponsors. If it passed the Senate, it would establish by law that projects be granted or denied approval within 120 days of the Environmental Impact Study, and more significantly, it would remove the need for Presidential Approval.

Technically the bill doesn’t apply to Keystone XL, because the applications and environmental impact studies are already completed for that proposed project. However, that’s obviously the most glaring example of the need to speed up the process, and probably the impetus for the bill’s submission in the first place. In theory, TransCanada could resubmit their application and be subject to the speedier process. (A motion to prevent TransCanada from resubmitting should the bill pass was handily shut down by a wide margin.) 

It’s unlikely that the bill will get through the Senate with a veto-proof majority, though. It may not even be likely that the bill be considered by the Senate, as Majority Leader Reid has indicated he has no inclination to move this or previous Keystone related bills to the floor if he can help it. 

As you know, the project has been languishing for over 5 years after delay upon delay. Earlier this year, progress looked promising when the Environmental Impact Study found no significant environmental concern to prevent the project from going forward (actually, its more environmentally safe to transport via pipeline than railcar - but I digress...). However, nothing much happened and now the current hold up is purportedly related to a "wait and see" on how a Nebraska district court rules on the proposed pathway for a portion of pipeline in that state.

Frustrating to be sure - but the strong bipartisan nature of the push to move Keystone forward in Congress is an encouraging sign. I'm sure we won't see any real movement until after the midterms, given the polarity of the issue in some areas and the amount of seats up for grabs in the Senate. Hopefully, no matter which way the chips fall in the mid terms, we finally see some real, meaningful progress on what is such an extremely important project for our Energy and National Security. 

 

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Topics: Energy Independence, Keystone XL, Energy Infrastructure, Congress, TransCanada, Environmental Impact Study

Methane & Consumers Giving Nat Gas Headaches

Posted by Ed Burke on May 20, 2014 12:32:56 PM

methane scientific element

 We talked before about the White House's proposed new regulations on Methane emissions, which came on the heels of the Administration supporting increased natural gas exports in response to the Russia/Ukraine debacle. Well the EPA whitepapers have come out now outlining proposed changes on each of the industries involved - you can check those out here: EPA Methane Whitepapers 

The Admin proposed changes cite the Agricultural sector as the largest methane producer, followed by Nat Gas. The difference however, is changes proposed for Agriculture are "voluntary" versus regulatory changes for the Nat Gas sector. As usual, environmental groups cheered and said too little too late, while the industry said given it's in their financial best interest to control leakage (their main source of environmental methane), new regulations are an uneccessary burden. 

As we said before, it's hard not to infer from the timing that increasing regulations on methane is at least in part due to environmental and consumer backlash on exports over environmental and supply/pricing concerns. However, given that exporting should increase revenue greatly for the industry it's a pretty savvy time to introduce regulations that may be costly. 

On the consumer side, news has been breaking recently on the number of gas leaks in communities. In the wake of several explosions,  there has been some digging into just how big a problem neighborhood leaks may be, and the news is not good. Some estimates (including a Boston University Study) peg the number of neighborhood leaks in the City of Boston alone at over 3400, and over 20,000 statewide. (You can read the Boston Globe article on the BU Study here: "Boston Riddled with Mostly Small Natural Gas Leaks" )

The issue with these leaks goes beyond the obvious safety and environmental concerns as well. Gas that escapes en route to the consumer is paid for by the consumer. Its estimated that Massachusetts ratepayers are paying an average of $39 million dollars a year for leaked gas ($640 million-1.5 Billion from 2000-2011 according to a study by Senator Ed Markey's Office)

I wrote a piece on methane regulations and the prevalence of natural gas leaks, and what is being (or should be) done about them for the May issue of Oil & Energy Magazine. You can read the full piece here: Natural Gas Needs to Clean Up Its Act

 

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Topics: natural gas, EPA, methane, gas leaks

How is Switching to Nat Gas Hurting the Environment? - It's NOT What You Think

Posted by Ed Burke on Apr 17, 2014 9:30:00 AM

Oil drill in a field

A study published by researchers and scientists with MIT, Stanford, and the National Renewable Energy Library was recently published that is essentially the first in depth look at US Methane emissions. 

Why methane? The environmental issues with Natural Gas mainly come from the presence of methane - which is another green house gas, but 30 times more potent than the carbon dioxide we usually hear about. Approximately 1.5% of natural gas leaks during extraction, processing, transport, etc on its way to the consumer, so methane levels give us a bigger picture of the environmental impact of Nat Gas beyond carbon emissions. 

Surprisingly- Hydraulic Fracturing or "Fracking" is not the problem. You read that correctly - the often hotly debated "fracking" process is not what's causing methane emissions to rise. So what is?

The study found that so called "super users" were responsible for the vast majority of the leaks (some processing plants, factories, etc). The good news is that in theory these repairs arent cost prohibitive, and are generally profitable for the site - at least in the long term -  as they stand to lose less product in transmission. 

The question then becomes - is this an issue that should be legislated on or not? Industry folks say they are already voluntarily correcting issues, and since they have a financial incentive in at least certain cases to do so, they don't need regulatory pressure to move the process forward.  Environmental groups predictably say given the level of leaks still existant, volunteerism is not keeping pace with the level of repairs and upgrades required to address emission levels. 

I wrote an article for Oil & Energy magazine's April issue on this topic, and the related discussion of whether its environmentally "friendly" to switch your fleet to Nat Gas in the long term. You can read that article here: Oil & Energy Online 

 

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Topics: natural gas, Fracking, methane

Breaking : White House Announces Methane Regulations on Fracking

Posted by Ed Burke on Mar 28, 2014 5:26:00 PM

fracking equipment

(image credit: wikipedia.org)

The White House announced today it is taking steps to issue methane emissions regulations at fracking sites. According to the State Department the strategy has several recommendations that apply to multiple sectors but the oil & gas recommendation - specifically aimed at fracking emissions, topped the agenda. 

The move is an apparent win for environmental groups. Methane has an estimated 20 fold impact on the environment versus carbon dioxide. They argue that even though Nat Gas emissions are environmentally positive versus coal at roughly half the impact, methane being 20 times more impactful means leaks, which are not uncommon, can wipe out the gains natural gas makes possible. 

In some sense the announcement this Friday is a head scratcher, as it will obviously raise the cost of fracking which is of note since it comes on the heels of Obama's announcement in Brussels that he will support increased Nat Gas exports of fracked North American Nat Gas to Europe to help curtail the over dependence the region has on Russian oil and gas supplies. 

It may be that the announcement of new methane regulation on the fracking industry is a hedge against the impending backlash from environmental groups on the Administration's new stance on exports, or it may simply be that potential increased production and profitability of fracking once exports are opened up makes it an opportune time to address costly regulations.

We will know next week what the backlash, if any is, and what impact we might see on the industry if the regulations move forward. Stay tuned! 

 

 

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Energy Security, Not Independence, Should Be The Goal

Posted by Ed Burke on Mar 27, 2014 12:36:40 PM

Crude oil terminal

We've discussed previously the debate about lifting the Crude export ban in the wake of the shale oil boom in the US. Last year alone the reduction in US imports (down 9%) and the increase in exports (up 11%) accounted for a $63 billion dollar reduction in the overall trade deficit.

Next year the US is expected to become the world's biggest exporter, and oil production is continuing to increase - analysts predict that by 2020 the US will be a net exporter, and the boom could create a net 4.7 million jobs by 2020 as well. 

The continued economic success of the oil boom however will be greatly impacted by whether or not the Crude ban is overturned. Without a growing export market to support the increased production, prices become depressed due to limited refinery capacity until the infrastructure catches up to the supply, which is never the goal, realistically.

The thought is that the US will be capable of being virtually self sufficient in oil production by that 2020 horizon, although that's not necessarily the practical goal. Trade relationships are often a positive for nations, and the thought is we get a better energy security by maintaining relationships than setting the goal as an isolated, completely energy independent nation. For example, we currently get almost half our oil imports from Canada and Mexico, and the Keystone pipeline would enhance our ability to get Canadian oil into the market and strengthen our relationship with Canada. There is a school of thought that an energy alliance between Canada and the US, or Canada, the US and Mexico would be a much better solution for all three countries' energy security and economic opportunities than being a completely independent country would.   

Exporting will have an enormously positive impact on the trade deficit, and US supply would keep downward pressure on global pricing. In terms of energy security, the availability of alternative crude sources for other nations is a positive as well - being that its a global market, political and other issues in oil-producing nations will always affect one another, but with varied supply an issue in one nation isn't neccessarily a catastrophe for others. For example, as we are seeing in the Russia/Ukraine situation, Europe is in a tight spot given that a huge percentage of their energy supply comes from Russia. That sort of limits their ability to enforce tough sanctions because they risk an economic mess if Russia decides to push their prices higher in retaliation. As we all know - energy prices have huge impacts on almost all sectors of a nations economy.  

Political ramifications and implications of Energy policy and security aren't the only issues at play in the debate, obviously. Environmental groups strongly oppose exporting crude because it will likely make renewable energy even less cost effective in the wake of plentiful oil supply, and reduce the pressure to find alternative, non-fossil fuel energy sources. 

I wrote an article on this topic for the March issue of Oil & Energy Magazine - you can read that article in their online magazine here: http://oilandenergyonline.com/how-energy-independent-is-america/ 

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Topics: Energy Independence, US Crude Exports, US Energy Boom, Keystone XL, russia, ukraine,

Emergency Preparedness for Hospitals Post Sandy

Posted by Ed Burke on Mar 12, 2014 12:40:55 PM

Dennis K. Burke refueling truck performing an emergency refueling at night

Federal Officials with the Department of Health and Human Services are putting forth new regulations on Hospitals, Urgent Care Facilities, and other inpatient care environments that would require them to have plans on maintaining necessary functions for patient health and safety. This includes new regulation on emergency backup generators and generator fueling.  According to the AHA this means they must "develop and maintain and comprehensive emergency preparedness program that...utilizes an all-hazards approach...developing capacities and capabilities critical to preparedness for a full spectrum of emergencies or disasters.. not managing seperate planning initiatives for a multitude of threat scenarios" 

HHS cited severe issues that had arisen during Hurricane Katrina, Hurricane Sandy, and other disaster scenarios, (including the estimated 215 hospital patients who died in Katrina's aftermath) and declared that comprehensive emergency preparedness plans are an "Urgent Public Health Issue" (You can read more about this in today's New York Times article here: http://nyti.ms/1fndiuP )

One of the more controversial federal requirements is that each emergency generator must be tested annually, for at least four hours under a full load (based on what the estimated power needs of the facility would be in the event of an emergency need). A written record of inspections, testing, and repairs is required to accompany the new testing requirements as well. The old regulation only required such testing every 3 years. The thought is that there are oftentimes issues with generator performance when the need strikes, and proper testing and maintenance annually will go a long way in preventing those failures going forward. 

Additionally, hospitals that maintain an on site fuel source for their generators must maintain a quantity of fuel on hand that would be capable of sustaining through the emergency, or until likely resupply could occur. After all - your generator isnt of any use if you run out of fuel. 

The controversy about these parts of the regulation is cost, obviously. The American Hospital Association estimates first year costs at $225 million dollars, according to the New York Times. However,  NYU Langone Medical Center alone reported over a billion dollars in damages and lost revenue in the wake of Hurricane Sandy - so it would seem big picture, that a lack of willingness to pay upfront costs could be "penny wise but pound foolish" in the event of a disaster. 

What are your thoughts on the new proposed regulations? 

(By the way - if you're in the healthcare industry and would like a detailed explanation of the proposed outlines and how they specifically need to be implemented in hospital settings, the ACA has an excellent slideshow online at www.aha.org )

If you'd like more information about our generator fueling program, you can get it here: http://www.burkeoil.com/fuel-and-gasoline/generator-fuel-program

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Topics: Emergency Generator Program, Emergency Fuel

Energy Issues Top the Political Agenda for 2014

Posted by Ed Burke on Feb 25, 2014 12:52:00 PM

Main energy topics in the headlines for 2014 include the Crude Export Ban, the Keystone Pipeline, the Climate Change Action Task Force, RFS Volumes, and an expected final ruling on the Tier III mandate from the EPA. 

State of the Union 2014
(Photo Credit: Amanda Lucidon, WhiteHouse.gov Official Photo)

There is a lot of work to be done on energy infrastructure in the US - something that became especially clear with record breaking spikes in Natural Gas pricing to the New England and New York markets on the heels of the Polar Vortex. This topic is supposed to be the highlight of the Administrations Quadrennial Energy Review. However, the most obvious energy infrastructure and transport improvement - the Keystone XL pipeline is still bogged down in its 5+ years of paperwork, with no decision in sight, even following the most recent Environmental Study which found there would be no major negative impact environmentally from the project. The State Department review was expected after the President's State of the Union Speech, with a Presidential decision to follow but so far as of late February we haven't seen any movement on the issue. 

Renewables are also on the table - The EPA's expected final RFS volume reductions should be out this month (the first time the EPA will have used waiver power to decrease, not increase, volumes). The tax credits for Biodiesel and Cellulosic Biofuels also expired at the end of 2013, but if you recall, last time these were reinstated retroactively. The EPA is also expected to release its final ruling on Tier 3 Gasoline Standards, which would affect the sulfur content of gasoline vehicle emissions.

I wrote a more comprehensive article for the February issue of Oil & Energy Magazine on the topics on the Energy Agenda for 2014, you can read that article by clicking here 

What do you think the priority items on the Energy Agenda should be?    

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Topics: Energy Independence, Biodiesel Tax Credit, President Obama Address, RFS 2, EPA Mandate, US Crude Exports, Cellulosic Ethanol, Keystone XL

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