Natural Gas Is Heading to 1997 Levels

Or so says Seeking Alpha a US trader site, who continue the headline

 …Should Stay There Awhile

some would have us believe that natural gas prices are poised for a great comeback–that all the fret and worry is for nothing because prices are going to come right back up and justify the development of all the shale in the country, and then some.

They are wrong: demand will continue to be weak and supply will not be nearly as sparse as some of the gas bulls would have us believe. Instead, the story of 2009, 2010, and beyond will be not only how much farther natural gas prices will fall, but also how long prices will stay in the basement, and who will be counted among the casualties.

And we thought we were the short-tempered bears!  If this is true then fixed prices of anything over a month will be becoming increasingly pointless.  Which means Third Party Introducers will be pointless too.

Gas bulls point toward fixed prices being smart for those worried about supply disruptions.But where would  disruptions come from?  An LNG cargo from Australia, diverted from India ends up at the Isle of Grain after a 9300 mile voyage (Bloomberg today).  That doesnt' sound to us as if Asia is going to save gas bull's bacon.  With the LNG and general gas glut in Europe,  one of the few other "risks" would be Russia/Ukraine gas dispute bubbling up for the umpteenth time. But they just kissed and made up (again).

So short of polar bears eating gas traders during a Thames Ice Fair this winter, i.e. an incredibly severe winter. we don't see much risk of spikes forming.  Winter should be approached from the perspective that despite the coldest winter in 18 years and the worst snow disruption in decades, UK day ahead gas for February 09 was 48.38 compared with well north of 100 last August. 

What will happen: who knows, but back to Seeking Alpha, who have an opinion that goes past next winter:

With so much cheap LNG in the world, gas prices in the coming years may not be based on futures at all, Henry Hub could be a thing of the past, and U.S. traders might just be buying and selling gas based on spot LNG prices.

And even weirder:  Gas is going to start competing against coal on cost !

However an analyst from Barclays Capital says that the outlook may not be so good for the US. Cheaper gas, said Michael Zenker, could displace an average of 6,000 MW of coal-fired capacity this year.

 

Three views on efficiency and infrastructure

Three views on energy efficiency.  First the same old, same old view from an npower survey on energy:

The annual survey of business opinion also found almost all companies questioned (97 per cent) were currently more concerned with reducing costs than emissions.

We won't depress ourselves any further. The same old rubbish about how reducing carbon increases costs is so old hat, but the smart money knows that cutting carbon cuts costs and much of those costs are immediately obtainable with only the input cost of new thinking.  An FT section on  energy efficiency includes an article which tells nothing new to anyone paying attention to NHO : "The Small Things Add Up"    It's all framing.  NHO tells you all this and people are underwhelmed, read this in the FT and let's hope it gets taken seriously.  We're not bitter, there's lots of good stuff that bears repeating:

A lot of the good that can be done to improve energy efficiency in buildings through design can be undone by the equipment that is used inside.

The main problem areas are in HVAC (heating, ventilation and air conditioning), lighting, IT equipment and other appliances..HVAC is responsible for 55 per cent of energy use in residential properties and 35 per cent in commercial property.. lighting, which accounts for just 4 per cent of consumption in houses, makes up 30 per cent of commercial buildings’ energy usage.

One technology that will have a big role to play is heat pumps and heat exchangers. Heat pumps extract latent heat from the ground, the air or water and turn it into usable heat by a process of compression and condensing. The only energy required is to run the pump – about four times the amount of heat energy is produced, according to New Energy Finance

A lot of what we do at NHO comes from the view of techno optimism and there's no one who does it better than IBM (from the NYT) starting with one of our key technologies to watch, analog utilities finally get digital:

Wireless sensors can now collect and transmit information from almost any object — for instance, roads, food crates, utility lines and water pipes. And the improved software helps interpret the huge flow of information, so raw data becomes useful knowledge to monitor and optimize transport and other complex systems. The efficiency payoff, experts say, should translate into big reductions in energy used, greenhouse gases emitted and natural resources consumed.

For the 97 % in the npower survey, some wise words:

The smart infrastructure wave, analysts warn, could bring a similar cycle of enthusiasm and disappointment. Yet, like the Internet, they say, the technology will prevail in the long run.

“There will be a lot of hype and a lot of things that don’t pan out,” said Rosabeth Moss Kanter, a professor of business administration at the Harvard Business School. “But the direction is absolutely right. We’ve barely scratched the surface of how information technology can help control and conserve energy use.”

Energy change is not going to be easy.  It wont be anywhere as near as difficult either.  But it will be unavoidable.  Companies that avoid it will, some time after the current accounting period, will not be successful companies. Or even existing ones.

 

A number of countries are regulating incandescent light bulbs into obsolescence – most are being replaced by compact fluorescent lamps. These use a fifth of the energy of traditional lights, but they contain mercury, which complicates their disposal. They in turn are expected to be superseded by light emitting diode (LED) lamps, which are 10 times as efficient as incandescents, says Ms Daniell.

LED lights are expected to appear within the next year and should be much cheaper to produce because of the potential to print them on to plastic substrates in a similar process to newspaper printing.

Many existing buildings could use much less energy but they are not being operated correctly,” she points out. “There needs to be a cultural change in how they are used and how energy is viewed.”

The real blue sky view shares our techno optimist outlook, and who is more techno or more optimist than IBM from the NYT  discussing infrastructure in general with obvious implications for energy, even if from the first line of this excerpt it sounds like deja vu all over again for NHO readers: 

Wireless sensors can now collect and transmit information from almost any object — for instance, roads, food crates, utility lines and water pipes. And the improved software helps interpret the huge flow of information, so raw data becomes useful knowledge to monitor and optimize transport and other complex systems. The efficiency payoff, experts say, should translate into big reductions in energy used, greenhouse gases emitted and natural resources consumed.

A refreshing change to the npower's report  view that it's all a bit untried and risky is some smart talk on smart infrstructure:

The smart infrastructure wave, analysts warn, could bring a similar cycle of enthusiasm and disappointment. Yet, like the Internet, they say, the technology will prevail in the long run.

“There will be a lot of hype and a lot of things that don’t pan out,” said Rosabeth Moss Kanter, a professor of business administration at the Harvard Business School. “But the direction is absolutely right. We’ve barely scratched the surface of how information technology can help control and conserve energy use.”

The time to invest in the future is the present.  Predicting disaster is simply shorthand for predicting difficulty.  Those who want a quiet life shouldnt' be in control of companies.  Or those who want a quiet life may find change thrust upon them. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The China Syndrome

Trying to simplify the impact of China on energy prices would seem pointless, but there are three key arguments put forward by energy bulls and/or climate change deniers:

  1. Chinese economic growth means Chinese energy demand growth
  2. That demand will be so huge that we shouldn't even try cleaning up our own house via de-carbonisation. 
  3. Carbon Reduction progrrams will only mean export of high carbon jobs to high carbon areas.

But what if China (and India as we noted yesterday) learnt from "developed" countries and are starting to think, and act, on a new paradigm of a low/lower energy efficency?  What if they are learning the lessons that we should be learning? 

China’s economy could grow more than 10 times by 2050 yet its emission growth can stay consistent with the Intergovernmental Panel on Climate Change’s 450ppm CO2 climate target says a Tyndall Centre research report being launched in Beijing on Wednesday 29 April. China can also reverse its emissions growth as early as 2020 – conclude Tao Wang and Jim Watson of Sussex University and the Tyndall Centre.

China went from peasant economy to world economy in roughly 20 years. So what can be so difficult about moving from high carbon to  low carbon economy?  The Chinese command economy means that decisions are made, agreed and implemented in timeframes which we can only dream about in the UK.  Will the energy efficent solutions of tomorrow be the new iPods: Designed in California and Made in China?  Or will China design as well?

We shall see, but  climate change go slowers in the UK will still be arguing about the cost of energy efficiency on industries that could end up irrelevant anyway.

Steel Yourself

One of the largest energy users is the steel industry.  Steel is a benchmark for  energy demand, no matter how efficient the industry can get so the news that steel demand is to drop so precipitously is a case of steel's loss is anothers  gain. Steel production if, when, it rises will one  of the precursor industries that are just one of the many parallel markets to put into the mix that eventually produces energy prices.

The World Steel Institute is showing a world wide drop in steel, including over 5% in BRIC (Brazil, Russia, India and China) areas, which is a symptom that a recovery there won't be sufficient to have any short term increase on oil and energy prices in general.  But it is in US and European markets that energy price will be impacted by the huge drop in steel demand:

WSA said that steel demand in China is seen falling by 5% YoY as the ongoing global economic crisis hits the country's exports and demand is seen falling by 36.6% YoY in the United States and 28.8% YoY in the European Union.

Next to generation, steel, along with petrochemicals is the largest energy intensive industry.  One reason why US and European steel production  is falling is that it is becoming more and more economical to recycle steel, with recycling needing about 25% of the energy needed for virgin steel.  The only country where production is rising is India, although only by 2%. This doesn't necessarily mean a win for energy bulls though. Oil price contango depends on the traditional view that developing world energy needs will grow to the point where oil will resume it's march back to $150. But as we recently pointed out, this view depends on China and India using energy as profligately as the West did. That ain't necessarily so. Put together new thinking with new technologies and energy prices reflect new thinking that emerging economies aren't out to duplicate the western idea of "success" but to improve on it.

If the Indian steel industry wants to be globally competitive, they need to develop a new energy consumption strategy and a roadmap for energy conservation. The lower the energy consumption, the higher would be the level of environment protection.

This was the common view expressed by the experts participating at the inaugural session of a two-day national seminar on “Energy Conservation in Iron and Steel Industry” organised here by the Indian Institute of Metals Durgapur Chapter, IIM — Ferrous Division and Durgapur Steel Plant of Steel Authority of India Ltd (SAIL).

This had led to a renewed impetus for in production of energy efficient process technologies. Even then Indian integrated steel plants at present consume nearly seven to nine giga calories (geal) to produce one tonne of steel compared to only 4-6 geal in developed countries

The Green Army

The idea that energy efficiency is some sort of green/red plot is so 20th century, apart from in those parts of the UK Tory Party where it's forever 1979.But many in the UK still need to get with the program:

  • End Users that won't install £100 meters on cost grounds, even as they spend £500k a year on fixed prices is one example we heard of this week.
  • Media "experts" who don't see that the fear of an energy shortage has evaporated and spending mega-money on pipelines, nukes or new coal plant is yesterday's solution to tomorrow's problems. 
  • TV audiences that see Jeremy Clarkson as a source of information, not entertainment.
  • Climate deniers like Nigel Lawson still walk the earth in parts of the UK. No one would give serious coverage to creationists, but many parts of the mainstream UK press think that there is doubt over climate change and they should give it coverage:

George Monbiot, a British environmental activist and writer, said that by promoting doubt, industry had taken advantage of news media norms requiring neutral coverage of issues, just as the tobacco industry once had.

“They didn’t have to win the argument to succeed,” Mr. Monbiot said, “only to cause as much confusion as possible.”

Those who see energy efficiency as an environmentalist and socialistic plot to destroy the world economic system now have a new enemy:

Defense officials now consider reducing consumption and embracing energy alternatives to be national security imperatives. At Ft. Irwin, commanders are experimenting with ways to power the desert training area — which replicates austere combat conditions — using wind, solar and organic waste-to-fuel technologies.

When Brig. Gen. Dana Pittard took command of Ft. Irwin in 2007, he was stunned by the cost of housing troops in tents powered by generators, as they often are in Iraq and Afghanistan. A brigade of about 4,000 to 5,000 troops was spending about $3 million to rent the tents and keep the air conditioners humming during a month-long rotation, Pittard said. By building tents covered with two to three inches of insulating foam and a solar- reflective coating, they reduced the generator requirements by 45% to 75%, a technique that is now being used at some larger bases in the war zones.

Estimates are that a $22-million investment to replace all the rented tents at Ft. Irwin with insulated, semi-permanent ones would pay for itself within nine months and could save the Army $100 million over five years, said Eric Gardner, a logistics management specialist at the base.

We don't think business people should waste time debating climate change, when the real issue is their own bottom line:

Producers and advocates of green technology are taking note. The Defense Department derives 9.8% of its power from alternative sources and is looking to expand use of wind, solar, thermal and nuclear energy. Some believe that the military has the potential to become a catalyst, helping to turn more expensive power sources into financially viable alternatives to coal and petroleum.

"If the military were to go green, I think that this really could achieve some environmental goals, for a very simple reason: the military is so big," said Matthew Kahn, an environmental economist at the UCLA Institute of the Environment.

Although that remains to be seen, Kahn noted that it would not be the first time the military has had a transforming effect on technology. Cellphones, the Global Positioning System and the Internet all have roots in the military.

Some in the green energy sector hope that as the military adopts alternative power sources, the technology will gain broader acceptance among political conservatives.

"Just hearing that their military is embracing this new technology that was thought of as left-of-center is going to swing people's thoughts" about using it..

Combined the with dawning awareness that Barack Obama is not the first black President but the first green one, UK energy policy makers, having spat in the face of Europe too many times to mention and now irrelevant across the Atlantic will discover the first people in Britain left out in the cold and dark are those unable to adapt to new realities.

Space for mobile operators in the domestic energy space

We think the domestic space has much more potential for the introduction of smart metering that is at first apparent.

The  trajectory  of most technology goes from lab to fab, from fabrication to business (often via military), to high paying first adopters down to the masses. In utilities, Smart Metering should, in theory, be introduced for high usage end users first and then move down to domestics.

How about building the value chain from the bottom up?  We can do this thanks to developments in wireless communication. It's ironic that the at same time that the age of Edison and incandescence is dying, the concept of telephony is going the way of Edison's big rival, Alexander Graham Bell.  Communication is what is happening, the vector is irrelevant.  M2M, machine to machine communication or the internet of things is what is happening. Just one more thing is the  utility meter.

T-Mobile

 has developed a durable, tiny SIM card that can connect smart meters (as well as other machine-to-machine gear) to its wireless networks

Although this is no big deal actually, there are any number of competitors, but as the story goes on to explain this SIM card is a reflection of mobile operators looking to leverage their networks.

Problem is, there’s a growing list of companies like Silver Spring Networks building IP-based networks for utilities — Silver Spring has already inked deals with the likes of PG&E and FPL. And though the phone companies have been moving more slowly — according to T-Mobile’s national director of machine-to-machine services, John Horn, the company is doing pilot projects with utilities at this point — they are getting more aggressive on competitive pricing. Horn tells us that T-Mobile broke its historical pricing models to offer utilities a better deal with its Echelon partnership. (AT&T recently did the same.) The question now is whether offering automated cellular services will provide the revenue injection being sought by T-Mobile, which saw the number of net additions fall in the most recent quarter. Not immediately, but the smart grid is forecast to be one of the biggest revenue drivers in a decade — so even a small portion of that could help.

The parallel development impacting this are femtocell deployments.  Femtocells duplicate the cell network in the home via broadband.  Any mobile telephone registered to the femto gets calls for free. But a femtocell would be just as happy to talk to any other node on a Home Area Network.

The economics of this sound bizarre:  Why would mobile operators want to forego the 35% or so of call revenue coming from subscribers' homes?  The cost of a femto modem (being introduced to the domestic sector this summer, and businesses later in 2009) won't after a while be any different from that of any other modem.  Existing wireless home hubs are given away.  Femto cells will cost at first but a combination of falling costs, consumer resistance and first mover advantage for operators will soon see that they are supplied free.  And why not?  Mobile operators save money by giving it away:  A cell tower (mobile phone mast) for 3G costs £30K and will serve as few as a handful of subscribers.  It makes more sense to distribute calls via femtocells.  But femtocells can also be leveraged to deliver broadband services, tv and…. why not electrons and molecules.

The only thing preventing mobile operators from delivering energy is imagination. One thing that they have and many traditional power utilities singularly lack.

Peak Demand: the new Peak Oil

Peak Demand, as we've been pointing out for almost a year, is the new Peak Oil.  All of a sudden it's all over the place from the cover of Newsweek to Platts, and even to Exxon Mobil and the Wall Street Journal.  Latest establishment energy analysis firm to jump on the bandwagon is CERA.  CERA advise everyone (and rightly so, hats off to Daniel Yergin CERA's founder) including Ofgem so give it a few months and it might even start making UK papers apart from the FT. First a reality check on our old friend (first post last July, most UK "experts" haven't heard yet) shale gas:

CAMBRIDGE, Mass., March 23, 2009 – North American natural gas is entering a new era in which supply is no longer constrained, according to a new Cambridge Energy Research Associates (CERA) multiclient study, Rising to the Challenge: A Study of North American Gas Supply to 2018. A revolution in technology has unlocked “unconventional” gas resources, dramatically changing the prospects for the market. Demand, rather than supply, will be the challenge for the market going forward, accentuated currently by the economic crisis.

We've underlined above what is going to be relevant in Europe in only a matter of time.  Shale gas has the potential to change the debate entirely. But, no, we don't want to give you that:

CERA continue the theme on the European side with a new study on the potential for demand reduction via energy efficiency.  Mentioning energy efficiency gets sneers of derision from many UK energy "thinkers". For how much longer?

The European Union is set to be the first advanced economic grouping to achieve a sustained reduction in its demand for energy, as policies to curb gas and electricity consumption take effect….. what they can do is astounding and unprecedented

Call us cynical, but why do  those most enthused about spending mega millions on big ticket items such as nuclear plants  or pipelines suddenly morph into consumer champion to help us avoid spending smaller sums on efficiency. An example of that is the debate over the cost of Smart Metering.  Go down further and those who don't think twice about building a power plant froth at the mouth over the price of energy saving bulbs.

The implication of efficiency is as clear now as it ever was, but now that the CERAs of the world have given peak demand their seal of approval,  the rationale for big ticket items in either Europe, or as the head of FERC showed recently in the US, is disappearing fast:

When the Ukraine-Russia crisis hit, everyone was saying: ‘We need to get those pipelines built.’ But energy efficiency, if the EU manages to deliver it, could be the single biggest contribution possible for energy security in Europe.

 

How did the conventional wisdom get it so wrong?

From the WSJ  we see that with the benefit of 20/20 hindsight the world financial system wasn't the only thing that Alan Greenspan should have kept shtum about.

In the summer of 2003, former Federal Reserve Chairman Alan Greenspan appeared before a congressional committee to share his thoughts about the U.S. natural-gas market. It might have been better for the industry, and some investors, had he kept those views to himself.

The Wall Street Journal dissing the Greenspanster!  Alan Greenspan goes from sitting at the right hand of God to being the new Rodney Dangerfield.  But we digress:

Mr. Greenspan and the industry experts who shared this view — and there were many — couldn't have been more wrong.  How did the conventional wisdom get it so wrong?

A few years ago, most people looked at U.S. (and UK we add)natural-gas production and saw it entering a slow, terminal decline. But in fact, the opposite has happened. Rising prices and easy financing encouraged a horde of companies to develop "unconventional" gas fields such as the Barnett and Haynesville shales, located, respectively, in north Texas and along the Texas-Louisiana border. These shale wells, once thought to be too costly and difficult to exploit, succeeded beyond everyone's expectations.

Instead, North America is becoming a dumping ground for the world's excess natural gas. In 2009, new LNG supplies from Indonesia, Qatar, Russia and Yemen are expected to enter global markets, at a time when a depressed global economy has shrunk demand for fuel. The U.S. Gulf Coast, meanwhile, is perhaps the only region in the world capable of absorbing and storing this enormous excess gas supply.

Since then, we see US gas prices providing  pricing signals for NBP UK prices that used to be provided by oil indexation of European contracts.  Even US markets are starting to have indigestion, a strong indicator of  why European gas prices are heading south.  And will stay there for more years to come.

And the next time someone says energy risk, think of Alan Greenspan.

The Cutting Edge of Light

Organic Light Emitting Diode lighting is one of a number of reasons for our optimism long term over energy prices. However the lux level is delivered,  be it fluorescent, incandescent or halogen, lighting is anywhere from 20 to 40% of business electricity spend. If OLED lives up to the hype and lighting becomes too cheap to meter, 20% of energy demand also disappears into thin air by 2020.  The implications are obvious. 

Everyone knows about how the incandescent bulb is dying but many don't realise that the low usage (13w v 60W) CFL bulbs that get so much ire from Daily Mail  readers are only a stop gap.  LED bulbs can save even more energy. The light quality approaches daylight levels of colour at up 75% savings reported by business users. Even today, payback is measured in  weeks or months, but with the next generation of manufacturing promising them cheaper than incandescent, the final curtain of the Edison Age is nigh.

But the next generation of advanced lighting belongs to OLEDs. Philips, Osram and GE, i.e. anyone who matters in illumination, are betting the company on a future of printable lighting that promises eventually to be as cheap as cotton, or even paper, and as easy to manufacture. How can anything beat that?  How about ultra low power display technology and portable electronic (WiFi enabled of course) paper?  Naturally , the science fiction aspects of all this make one cautious, although we think how could people like GE and Philips invest in this if the writing wasn't on their electronic walls? 

A usually reliable indicator of trouble in any product is when delivery dates slip.  So what can it mean when delivery of the first product comes out a year ahead of analyst predictions?

Philips is selling a Philips Lumiblade experience kit on its official site right now. €70 (£62) will get you a base kit, and prices for the Philips Lumiblade OLED lights themselves vary from €157 (£140) for a small circle to €566 (£500) for the largest rectangular panel. All come in white, red, green and blue shades, but there’s potential for many more colours, and the Philips Lumiblade stencils available point to the flexibility of the technology to fit anywhere in the home once prices come down.

First adopter pricing of course is no indication of the future prices, but if it works now, future OLED will be better, brighter and cheaper.  The Lumiblade Web Site   while saying that

As a rule of thumb: we expect the efficiency to double every 2-3 years

makes it mighty tempting looking already.  Interestingly enough the first sales are aimed at designers, which explains the choice of Milan as the the launch site.

No new nuclear or coal plants may ever be needed in the United States

Who would ever say anything like this:

No new nuclear or coal plants may ever be needed in the United States

We may not need any, ever

renewables like wind, solar and biomass will provide enough energy to meet baseload capacity and future energy demands. Nuclear and coal plants are too expensive

There's enough renewable energy to meet energy demand

Problems with unsteady power generation from wind will be overcome

You sure won't hear that from the collection of has beens, nuclear fans and peak oilers who make up the UK Energy Establishment.

Business users sure won't hear that from any energy consultant trying to get them to sign up for year or longer energy deals to solve the non-existent (for 99% of end users) problem of energy risk.

But you have heard it here.  Who said it?  Al Gore? Swampy? Jane Fonda?  Bono on a stop-over from his jet?  Greenpeace?

No, we have great pleasure to revealing who said these things here.  The answer may surprise you.  It will sure scare the hell out of the UK Energy Establishment.   And your energy consultant is going to have kittens.