Fuel Freedom Staff

Saudis pay only 45 cents a gallon for gas

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The Washington Post has an interesting story about the impact of lower gas prices — meaning the overall price drop since June, taking into account the recent uptick — on consumers in Saudi Arabia. While the government might one day have to make a decision about lowering oil output, thus letting prices climb again, regular citizens aren’t noticing much difference. That’s because Saudis pay about 45 cents a gallon to fill up their vehicles, thanks to government subsidies.

In Saudi Arabia, the general response to the drop in global oil prices by half — from more than $100 a barrel six months ago to around $50 now — is a shrug. Remember all those $60 fill-ups at U.S. pumps when gas was running close to $4 a gallon over the past few years? While your wallet was getting hammered, Saudi Arabia’s was getting stuffed thick. The kingdom has more than $750 billion in cash reserves, which is more than enough to keep the lights on and stave off panic over oil markets.

Not only is the government not sweating the reduced price of oil, it’s continuing with an ambitious program of public works to benefit citizens.

the government could go seven or eight years without trimming back its plans, simply by using its massive reserves, which are equal to 100 percent of annual gross domestic product, to cover budget deficits. More likely … the government would monitor oil prices closely for about 18 months and rethink strategy if they did not rebound.

Saudi Arabia has prospered over the decades thanks, in part, to protection from the U.S., the world’s most prolific consumer of oil. According to this timeline on PBS’s “Frontline” program:

1940-45: Although Saudi Arabia officially maintained neutrality through most of the war, the U.S. began to court the kingdom as it realized the strategic importance of Saudi oil reserves. In 1943, President Franklin Roosevelt made Saudi Arabia eligible for Lend-Lease assistance by declaring the defense of Saudi Arabia of vital interest to the U.S. In 1945, King Abdel Aziz and President Roosevelt cemented the tacit oil-for-security relationship when they met aboard the USS Quincy in the Suez Canal.

Fuel Freedom Staff

Gas prices start to rise again, and drivers notice

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Oil Gas prices are on the rise again, and consumers, who barely had time to enjoy their savings over the past few months, are taking notice.

“It’s still low by our standards,” Pete Diaz of San Jose told the Mercury News. “I’m not complaining — yet.”

Diaz paid a little less than $2.20 a gallon when he filled up Friday at an ARCO. That was actually a bargain: On Monday, according to AAA’s Daily Fuel Gauge Report, the average in San Jose was $2.636 for regular gas, up from $2.443 a week earlier.

The national average Monday was $2.177, up from $2.056 a week earlier.

Los Angeles-based Gas Buddy reports that, over the last week, the proportion of stations selling gas for under $2 a gallon has shrunk from more than 50 percent to 27 percent.

Stories are popping up all over the country about rising gas prices: from Maine to New Jersey to Texas to Arizona.

Oil prices dropped by 60 percent between June and January, a trend analysts spectacularly failed to predict. But in a four-day span between Jan. 30 to Feb. 3, oil surged 18 percent.

Gasoline prices, in turn, went up in an instant, a clear example of the market volatility that makes it nearly impossible to plan household budgets, much less a career. The latest round of job cuts was just announced by Weatherford International, one of the world’s largest oilfield services companies. It will lay off 5,000 employees, 85 percent of them in the United States.

Prices might keep on rising. Major media outlets reported Monday that oil was still on the rise, based on OPEC forecasting higher demand in 2015.

Other factors contributing to the price increase include:

  • The looming seasonal switch to “summer blends” of gasoline. As Gas Buddy notes: “As air temperatures warm, refineries also begin the progressive switch to cleaner variations of gasoline, which also adds to cost.”
  • Refineries are undergoing maintenance to prepare for the summer switch.
  • Refinery workers around the country are striking for better health benefits. It’s the largest such walkout since 1980.

Now it’s your turn to tell your story. How does the day-to-day price of gas affect you and your business?

 

Fuel Freedom Staff

Hot Rod explains why race-car drivers love methanol

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Methanol has been a preferred fuel for race-car drivers and teams for decades, for various reasons.

In the movie PUMP, racing teams explain that the lower cost, compared with gasoline, is a big selling point. The footage, which depicts the 91st running of the Race to the Clouds on Pikes Peak, in Colorado, in 2013, includes an interview with one mechanic who says his crew has been running on methanol for 19 years. “It’s just a much better fuel for racing,” he says.

We could go on about the safety of methanol — it burns cleaner than gasoline, is less flammable and burns “cooler” — but come on. What really gets the gearheads salivating is the pure power of methanol.

Methanol has less energy content than regular gasoline, so vehicles get about half the mpg out of the fuel. But it has a higher octane.

As the smart people at Hot Rod magazine explain, race-car engines are built to squeeze more power out of that less-energy-dense methanol, by adjusting the air-to-fuel ratio.

While it’s true that gasoline has a higher energy density (about 18,400 BTU/pound) than methanol (9,500 BTU/pound), if you can burn three times more methanol than gasoline per power stroke, you can make more power. An engine that flows 1,000 cfm of air (about 70 pounds worth) means that on gasoline, the engine will consume about 5.6 pounds of fuel based upon its 12.5:1 max power ratio, giving a total energy output of (5.6 pounds x 18,400 BTU) or 103,040 BTUs of energy. If we do the same calculation on methanol, we get 17.5 pounds of fuel burned, and (17.5 pounds x 9,500 BTU) or 166,250 BTUs of energy—that’s a 60 percent greater energy output.

These folks have forgotten more about engines than most people will ever know, so here’s some more knowledge: Methanol is the better fuel at conserving heat inside an engine. With gasoline, more of that heat is wasted.

Gasoline, when it undergoes a phase change can suck out about 150 BTUs of heat energy per pound of fuel, which results in a temperature drop. Methanol, on the other hand, takes 506 BTUs per pound of fuel of heat energy to make the phase change. When we look at our above example of an engine flowing 1,000 cfm of air, the 5.6 pounds of gasoline will take about 840 BTUs of energy, versus 8,855 BTUs for methanol—more than 10 times as much. This is what makes methanol such an effective fuel in forced-induction applications like turbocharging and supercharging, and it absorbs so much heat that an intercooler often isn’t even needed.

Fuel Freedom Staff

WSJ shows how oil analysts keeping getting it wrong

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It’s amusing to see analysts at high-powered, influential financial-services companies continue to predict what oil will do, following its 55-percent plunge from June to early February.

Here’s a news flash: Nobody knows what it’s going to do: whether the price will spike again, and if so, by how much. They were wrong in the last half of 2014, and some of them are sure to be wrong even as we speak.

The Wall Street Journal’s Alexandra Scaggs looks into specifics ($$), leading with the recommendations of Raymond James & Associates analyst Pavel Molchanov. In late November, with oil already down 30 percent from June, he issued a report saying oil prices and energy stocks were “within weeks of bottoming.”

He and his colleagues maintained the equivalent of a “buy” recommendation on Houston energy producer Southwestern Energy Co., also down about 30% since June. … More than two months after Mr. Molchanov made that call, it is clear he and many other analysts were wrong. Nymex crude prices and Southwestern Energy’s stock each have fallen more than 20% since Thanksgiving.

What does Molchanov say now?

“It’s a little late in the game to downgrade stocks on oil going down, because oil’s already gone down,” said Mr. Molchanov. But “commodity prices are almost impossible to predict in the short run.”

As the story notes, often analysts have waited until very late in the game to recommend against holding energy stocks. Molchanov’s colleagues at Raymond James didn’t downgrade Southwestern Energy’s stock until Jan. 6.

Reed Choate, portfolio manager at Neville, Rodie & Shaw of New York, says: “Analysts are always optimistic.” But “this was a big miss.”

Arun Jayaram, an analyst for Credit Suisse Group AP, added: “In an ideal world, as an analyst you anticipate moves.” But “it’s difficult.”

You’d figure that such analysts, chastened by their bad moves, would be a little less enthusiastic. Nope.

Mr. Molchanov of Raymond James thinks the sector could begin a lasting recovery in the second half of this year. The firm forecasts Nymex crude will sell for an average $62 a barrel this year. “The recovery will take time,” he said. “Then, naturally, there’s going to be a bounce in most oil stocks.”

Maybe. Oil has certainly climbed back upward a bit the past week, but it could just as easily slip back as march upward.

What consumers need, instead of expensive guesses and uncertainty, is a steady cost structure they can count on when they build their household budgets. And the best way to achieve that kind of stability is by introducing choice into the transportation-fuels market.

Fuel Freedom Staff

Why are the Koch brothers buying up ethanol plants?

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Flint Hills Resources, a biofuels company owned by the corporation controlled by brothers Charles and David Koch, has purchased its seventh ethanol plant.

This week Flint Hills completed its acquisition of the plant near Camilla, Ga., from Southwest Georgia Ethanol. According to Flint Hills’ press release, the plant produces about 120 million gallons of ethanol a year and employs about 60 people.

As the Wichita Eagle notes, Flint Hills is now one of the largest ethanol producers in the country. Its biofuels business …

… has a combined annual capacity of 820 million gallons of ethanol, a biodiesel plant and investments in biofuels technology and feedstock development.

Considering that the entire ethanol industry produced 13.3 billions of fuel in 2013, Flint Hills now controls 6.2 percent of the U.S. market. Pretty substantial for an enterprise owned by Koch Industries, which  made the bulk of its vast fortune on oil.

The Kochs are hardly greenies. According to a Rolling Stone story from last September:

Thanks in part to its 2005 purchase of paper-mill giant Georgia-Pacific, Koch Industries dumps more pollutants into the nation’s waterways than General Electric and International Paper combined. The company ranks 13th in the nation for toxic air pollution. Koch’s climate pollution, meanwhile, outpaces oil giants including Valero, Chevron and Shell. Across its businesses, Koch generates 24 million metric tons of greenhouse gases a year.

A 2011 story by the Center for Public Integrity contends that while oil is the “core of the Koch business empire,” its influence extends much further.

Koch companies trade carbon emission credits in Europe and derivatives in the U.S. They make jet fuel in Alaska from North Slope oil, and gasoline in Minnesota from the oil sands of Canada. They raise cattle in Montana and manufacture spandex in China, ethanol in Iowa, fertilizer in Trinidad, nylon in Holland, napkins in France and toilet paper in Wisconsin.

Since federal guidelines call for a certain amount of ethanol to be blended into the nation’s gasoline supply, investing in ethanol might be a simple hedge, the story says.

“New or emerging markets, such as renewable fuels, are an opportunity for us to create value within the rules the government sets,” Flint Hills Resources President Brad Razook told his employees …

Fuel Freedom Staff

Oil has jumped $9 in the past four trading sessions

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It might not yet be the “snap-back” we’ve been talking about for some time — that inevitable climb back upward after a seven-month downward spiral — but the price of oil has shot up 19 percent across the last four trading sessions.

So maybe start preparing to say goodbye to those savings you’ve been pocketing at the pump every week or two.

Brent crude LCOc1, the international benchmark, rose $3.16 (about 6 percent) to $57.91, and U.S. crude CLc1, West Texas Intermediate, rose $3.48 (7 percent) to $53.05.

The four-day surge is the biggest such gain since January 2009.

As Reuters reports:

The rally began on Friday, when oil services firm Baker Hughes said the number of U.S. oil drilling rigs had its biggest weekly decline in nearly 30 years.

Of course, that could mean further job losses in the U.S. oil-production sector. Baker Hughes last month announced plans to layoff 7,000 employees, or 11 percent of its workforce, because a global oversupply of oil pushed down prices and made expensive-to-extract American oil less profitable.

Fuel Freedom has argued that American workers, as well as consumers, need cheap fuel prices for the long-term, instead of the job-killing rollercoaster of volatility that’s inherent in the oil market. The solution is to displace some of the oil we consume with cleaner-burning, cheaper fuels like ethanol and methanol.

John Hofmeister, the former president of Shell Oil and a star of the documentary PUMP, has said that the oil price plunge is an “anomaly,” and has warned of a price “snap-back” based on the reduction in U.S. drilling. Last month he told CNBC: “The more consumers enjoy the price production, the sooner we’ll be headed back to higher crude-oil prices. That’s the reality.”

As Reuters explained, oil didn’t just spike in a vacuum. Tuesday’s jump came after the dollar fell about 1 percent against other currencies, the dollar’s biggest one-day drop since October 2013. This had the effect of elevating the value of oil and other commodities.

Despite the four-day rally, some traders doubt that the selloff in oil was over, citing last week’s build in U.S. crude stockpiles as evidence. A U.S. refineries strike also stretched into its third day on Tuesday, weakening the picture for crude.

The Wall Street Journal reported that “few investors and analysts are willing to call a bottom to a downdraft that began in July, the magnitude of which caught many market experts by surprise.”

 

Fuel Freedom Staff

More attention paid to all the natural gas we’re wasting

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Energy experts are starting to pay more attention to an important byproduct to U.S. oil extraction: the incredible amount of natural gas that gets burned off into the atmosphere, or “flared,” because it’s not profitable enough to capture at the well head.

Forbes contributor Michael Kanellos is the latest to examine the absurd practice, writing:

… the sheer volume of gas that gets flared or emitted into the atmosphere t remains truly astounding. A potential source of profits and jobs is literally transformed in bulk into an environmental hazard and potential liability around the clock.

It’s an environmental hazard because natural gas is made primarily of methane, a greenhouse gas that’s many times worse for the environment than carbon dioxide. Some methane leaks from wells and pipelines, but even when the gas is burned off, it creates some GHG emissions.

Methane has tremendous potential as a commodity, however, because it can be turned into alcohol fuels — ethanol and methanol — to run our cars and trucks. Both fuels burn much cleaner in engines, and can be cheaper for the consumer.

When the price of oil was $115 a barrel, there was little incentives for oil drillers — who put bits in the ground mainly for oil, after all — to capture and store the natural gas, because gas remains stuck in the cellar in terms of pricing. Now that oil has dropped by 60 percent over the past seven months, maybe U.S. drillers will be incentivized to keep more of the gas that comes up in the wells.

(Our blogger William Tucker has written about the flaring issue before. It’s also discussed, along with many oil-related issues, in the documentary PUMP, which is available for download on iTunes now.)

Landfills also emit methane, and much of that is flared as well. If we captured more methane and turned it into fuel, there would be more of a market for it, and the infrastructure for converting it to fuel and distributing it would grow. A whole new generation of jobs could be created in the sector, jobs that by their nature would stay in America.

Kanellos has compiled many fascinating statistics about how much natural gas is wasted by flaring, including these nuggets:

  • Since the beginning of 2010, more than 31% of the natural gas in the Bakken region has been burned off or flared. It was worth an estimated $1.4 billion.
  • Over 150 billion cubic meters, or 5.3 trillion cubic feet, get flared annually worldwide, or around $16 billion lost.
  • Flaring in Texas and North Dakota emit the equivalent amount of greenhouse gases as 500,000 cars.

Related:
Dispute flares over burned-off natural gas (WSJ)

Fracking boom waste: Flares light prairie with unused natural gas (NBC News)

Natural gas flaring in Eagle Ford Shale already surpasses 2012 levels of waste and pollution (Fox Business)

Fuel Freedom Staff

Layoffs piling up as American oil drillers pull back

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Communities around the country that drove the surge in U.S. oil production are becoming victims of falling global prices. Already this month, oil-and-gas servicing companies Baker Hughes and Schlumberger announced a combined 16,000 layoffs, owing to the steep drop in oil prices.

“They gave me 24 hours to leave my house,” John Roberts, a van driver for Schlumberger who was let go in Williston, N.D., told CNN Money.

In North Dakota, where work on the Bakken shale-oil formation had attracted thousands of workers amid an economic surge, Jim Arthaud, CEO of MBI Energy Services in Belfield, said up to 20,000 jobs could be lost in that area alone, and just among companies that service oil and gas drillers.

Prof. Bill Gilmer of the University of Houston told Forbes that 75,000 jobs could be lost in Houston alone in 2015. The city has added about 100,000 jobs a year since 2011.

The antidote to this boom-and-bust cycle of volatile oil prices is to provide a steady, dependable supply of cheap transportation fuel to American drivers for the long term. Increasing the use of alternative fuels will reduce our dependence on oil and protect the economy from the oil-market rollercoaster.

The United States has helped bring down the global price of oil by producing more oil – a lot more – here at home. But that oil, extracted from shale rock, mostly in North Dakota and Texas, is expensive to get out of the ground. As the global price of oil has plummeted, so too have the oil companies’ profit margins, and they’re starting to lay off workers on a mass scale.

To promote the use of more alternative fuels, as a counterweight to oil-price volatility, the U.S. should build up its infrastructure for producing and distributing fuels like ethanol and methanol. There are thousands of jobs that could potentially be created. In 2013, for instance, the U.S. produced 13.3 billion gallons of ethanol, which is blended into the gasoline we all use. The ethanol industry supported 86,504 direct jobs and 300,277 indirect jobs, according to the Renewable Fuels Association‘s most recent data. Those are domestic jobs that support American families, and which can’t be outsourced.

The sector added $44 billion to the nation’s gross domestic product and paid $8.3 billion in taxes, without government subsidies.

If we made such alternative fuels more widely available, we could not only reduce our dependence on oil, we’d create a whole new generation of U.S. jobs that would keep investment in the country and strengthen the overall economy.

Fuel Freedom Staff

NYT columnist: Gas really isn’t all that cheap

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It’s about time somebody pointed out that gas, while cheaper than it’s been in the past few years, isn’t all that cheap, really. If you look at history.

New York Times business columnist David Leonhardt did just that, pointing out that the national average for regular unleaded — $2.03 per gallon — is “still more expensive than nearly anytime in the 1990s, after adjusting for general inflation. Over a 17-year stretch from the start of 1986 to the end of 2002, the real price of gas averaged just $1.87.”

Leonhardt notes that the era of cheap gas coincides with the “great wage slowdown.”

One of the surest ways to end the great wage slowdown would be for the United States to make sure it’s entering a new era of cheap energy. “It’s the proverbial tax cut,” says Daniel Yergin, vice chairman of the research firm IHS and author of a Pulitzer Prize-winning history of oil. If energy costs remain at current levels, it would put $180 billion into Americans’ pockets this year, according to Moody’s Analytics, equal to 1.2 percent of income and a higher share for lower-income households.

That’s why taking virtually every step to push oil costs even lower — “drill, baby, drill,” as the phrase goes — would make a lot of sense, so long as oil use did not have harmful side effects.

Ah, but it does have side effects. Leonhardt adds:

It leads to carbon emissions, which are altering the world’s climate. Last year was probably the planet’s hottest since modern records began in 1880, and the 15 hottest have all occurred since 1998. Oceans are rising, species are at risk and some types of severe storms, including blizzards, seem to be more common.

More oil production, then, involves enormous trade-offs: a healthier economy, at least in the short term, but a less healthy planet, with all of the political, ecological, health and economic downsides that come with it.

Leonhardt writes that it’s possible, in part, to retain the benefits of increased oil output without the drawbacks. Hydraulic fracturing is less carbon intensive than conventional oil drilling, although fracking comes with other issues. “Clean energy” offers a good solution, he says, “if it could become even cheaper.”

Fuel Freedom Staff

Democrats block Keystone XL bill in Senate

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As expected, Senate Democrats prevented a bill authorizing construction of TransCanada’s Keystone XL pipeline from advancing in the Senate.

The fate of the pipeline still remains with the State Department, because the pipeline would cross from Canada through the United States.

President Obama already has made his feelings known, saying through a spokesman that he would veto any bill that emerged from Congress.

According to media reports, Senate Majority Leader Mitch McConnell moved to end debate on the bill, a version of which had already cleared the Republican-controlled House. But Republicans could only muster 53 votes for cloture, or an end to the debate, on two separate roll calls. Under parliamentary rules, 60 votes are needed for cloture.

The New York Times reported: “The move ensures that senators will continue to debate the bill — most likely for another week — before Republicans again try to bring the measure up for a final vote.”

The GOP had no doubt hoped for more Democrats. As Politico reported:

The legislation … on Monday lost a vote from one of its longtime backers, Sen. Jon Tester (D-Mont.) — now a member of party leadership as chief of the Democratic Senatorial Campaign Committee — but picked up a vote from Sen. Michael Bennet (D-Colo.), the former DSCC chairman who has not formally signed onto the pipeline bill.

Two other Democrats who have backed stripping Obama’s power to decide on a Keystone permit, Sens. Claire McCaskill and Mark Warner, missed the Monday vote.

“I’d like to see us decide Keystone and move on,” Sen. Heidi Heitkamp, one of the pro-Keystone Democrats who voted with the GOP to cut off debate, told reporters.

Keystone’s backers initially expected the pipeline votes would end this week. But Democratic anger over the majority leader’s move to close off the debate on their amendments last week has made the pipeline bill a power struggle, with Democrats pushing McConnell to continue the freewheeling energy debate on the floor that has delved into topics ranging from climate change to eminent domain.