Tesla

How does Tesla wind up having a stock market valuation greater than Ford or GM?

MLPs

MLP is short for Master Limited Partnership.  These are taxed like a partnership, but are traded much as common stocks are traded.  There will be a general partner, typically a corporation, that assumes the general risk so the unit holders have a limited liability just as shareholders in a corporation.

Marcus McGregor and High Quality MLPs
 Marcus McGregor is a MLP Equity Strategist with Conning Asset Management tells Barron's senior editor Jack Hough investors should buy high-quality MLPs for income and stability because they have stronger balance sheets and less regulation. He says their average yields around 7% look sustainable.

Libby Toudouze Sees a Sideways for MLPs

Jack Hough interviews Portfolio Manager Libby Toudouze of Cushing Asset Management. She suggests three for growth and yield.




4/1/2017

King Coal Was a Merry Ole Soul, But No Longer: Natural Gas Now Is the #1 U.S. Electricity Generator

The June 24th Energy Information Agency (EIA) Electricity Monthly Update shows that in April Natural Gas was the number one U.S. source of electricity generated as measured by megawatts of output.  It moved ahead of coals in the standings by generating 31.46% of all electricity generated.

The technological revolution in the oil and gas industry has notched up another new first.  

Over the last few years, the U.S. exported more petroleum products than it imported for the first time in 52 years.  Then it became the world's largest petroleum exporter and finally the world's largest oil producer.

The technological revolution.  

Often the amazing technological revolution that has transformed both America's and the world's energy picture is referred to as the Shale Gas Revolution.  This is increasingly a misnomer.  The same innovations have been applied to the Mississippian Limestone formation here in Kansas and the Permian Basin in Texas, to mention but two examples.  The former has been producing oil since 1915, but the revolution has revitalized recovery from a field thought to be largely played out.  The Permian Basis was first developed in the 1930s.  The new techniques are recovering oil as deep as 10,000 feet from strata of various rock types.  The revolution combines computer technology that I can only describe as three dimensional GPS with engineering that allows horizontal drilling a mile or more sideways miles beneath the surface of the earth and with hydraulic fracturing, a technique first used here in Kansas 67 years ago.  Yet few say "high tech" when they talk about about oil and gas.

This could only have happened here in the U.S. where individuals own the mineral rights, where the rule of law still generally prevails, where independent petroleum companies flourish, and where immigration was once encouraged.

A sobering thought:  

If the various immigration laws of the last ninety five years had prevailed before 1920, the revolution's father, George Mitchell, would have been born in bankrupt Greece not Galveston and would not have studied geology at Texas A&M. The Economist put it well: "Few businesspeople have done as much to change the world as George Mitchell." 

What might not have been!

Kansas Taxes Gasoline More than Missouri, Colorodo, or Oklahoma

The American Petroleum Institute provides a map showing how much tax there is on gasoline by state:

Exxon-Mobil notes its profit per gallon is 5.5 cents.

Koreans Demonstrate a Wireless Electric Bus Route

World's First Wireless electric buses started running this week in the southeastern South Korean city of Gumi.  The fifteen mile route has charging facilities built into the road allowing for less battery power and weight in the bus.  But, it requires infrastructure!

The WSJ's Jeyup Kwaak tells Jake Lee how this wireless-charging system works in this short video:




All this raises a number of questions.

If this get used, who pays for the power?  Will the vehicles' owners pay?  If the technology is installed to meter the power usage, will it also be used to charge for road usage? London installed a system for metering road usage many years ago, but there has never been the political will to use it.  London does have a congestion charge in the city center.

What is the cost of installing the hardware in the road and what does this imply for road repair?

Finally, what type of loads will this put on the power system?  In our anti-nuclear age, will we have enough base load power?

Interview with Ford CEO Alan Mulally

Joshua Topolsky interviews Ford CEO Alan Mulally at Hotel on Rivington in New York City. They talk about Alan Mulally's time at Boeing, new alternative energy sources, and how space exploration inspired Mulally to become an engineer.

Will This Movie on Fracing Light Your Fire?

Ann McElhinney and Phelim McAleer have directed a new documentary about hydraulic fracturing that gives a very different picture from that portrayed in the Acadamy Award nominated documentary, "Gasland."  McElhinney is a bit of a fiery journalist, perhaps because of the attempt to muzzle the Irish pair (see below.)  Telling an Irishman or Irishwoman to shut up is hazardous.  Here are some things she has to say about what they found in researching "FrackNation: A Journalist's Search for the Fracking Truth:"




She is certainly right that the first hydraulic fracturing was done here in Kansas in 1947.  It was in the Hugoton field in southwest Kansas.  I doubt that that conventional well was in a shale formation since the field is "mostly Permian limestone and dolomite."

Video journalist Phelim McAleer questioned Josh Fox, the producer of the anti-hydraulic fracturing documentary "Gasland," about why he failed to disclose that methane has been present in Colorado water for decades and thus flammable at the tap:



In the New York Post, McAleer wrote last spring, "One of the most dramatic images in 'Gasland' is footage of a resident lighting his tap water with flames shooting out of the faucet.

"As a journalist, I wanted to learn more, so I went to a Q&A with Gasland director Josh Fox. As I questioned him, Fox eventually admitted that he knew people could light their tap water in these areas decades before fracking came on the scene.

"But he did not include the fact in his documentary because, he said, 'It was not relevant.'"

He then went on to tell of Fox's attempts to get the above video removed from YouTube and other internet sites.

Unlike "Gasland" and "Promised Land," Matt Damon's anti-fracing movie FrackNation is not financed by big Hollywood money.   It took a much more democratic route to finance itself.  Christopher Toto tells us "FrackNation, like many independent films of late, went the Kickstarter route to help bring its story to the masses."

According to the director's statement, "'FrackNation' was funded through the crowdsourcing website Kickstarter. The filmmakers raised $212,265 from 3,305 backers on Kickstarter on April 6, 2012. It was one of the most successful documentary campaigns in the history of Kickstarter."

John R. Hays, Jr., an eminent Texas attorney with an extensive practice in the oil and gas industry, tells me that the proper way to shorten "hydraulic fracturing" is "fracing" not "fracking," given industry practice.  I am afraid the industry is losing the spelling war: it is not the geologists and the petroleum engineers who are winning.

Senate Democrats Are Like Rats Deserting a Sinking Ship on the Keystone Pipeline

Alana Goodman reports in Commentary that "Contentions Dems May Force Obama to Make Keystone XL Decision."  The House has already picked up 69 Democratic votes to approve the pipeline and Byron York reports in the Washington Examiner that in the Senate, whee there is a Democratic filibuster against the pipeline, "Democrats are using the filibuster to stop the pipeline, which means 60 votes are required to pass it. (Some Democrats who bitterly opposed the filibuster when Republicans used it against Obama initiatives are notably silent these days.) In a vote last month, 11 Senate Democrats stood up against Obama to vote in favor of the pipeline. Add those 11 to the Republicans' 47 votes, and the pro-pipeline forces are just a couple of votes away from breaking Harry Reid's filibuster."

WSJ Video: Google, KKR Set California Solar Deal

Wall Street Journal reporters discuss Google Inc. and KKR & Co. Inc. investing jointly in a California solar-power project (12/20/2011):

The Birth of Arbitrage

Arbitrage is the simultaneous buying and selling of an asset in two separate markets to exploit a price difference.

The Benchmarks Aren't Speaking to Each Other!

For many years, Brent crude oil sold a a very similar price to West Texas Intermediate crude oil.  The former is the benchmark price for oil in Europe; the latter for the U.S.  In the early years of the Brent field (between Great Britain and Norway in the North Sea), Brent sold at a discount to WTI.  Thereafter they sold at parity.  In the last year, Brent has opened a big premium up over WTI, averaging $27 for one recent month.  What happened to arbitrage and the Law of One Price?  A glut of oil in cushing, OK where the market for  WTI is and a shortage in Europe.

That is about to change.

Chip Cummins reports in the Wall Street Journal that Entbridge of Canada is buying the recalcitrant half of Seaway pipeline and will reverse its flow south.   Let the arbitrage begin!

For Kansas:

This means lower margins for Kansas refiners, higher income for Kansas oil producers, and probably higher local gasoline prices.

WSJ's Liam Denning and Mean Street host Evan Newmark discuss WTI's price spike back over the $100 per barrel mark on news of a Canadian company's investment in a gulf coast-to-Oklahoma pipeline.

U.S. Energy Production on the Rise

7/6/2011: Markets Hub interviews WSJ's Heard on the Street columnist, Liam Denning that energy production in America is on the rise, which is positively affecting the U.S. chemical industry. Natural gas is the good news:

The Government Shuts Down Wind Mills and Shell Takes a FL*NG at Sea

The Wind May Blow, But the Power Does Not Flow

Pipelines and/or transmission are the choke point of energy policy. Getting energy from there to here is a big problem. Wind energy is useless if there is no transmission to get it to market. This summer, the Bonneville Power Authority is periodically disconnecting wind power from its grid. (See "Tilting at Windmills" in the Economist.)  Why?  There is so much excess melt water that the Authority is giving away hydro power for free and even paying utilities the cost of getting that power from there to them.  Unfortunately there is not enough transmission to fully share the Pacific Northwest's bounty with the rest of America.  Hence the idle windmills.    Ludwig von Mises's ghost must be experiencing schadenfreude as it mutters "another triumph for socialist planning!"

Getting Natural Gas from There to Here

Natural Gas coming out of the ground does little good unless it can be captured and transported to markets. So what do you do if you find natural gas way out at sea? Your project is in deep water economically and financially (pun intended) and will thus be dead in the water because you can not get the gas to market.  (Sorry.)

John R. Hays, Jr. is fond of reminding me how high tech the oil and gas industry is.  Shell now gives us more evidence of just high tech it is.  Six hundred engineers from around the world have worked on the world's first floating liquefied natural gas facility (FLNG).  Watch the video below to learn about the development phase of the Prelude FLNG Project to define, design and evaluate plans for the facility.  They built a scale model of the FLNG facility and tested it in tanks in artificial marine conditions to see if it would withstand wind and high waves.  The plan is to capture gas from a field far off of Broome, Western Australia, liquify it at sea, and ship the liquified natural gas (LNG) to markets.

No Wonder We Have a Trade Deficit: Did You Know You Need Permission to Export Natural Gas?

As the U.S. Balance of Payments Drives Us Deeper Into the Hole

The U.S. is running a current account deficit of almost a half trillion dollars (c. $450 billion.)  China has accumulated some $2 trillion of dollar denominated foreign exchange reserves in its $3+ trillion hoard.  The U.S. Treasury is in hock to China for over $1.1 trillion.  Our energy trade deficit was approximately $850 billion in 2010.  That means that other than energy, our current account had a surplus of some $400 billion.

Getting our international accounts into surplus and preserving the reserve currency status of the dollar should be a priority.  The President has called for doubling our exports in five years.  It is not clear what might make that happen, but exporting something the U.S. has in surplus should be good news.  Or so you would think.

Cutting Into Our Energy Deficit Should Be a Good Place to Start

Gregory Meyer writes in the Financial Times, "The US approved the first exports of large quantities of natural gas through the Gulf of Mexico," specifically, the Department of Energy granted a license for Houston's Cheniere  Energy to "refit a gas import terminal to condense and ship up to 2.2bn cubic feet a day" of liquified natural gas (LNG.)  According to the DOE, "In August 2010, [Cheniere's] Sabine Pass Liquefaction, LLC filed a two-part application requesting authority to export up to 803 billion cubic feet per year of domestically produced natural gas as LNG for a period of 20 years. On September 10, 2010, the Department approved these exports to 15 countries with which the U.S. already has a Free Trade Agreement covering natural gas. Today the Department is extending this authorization to include all other countries except those that lack the ability to receive imports or those with which trade is prohibited by U.S. law or policy."

Please note: Cheniere had to ask permission to help right our balance of payments! 

Apparently we have rules that prohibit exporting natural gas.  Getting a "Get Out of Jail Free" card also allows others to lobby against the license.  In this case a group called the Industrial Energy Consumers of America lobbied against Cheniere.  No wonder the dollar is on the ropes!

Are these rules some fossilized leftovers from the 1970s?  ("A sober economic historian would judge the years 1973 to 1982 as the worst decade in the last sixty years." See also "When Will They Ever Learn?") In that horrible decade, we had widespread natural gas shortages caused by government price controls.  A tangled web of administrative rules, laws, and policies tried to contain the damage done by price controls.

Some background:

Pioneers like Michell Energy developed some tricky technology that has allowed Americans to tap huge new reserves of natural gas.  These reserves are trapped in deep shale formations that require very unconventional drilling techniques to capture the gas.  These reserves ("shale gas" for short) have been the focus of a drilling boom in the U.S. and have created an enormous glut of natural gas.

This is the one great "good news" news story in recent years for the U.S. economy. Natural gas prices are fluctuating near $4 per mmBtu. Henry Hub Natural Gas settled at $4.32 today.  This is close to a third of its 2008 peak.  By way of comparison, the energy equivalent price of oil would be about $16 per mmBtu.  This means Americans are getting a great bargain.

Internationally, prices are much higher.  Britons pay over twice our price for natural gas and in Asia the price is more like four times as much.  In much of the world, natural gas contracts are tied to the price of oil.  Why are these price differences not arbitraged away?  It is not easy to get natural gas from one place to another.  The U.S. has facilities for re-gasifying imported liquified natural gas (LNG).  These facilities were built in the 1970s: remember those artificial shortages?  Our facilities are limited for liquifying natural gas for export.  Hence this project and similar ones.  How many are going to rush to invest in such facilities if they will wait for eight months may to be told, "No you can't!"

The Future of Natural Gas

Oil prices make headlines; Solar and wind power are sexy, yet natural gas is the real news.

While U.S. oil production has been declining since the 1970s and the peak of world oil production is continually predicted, natural gas looks like the rabbit we are pulling out of the hat.  And the future is paved with shale.

It took companies like Mitchell Energy twenty years to figure out how to extract natural gas from the Barnett shale formation in Texas.  The technology having been mastered, we now realize that there is an abundance of gas in shale formations around the country and the globe.

Interestingly enough the home of the Whiskey Rebellion and the first U.S. oil rig, Pennsylvania, is home to one of the biggest.  The Marcellus shale formation in western Pennsylvania, west Virginia and western New York has been estimated as having natural gas equivalent to the nation's energy needs for twenty years.

Chevron's 4.3 billion Shale Bet

As iStockAnalyst put it, [C]onsider this number: 4.3 billion.That is what Chevron offered to pay for Atlas Energy.  As Bill Wince of Chesapeake Energy points out the big integrated oil companies are used to dealing with huge fields and negotiating with governments. Unlike America, in many countries the state not the landowner owns the mineral rights.   The independents can field an army of land men who track down tittles and negotiate drilling rights.  The Chevrons of the world have decided if they do not have a distinctive competence, they can always buy it. 


Platts tells us, "Chevron's first deal in a US gas shale play dovetails nicely with the
company's plans to increase its proportion of gas production from 31% of total
output currently to 41% in the next seven years," according to Atlas' Indian joint venture partner, Reliance Industries, CEO John Watson who spoke at a Bank of America
Merrill Lynch's Global Energy Conference.

This is Not the Last Big Buy

Platts further reported, "Watson said he expects Chevron's Marcellus Shale production to grow from Atlas' 63,300 Mcf/d to more than 500,000 Mcf/d in the next decade and that, combined with the play's proximity to premium markets in the northeastern US made it fit into Chevron's plans.


"The cost per well in the Marcellus Shale are about half that in other
major shale plays such as the Louisiana's Haynesville and Texas' Eagle Ford
because vertical drilling distances in Appalachia are about half those in
rival plays.


"Atlas wasn't the first shale producer Chevron looked at and it probably
won't be the last, Watson said."

Heard on the Street: IEA's Energy Outlook Forecast 11/9/2010 5:42:06 PM
Forecasting the next quarter is perilous.  Forecasting the next 26 years is both easier and riskier.  Few will remember your forecast after the twenty six years pass and the fundamentals assert themselves over the long run.  Still, you have no idea where in the crazy commodity cycle you will be nor what the value of a dollar will be.

The International Energy Agency's 26-year forecast for the energy industry

The Wall Street Journal's Heard on the Street columnist, Liam Denning, talks to the Journal's Lee Hawkins:




Lee Hawkins and Liam Denning also discuss Chevron's "We Agree" Campaign.

There Is Some Cross Price Elasticity Between Coal and Natural Gas

Rebecca Smith and Ben Casselman report in the Wall Street Journal that falling natural gas prices are gaining it market share in the electricity market at coal's expense. There appears to be a non zero cross price elasticity between coal and natural gas in this market. No doubt there is more in the longer run than the shorter run.

Newt Gingrich's Three Ways to Lower Gas Prices: What Do You Think?

How much of our Standard of Living Do We Want to Sacrifice to Accelerate the Greening of the U.S. Economy?

The Wall Street Journal's Take On the Coal Plant in Western Kansas

The Wall Street Journal editorial page has weighed in on the state's decision to deny the Sunflower Electric Cooperative to build a coal plant in Western Kansas. Listen to Joe Rago editorial writer for the Journal: