Hey, Look Me Over. Lend Me Your Ears is a good introduction to this morning’s blog. It’s a hit song from the Broadway show Wildcat. Now, how many of you remember Wildcat? One, two……Good show! I am going to change the lyrics. You can keep your ears. I just want your eyes, and only for a few minutes. I am going to ask you to read and think about the following direct quotes from recent articles and studies about natural gas and methanol. Let me know how you feel or better think.
From the NY Times, Sunday
Speaking of natural gas, Floyd Norris in last week’s NY Times (June 21, 2012) indicated that this fuel is cheap and plentiful. But there is little infrastructure to deliver it to users, and so there is little demand for equipment to use it. Norris goes on to argue for a job creating, government support program for fuel stations, so drivers using natural gas, or presumably, its derivative methanol, can fill’er up. Over a Barrel will leave it to others, for now, to debate the wisdom of his proposed initiative. But our readers should know that the lack of infrastructure is, in part, related to restrictive regulations, and in part because oil producer/distributors, who hold tight reigns on gas stations, refuse to add flex fuel capacity. Monopolistic conditions in place currently generate big profits and limit consumer choices.
From The Street, Monday
Robert Weinstein, financial guru, suggests in an article in the June 25 issue of The Street that long-term energy prices should continue to fall. More important, natural gas prices are so incredibly low, that even with falling oil prices, natural gas is still an exceptionally attractive alternative. Over a Barrel notes that if oil falls near 50 dollars a barrel, projections of tight oil production will probably need to be revised downward as drilling costs will outweigh profits. Over a Barrel, with some fear and trepidation, given Weinstein’s reputation, also worries that his optimism, while welcome, may be somewhat overdone. Yes, oil prices will likely continue to fall. But the decline to 65 dollars or lower (if it occurs at all) may well be short lived. The high cost of getting tight oil out of shale or deep water, combined with a return to a healthier world economy and continued tension in the middle east, will likely place a floor on the price of oil and cause it to escalate higher over time. No firm predictions, but if you own oil stock, don’t sell it, just yet!
From The Hamilton Project
Chrsitopher R. Knittel Professor of Energy Economics MIT authored a paper called Leveling the Playing Field for Natural Gas in Transportation for the Hamilton Project. It was published by the Brookings Institute this month. Knittel’s indicates that increased use of methanol is consistent with the Energy Independence and Security Act (EISA). It is a domestic source for transportation fuel. It diversifies our transportation fuel sources and in doing so decreases the negative impact of oil price shocks on the U.S. economy. Kittel, referring to studies by other experts, notes that the life-cycle greenhouse gas emissions of methanol, made from natural gas, are more than 11 percent lower than gasoline. He argues for subsidies for natural gas vehicles commensurate with the reduction in external costs (externalities) associated with their use. Over a Barrel is not yet ready to comment on specific strategies to even out the playing field with regard to subsidies. It requires a bit more thinking. Paraphrasing, with some freedom, my tutor on oil (you know that guy from Greece – Socrates), an unexamined subsidy may not be worth having. Let’s wait for a future blog for commentary.