Investor: If oil drops to $70, ‘bye, bye fracking’

Other analysts and experts have been more circumspect about what will happen to U.S. shale-oil drilling operations is the price of crude continues to drop, from the current level of $80 a barrel. But bond investor Jeffrey Gundlach is more blunt:

“I think it’s going to $70 and if it does, it’s bye, bye fracking. Goodbye all of the great job creation from fracking because fracking becomes too expensive if you can buy oil at $70 a barrel,” Gundlach said on Wednesday at ETF.com’s Inside Fixed Income Conference.

Read the whole story on CNN Money.

(Photo credit: CNBC)

Report: ISIS keeps making money from oil despite airstrikes

Islamic State, or ISIS, continues to earn millions from ill-gotten crude oil sold on the black market, according to a story by the Reuters news service.

ISIS is “still extracting and selling oil in Syria and has adapted its trading techniques despite a month of strikes by U.S.-led forces aimed at cutting off this major source of income for the group, residents, oil executives and traders say.”

This report largely contradicts a story last week by Bloomberg, which has done extensive reporting on ISIS’ finances.

(Photo credit: Shutterstock)

1 out of 3 people in Los Angeles lives within a mile of an oil well

Forget those iconic palm trees. Oil rigs have become just as much a part of the Los Angeles landscape as the towering trees that line the city’s sun-drenched boulevards. Los Angeles County is home to 6,065 oil and gas wells, and one in three Angelenos lives within a mile of a drilling rig, according to a report from the Natural Resources Defense Council released Wednesday.

Read more at: Take Part

(Photo: Long Beach oil well at Alamitos Bay, posted to Flickr by BSYC LongBeach)

James Bond, low oil prices, the Russians and OPEC

Calling Miss Moneypenny…we need you to get to James Bond quickly. Urgently! According to respected sources, there is a conspiracy in place on the part of the U.S. government and the West to both foster the increased production of shale gas and to drive down demand for gasoline in order to decrease Middle Eastern and Russian oil prices to levels well below production and distribution costs. The effort is aimed at breaking up OPEC, keeping the Saudis in line regarding present levels of production and hurting Russia until it comes to its senses concerning Ukraine. Can you put me in touch with Bond? He could be helpful in determining whether there is manipulation of the market? He’s just the best!

Paranoia has set in on the part of some in the media. The “glut” of oil on the market and low demand has made new drilling an “iffy” thing. The production costs of oil per barrel have not kept pace with revenue from sales. Prices at the pump for gasoline have decreased significantly.

How can we explain the phenomena, except by the presence of manipulation? Indeed, it’s enlightening to see (assumedly) planned, tough, provocative statements from so-called experts that often make headlines followed by weak “No it cannot be true” statements by the same experts to protect their credentials. Being bipolar is, in these instances, seemingly a characteristic.

Thanks to CNBC, here are some summary comments.

Patrick Legland, head of global research at Société Générale, recently said that it was an interesting coincidence that the two events — a drop in oil prices and lower demand — suggests that the U.S. could be deliberately manipulating the market to hurt Russia. Is it lower demand or is the U.S. clearly maneuvering? Legland goes on to indicate lack of in-depth knowledge. Timothy Ash, head of emerging markets research at Standard Bank suggested the U.S. would obviously deny any accusations of manipulation and there is no evidence to suggest that this is the case. “It’s very had to prove. I have heard such suggestions before. It is clearly useful for the West as it adds pressure on Russia” (and, I would add, on OPEC).

Oh, there is more, Jim Rickerts, managing director at Tangent, in a courageous and clear-cut example of ambiguity, stated that manipulation is plausible, although we have no evidence.

Clearly, the manipulation assertions, even though there is little evidence, sell more papers, build a bigger audience for cable news and provide fodder for Twitter and politicians. To the tune of “Politics and Polka,” sing with me, “apparent correlation is not causation, correlation is not causation.”

Oil prices are on a downward spiral, while production and distribution costs are going up in the U.S. and much of the West. It is implausible that the government is behind these trends. Consumer demand is down, even with lower prices at the pump, because of the economy. The government has relatively few tools, except the public and private bully pulpit in the short term, to leverage prices. The current boom in oil shale and resulting surpluses result from decisions made by an extended group of people often years ago — for example, oil companies who recognized that the era of easy-to-drill and cheap oil was coming to an end, speculators who led the market in trumping the benefits in investing long in oil shale and waiting for assumed value to catch up, consumers who seemed to be on a high concerning use of gasoline and technological breakthroughs that made oil from shale seem more amendable to cost benefit calculations.

While there are examples of government manipulating prices of goods (e.g., price controls), most have led to unpredictable and often negative results. The U.S. government, whether controlled by Republicans or Democrats, has not shown itself adept at price setting and manipulation. Nor is it good at keeping things secret — something necessary if it engaged in international manipulation. The New York Times would already have a leaked copy of the strategy and unsigned emails would have been given to the Washington Post. Public discussion of the strategy probably would risk sometimes fake, sometimes real approbation-depending who gets hurt or will get hurt. The U.S. would face copycats, as they have in the past, like the Saudis and OPEC and, maybe someday, Russia. They would say, “well, if the U.S. can do it, why can’t we?” The U.S. would calmly respond, No we are not manipulating oil markets. You give us too much credit and assume to many skills. Also, remember, the U.S and the oil companies believe in free markets. Don’t they? Well maybe, but clearly, not all the time with respect to the government and almost none of the time with respect to the oil companies? (Try getting replacement fuels at the pump of an oil-company franchised “gas” station.)

Okay, Miss Moneypenny, I changed my mind. We don’t need James Bond nor do we want to pay for the Bond girls. (Besides, the last Bond looked like President Putin when his shirt was unbuttoned and Sean Connery is on Medicare.) What we need is prayer and penitence for the experts for travailing in rumors. It is not terribly helpful when trying to sort out complicated issues related to oil prices and demand. If the government is somehow manipulating the market, many, even very pro-market advocates, will give it credit for a strategy that, should it be successful, might limit Russia’s desires concerning Ukraine and OPEC’s efforts at price fixing in the past. While the word has an evil sound, perhaps legitimately, manipulation would likely be judged better than war. But before credit is offered, look at the data and well-reviewed studies. Don’t fret, there is very little evidence that government manipulation has occurred in the recent past or is occurring at the present time.

Experts say average gas price could dip below $3

It was only in July 2013 that AAA’s Chris Plaushin told a Senate committee: “The days of a national pump price below $3 is probably a thing of the past.”

Well, an unforeseen drop in the price of crude oil the past few months has sent the price of refined gasoline down so fast that the average price per gallon could soon fall below that $3 threshold, Gregg Laskoski, senior petroleum analyst at GasBuddy.com, told The Christian Science Monitor.

“It’s conceivable that the national average could get down to $2.95. … Exactly when would that occur? That’s tougher to guess. It could be before Thanksgiving.”

Will U.S. take steps to keep the ‘Shale Revolution’ going?

At least one observer wonders whether it’s time to start protecting up the burgeoning U.S. oil industry. Chip Register, managing director of Sapient Global Markets, writes in Forbes:

“One possibility would be for the government to level the playing field with OPEC and others by introducing tariffs on cheap foreign oil imports, with the goal of driving separation between the North American energy economy and the chaos of the international markets. While this may seem extreme, it may be necessary to protect this young yet highly strategic industry from going extinct.”

The global price of oil is off about 25 percent since June, and it’s already having an impact on U.S. drilling operations. As Real Clear Energy’s Nick Cunningham noted in a post Wednesday, there are now 1,590 active oil rigs in the country, the lowest level in six weeks.

Drilling in shale-oil formations, largely using hydraulic fracturing, helped the U.S. reach 8.95 million barrels of oil per day this month, the highest level in 29 years. But as a story in Bloomberg points out, that growth trajectory is difficult to maintain:

“Oil production from shale drilling, which bores horizontally through hard rock, declines more than 80 percent in four years, more than three times faster than conventional, vertical wells, according to the IEA [International Energy Agency].”

Shale-oil production is relatively expensive compared with imported oil, so it won’t take much of a drop in global prices to make some domestic operations unprofitable. The Bloomberg story quotes Philip Verleger (an economic adviser to President Ford and director of energy policy for President Carter), who says that if oil falls to $70 a barrel, production in the Bakken shale formation could plummet 28 percent to 800,000 barrels a day; in July the production level was 1.1 million barrels a day.

The notion Register raised isn’t new: In early October, Ed Hirs, a lecturer in energy economics at the University of Houston, touted a paper he’d written suggesting that the U.S. government intervene to restrict oil imports and protect U.S. producers.

“We need to act in our own best interest,” Hirs said at an energy symposium, according to Forbes. America’s oil growth is so strong “that we can de-link from the global market.”

Court upholds EPA’s E15 waiver

The U.S. Circuit Court of Appeals for the District of Columbia has again ruled that outside groups don’t have legal standing to file a lawsuit against the EPA’s waiver allowing E15 into the marketplace.

E15 — a blend of up to 15 percent ethanol — was allowed by the EPA waiver four years ago, for all vehicles made in model year 2001 or newer.

The waiver had been challenged by the American Petroleum Institute and the Engine Products Group.

The court had previously ruled against a similar lawsuit filed by the Grocery Manufacturers Association, deciding the group also didn’t have standing.

Read more in Domestic Fuel magazine.

The Price of Hybrid and Electric Cars Is Plummeting. Here’s Why

USA Today just reported that Ford is cutting the sticker price of the fully battery-powered plug-in Focus Electric by a flat $6,000. That’s on top of a $4,000 price reduction on the same vehicle a year ago. The new sticker price is $29,995 including shipping—but not including federal tax credits of up to $7,500 and state incentives that might effectively knock another $2,500 off the amount buyers pay.

Read more in TIME.

“Methanol Mania” Hits The Gulf Coast

Lane Kelley of ICIS Chemical Business calls it “methanol mania” and he probably wasn’t exaggerating. Last week Texas and Louisiana underwent an explosion of activity, promising to turn the region into a world center for methanol.

Earlier this month, Louisiana Gov. Bobby Jindal announced that Castleton Commodities International LLC (CCI), a Connecticut firm, will be building a $1.2 billion methanol manufacturing plant on the Mississippi River in Plaquemines Parish. The plant is expected to produce $1.8 million tons of methanol a year.

“This plant will help our children stay in Louisiana instead of leaving the state to find jobs,” said Jindal. “My number one priority it to make Louisiana a business friendly place.”

But that’s not even half of it. The Environmental Protection Administration (EPA) just gave its final approval to a $1 billion methanol plant to be built near Beaumont, Texas. The facility will be operated by Natgasoline LLC, a subsidiary of a Netherlands-based company that already employs 72,000 people in 35 countries. It will employ thousands of construction workers and carry a $20 million payroll when it begins operating in of 2016.

Does that sound like a lot? Well, don’t forget Methanex Corporation, the country’s largest manufacturer of methanol, is in the process of moving two plants back from Chile to Louisiana. One plant is scheduled to open in a few months. And ZEEP (Zero Emissions Energy Plants), an Austin-based company, has just raised $1 million for a proposed plant in St. James Parish, La.

Does that sound like a full plate? Well, it’s still just the beginning. The Connell Group, a government-supported operation, announced long-range plans for what would be the largest methanol plant in the world — even if only half it gets built. The first unit, located in either Texas or Louisiana, would produce 3.6 million tons a year, twice the current world record holder in Trinidad. Together, the two units would produce more than the current U.S. demand, 6.3 million tons a year. The term “Gigafactory” soon may be standard vocabulary.

So what’s going on? Well, the plan is for nearly all this Texas and Louisiana methanol production to be exported to China. The widening of the Panama Canal for supertankers, scheduled to be completed in early 2016, will be a bit part of the puzzle. Believe it or not, China also has plans to build three more plants in Oregon and Washington. But they run into trouble there, of the West Coast’s dislike of fossil fuels.

So China is planning to use American natural gas as a substitute for its own coal, in producing large amounts of methanol. It’s no different from the Chinese buying up farmland in Brazil and Ukraine in order to grow crops.

But the Chinese have other things in mind as well. Zhejiang Geely Holding Group Co., Ltd, Chery International, Shanghai Maple Guorun Automobile Co., Ltd. and Shanghai Automotive Industry Corp. all produce methanol-adaptive cars, which now accounts for eight percent of China’s fuel consumption. Israel is also experimenting with methanol from natural gas as a substitute for imported oil.

Methanol produces only 50 percent of the energy of gasoline, but its higher octane rating brings it up into the 65 percent range. It produces 40 percent less carbon dioxide and other pollutants and would go a long way toward helping China improve its pollution problems. As far as methanol production is concerned, China sees only see an upside.

So what’s going on in this country? Well, so far we have the world’s largest reserves of natural gas, we are on the verge of becoming a world center methanol manufacturer — yet we still have a set of rules and regulations and sheer inertia that prevent us from powering our cars with methanol. For some strange reason, the United States is about to become a world center for the production of methanol, yet we still haven’t figured out how to put it to one of its best uses.

Sounds like an opportunity for somebody.

Report: Electric car buyers hate the dealer experience

Researchers at the Institute of Transportation Studies at the University of California at Davis have made a startling discovery: Consumers in the market for an electric vehicle hate dealing with the traditional car dealers that sell EVs.

Green Car Congress has a story on the UC Davis study, which found that purchasers of plug-in electrics were less satisfied with their experience with the sales departments at car dealerships than purchasers of traditional gas-powered vehicles.

And the feeling is mutual, it seems: Sales people at dealers that sell EVs alongside traditional cars often don’t like to take the extra time (for time is money) to explain the basics of how EVs work. As Green Car Reports notes, “Customers tended to be more discriminating, they said, which demanded more time and effort by the staff to answer questions and arrange test drives.”

The exception to the rule of customer dissatisfaction is Tesla, which doesn’t even use dealers: Buyers pick out the model they want in the showroom, then order online.