Saturday, January 16, 2016

Crude Oil Prices Keep Falling and Falling

Because . . .

The world’s Oil Industry, has a history of booms and busts; it is currently (January 2016) in its deepest downturn since the 1990’s if the current price is inflation adjusted.

Oil production profits are down for companies that experienced record earnings in recent years; this decline in revenue has resulted in decommissioning approximately two-thirds of oil production rigs and has sharply cut investments in both exploration and production. An estimated 250,000 oil workers have lost their jobs, and equipment manufacturing for drilling and production has fallen severely.

While most citizens of the world regret individual job losses in most any sector of the global economy; it is difficult at best for many folks to sympathize, particularly with the big five oil companies (BP, Chevron, ConocoPhillips, Exxon Mobil, and Shell), whose financial reports indicate that they raked-in a combined total of $93 Billion, or $177,000 per minute in 2013.  As mindboggling as that might sound Big Oil’s profits in 2013— impressive by any standard—were actually a 27% reduction in profits compared to 2012.

As is indicated by the graph below, oil prices rebounded a few times last year (2015), but this year (2016) a barrel of oil has already plummeted well below the 2006 level. Experts think it will be years before oil returns to $90 or $100 a barrel which has been pretty much the norm throughout the past 10 years.

The “because” behind the plunging prices of a barrel of oil, which is more than 60 percent since the June 2014, is simple: The economics of supply and demand.

On the latter side, the economies of Europe and developing countries are weak and too, automobiles have for the past several years have become more energy-efficient on both sides of the pond. So demand for fuel is lagging a bit.

While on the supply side, production in the United States crude oil production has nearly doubled since 2010, forcing former oil importers into the U S from places like Saudi Arabia, Nigeria and Algeria to find other buyers; suddenly they are competing for Asian markets, and the producers are in turn forced to reduce prices.  Canadian and Iraqi oil production and exports are rising year after year and even the Russians, with all their economic woes, manage to keep pumping & exporting oil. Finally, estimates are that Iran has the technical capability to increase crude oil production by about 600,000 barrels per day by the end of 2016 as sanctions are lifted. Crude oil exports from Iran are expected to rise by half-a-million barrels a day within just a few weeks.

Some have argued that the anticipated Iranian production has forced crude prices down while others content that with Iran re-entering the world market after being absent several years will force prices even lower.

A more ridiculous argument for the drop in crude oil prices includes, yep, a conspiracy theory floating around. Even some oil executives are quietly suggesting that the Saudis want to hurt Russia and Iran, as does the Obama administration; motivation enough, as the theory goes, for the two oil-producing nations (Saudi Arabia & the U S) to force down prices. After all, the argument has been made that dropping oil prices in the 1980’s helped bring down the Soviet Union.

However there is no real evidence to support a conspiracy theory of any type; besides, Saudi Arabia and the United States rarely coordinate well.

There are signs, however, that production is falling in the United States and some other oil-producing countries because of the drop in exploration investments. Never-the-less the drop in production is not happening fast enough to force an immediate price drop, in large part, because of U S productivity from deep waters off the Gulf of Mexico; plus Canadian production is continuing to grow as new projects come online.

So when are oil prices likely to recover? The short answer is “not anytime soon”. Oil production / supply are simply not declining fast enough; though that could begin to gradually change this year (2016).   Then too, demand for fuels are in the early stages of recovery in a few countries, and that could help crude prices recover within the next year or if we’re lucky maybe two.


Wednesday, January 13, 2016

Solar Electricity

Inventors and Scientists have worked to crack the principles of electricity since the 1600’s. The earliest accomplishments were made by giants like Benjamin Franklin, Thomas Edison, and Nikola Tesla.


Benjamin Franklin established that lightning is in fact electricity and not “the work of the devil”.


Thomas Edison invented the first incandescent light bulb; it lasted a whopping 13.5 hours before it needed replacement.


Nikola Tesla pioneered the generation, transmission, and use of alternating current (AC) electricity, which reduced the cost of transmitting electricity over long distances. Tesla’s inventions were critical to electricity being used to bring indoor lighting to homes and for electricity’s use in powering industrial machines.

Despite its great importance to our daily life, few people stop to consider what life would be like without electricity. Much like air and water, people have developed a tendency to take electricity for granted, even though we use electricity to do many jobs every day—from lighting, heating, and cooling our homes to powering televisions and computers.

The average base price in 2015 people in the United States paid for electricity was 10.33 Cents per kilowatt-hour (kWh) for all sectors  (Residential, Commercial, Industrial, Transportation) . . . A typical U.S. household uses about 908 kWh a month of electricity (nearly $94.00). But there’s a huge variation from state to state . . . and too, these cost averages do not include various “taxes” or “fees” that is far too often added to a typical electric bill.

On a state by state basis, people in Hawaii pay the most for electricity, about 25.11 Cents per kWh in 2015; a Hawaiian household whose electricity use is around the national average before taxes or fees should have an electric bill just a bit below $227.00 a month.  Alaska’s residents have the second highest rate at 18 Cents per kilowatt-hour.

On the opposite end of the spectrum: Idaho had the lowest price, of about 8 (7.93) Cents per kWh.  So the typical US household in Iowa should average paying about $73.00 for electricity each month before government taxes and fees. You see, Idaho generates a large segment of its electricity from hydroelectric dams; a method that requires virtually no fuel. In addition, the original cost for constructing the dams have been spread out over many decades, this in turn has kept electricity prices in Idaho lower than in other states.

For the past few months (November 2015—January 2016) a sales pitch by Dr. Kent Moors for his Energy Advantage newsletter has hit practically every Facebook account, Twitter account, or e-mail inbox in North America. The sales pitch, and that is in reality what it is, would have you believe the cost of energy needed to sustain everything from your household, your car, and industrial equipment is on the threshold of becoming nearly free.  The story line has come in under a bunch of different titles: “Say ‘Goodbye’ to Your Electric Bill… Forever!”; “stunning breakthrough set to make OPEC obsolete”; “$5.00 stock makes OPEC obsolete”; to “This could be the end for big oil” and “it all starts with a tiny grain of sand.”

The pitch is a ridiculously long one . . . if you were to print it out, it runs 40+ pages long, and Moors doesn’t get around to admitting that it’s solar power he’s talking about until page 13. He goes to some length to push aside the concerns that many investors might have about solar by simply saying that “it’s different now.”   Yes, if you haven’t already guessed, in the end he’s pitching the stock of—SunEdison, traded as SUNE, that according to Moors, “have already locked in enormous long-term deals with the likes of Walmart, Google, the U.S. Department of Defense, and New York City.”

SunEdison was a $5 billion company a year ago, and (very briefly) a $10 billion company back in July of 2015, but now the market cap is under a Billion Dollars and its stock is still falling.  To add insult to injury, they have $10 Billion in long-term debt.

Never-the-less, Moors declares that “the biggest energy consumers on the planet are rushing to harness this company’s innovative technology.” 

He claims “their patented technology turns grains of sand, right off the beach, into highly efficient, wafer-thin solar cells that deliver dirt-cheap energya process that “reduces the cost by a stunning 99%.”         * To be fair, you should know that SunEdison really does have about 750 patents, and they claim to have a technology, much as Moors describes, for creating high purity silicon, a primary ingredient for manufacturing solar panels; however the fact is that no one company is responsible for the drop in costs that have been on-going for the last 40 years. Plus nearly all purified silicon is a derivative of sand.

And too, the “hype” or as some might call it “propaganda” of recent date that’s been submitted by Dr. Moors in regard to SunEdison’s bright future in Solar Power production may in actuality dissuade your interest and or respect for the benefits of Solar Power’s future. But before writing-off Solar Power completely, you might ponder on a few basic facts, absent the hard sell:

Solar module / panels costs was about $76/ kWh back in 1977—during most of the 1980’s and through the early 2000’s the cost per kWh had reduced to the $5 to 10 per kWh range.  These days (2015 & early 2016) the cost per kWh that utility companies are actually paying for electricity that is derived from a utility-scale solar project averages about five Cents (5¢) per kWh but the truth is this low cost per kWh isn’t really accurate because it does not include the production cost of the modules / panels, the mark-up the typical utility company is entitled to, or taxes and fees that is often added by local government regulations.

Regardless, the process of converting solar energy into direct current electricity or Photovoltaic (PV) electricity generation costs have fallen more than any other electricity generation costs over the past five years.

Perhaps one of the most unfortunate solar myths is that Solar Power is only for rich people and/or environmentalists . . . however if that was ever true, improved technology and lower production costs now allow many homeowners to choose to go solar simply because it eliminates their monthly electricity bills.  Actually, Solar Power is now a sensible choice for many people who could use the extra couple hundred bucks a month they would normally pay for electric service for their home or business.

The truth is, Solar Power is one of only a few purchases that will actually pay for its self in large part because a system last up to 35 years before a replacement need arises. Studies show that on an average basis, solar panels return two to four times their cost in saved electricity bills and usually pay for themselves completely within 7 to 15 years. If you live in a state with good incentives, the payback term can be as little as 2 to 4 years.

The tired argument that solar power is limited to a hot sunny climate is now most assuredly simply fiction.  Case-in-point, Germany (see map above) leads the world in residential solar power production (2016), and is geography located closer to the Arctic Circle than to the equator.

These days, most modern solar panel systems are “grid tied” which means they’re connected to the conventional electricity grid. The system generates power during the day and excess production is fed back into the grid through a system called “net metering”. When this happens, your meter spins backwards so your electricity provider in effect is crediting you for that “extra” power production. At night or on overcast days, you’ll generally use grid power, but you will not get charged for it because of all the credit you’ve generated via net metering during the day. The alternative to this system is batteries but they’re still rather expensive, bulky, and have to be replaced every five to ten years.

Solar panels have no moving parts and require little maintenance. However, most instillation experts recommend hosing off the panels once a year or so, but many panel owners never clean the panels and instead rely on the rain to do the job for them.

But before you run out and invest in Solar energy you should know it only makes financial sense for your home or business if the solar panels installed can produce electricity at a lower cost than what you normally pay a local utility company for electricity.  [The most recent state by state publication regarding average utility costs can be found in the Electric Power Monthly for 2014 and 2015 (CLICK HERE FOR A DIRECT LINK)]  The key point here is that you should be aware that although a sunny climate matters — high electricity costs charged by local utilities is an important part of the decision making process.

Regardless in sunny states that have above average electricity costs, such as Hawaii and California, make ideal locations for solar energy. But it also means that states in the New England region, where the average residential customer pays nearly 16 cents per kWh for electricity, have become a great place for solar power too.

The “peak” sunlight hours per day (“Peak sun-hours” are not the same as “hours of sunlight”) for your particular location will have a direct impact on the energy you can expect your solar system to yield. For example, if you live in Phoenix, AZ (Zone 1) you can expect to have a greater number of peak sunlight hours than if you reside in Seattle, WA (Zone 6). However that doesn’t mean a Seattle homeowner / business owner wouldn’t enjoy significant solar energy production; but it does mean the system would need more panels which will in turn increase the cost of instillation.

Below is a Ball-Park Cost for a “Grid-Tied” Solar System Instillation (Zone 3):
System Size                         30-Day Monthly Output                     Cost Estimate  

1,000 - 3,600 W                                        150 - 540 kWh                                   $3,000.00 - $7,376.00
3,700 - 6,000 W                                       555 - 900 kWh                                    $7,400.00 - $11,000.00
7,200 - 12,000 W                                    1,080 - 1,800 kWh                             $11,361.00 - $21,643.00
14,100 - 19,100 W                                 2,115 - 2,865 kWh                              $22,607.00 - $34,800.00

Oil, natural gas, coal, and nuclear power generating plants have created a huge number of environmental problems. We pay for these man made complications with ever increasing tax dollars, higher prices for consumer goods, and with a lower quality of life resulting from acid rain, smog, water pollution, global warming , nuclear waste disposal dumps that require hundreds of years of on-site management, the steady depletion of our natural resources, and the “inadvertent” destruction of natural habitats.

Solar technology will allow us to avoid many of these potential & on-going catastrophes.

One last point, the silicon from a single ton of sand has the potential to produce as much electricity as 500,000 tons of coal!