Plunge To $40 More Likely Than Sustained Bull Market

It is scarcely believable that the crude oil market is back in technical bull territory this far into August, after spending much of the previous trading month in a bear pit. Admittedly, the dollar’s vulnerability to mixed soundbites from the US Federal Reserve, on the possibility and timing of an interest rate hike, may have had a bearing on strengthening oil prices.

However, much of the current rally is based on a false premise – that OPEC and non-OPEC crude producers might come up with a magic solution to curb excess production on some level at an informal meeting on the sidelines of the International Energy Forum in Algeria next month.

The market has been here before. In February, oil ministers from three OPEC member nations – Saudi Arabia, Qatar and Venezuela – and Russia met in Doha, and agreed to ‘freeze’ oil production at January levels, provided others follow suit too. But the so-called others led by Iran did not bother.

Then in April, the quartet and selected others met once again to discuss their oil glut quandary resulting in yet another predictable breakdown of talks. An OPEC summit came and went with little support to the upside. However, the moment Khalid Al-Falih, Saudi Arabia’s relatively new oil minister, hinted at the possibility of fresh talks earlier this month, the market or should we say some in the market latched on to it as gospel.

In the absence of any material alteration of market fundamentals supporting an oil price uptick, that the oil price has risen nearly 25% or $10 per barrel in matter of two weeks is nothing short of barmy.

While never say ‘never’, I see no reason for talks between crude producers to work at the third time of asking. That’s because the same complications we saw at their first outing are very much in foreground, not the background. Both Russia and Saudi Arabia are producing at record levels. A freeze at historic highs of over 20 million barrels per day (bpd) in output between Moscow and Riyadh, rather than a real terms cut, would hardly be something to write home about even if it happens.

Ditto applies to others, especially Middle Eastern OPEC members such as Iraq, who are pumping crude oil at pace. Hardly anyone expects Iran to change its stance and there is no mechanism or possibility for a coordinated lowering of US and Canadian production.

More Russian Natural Gas Exports Mandate U.S. LNG Support

Cheniere’s Sabine Pass LNG export terminal in Louisiana is the first to ship U.S. shale gas overseas. Source: Upstream Online

I’ve already documented why we must help the U.S. liquefied natural gas (LNG) export business given that Iran’s influence is set to grow (here). And the same holds true for Russia. Yes, the LNG industry is facing tough times today, but the global gas glut and low prices themselves are expanding the natural gas market by making use more attractive, effectively locking in future LNG and gas demand overall: “Cheap LNG May Lure 50 More Nations to Gas From Oil.”

We need policies that speed up U.S. LNG supplies to the world since LNG is perhaps the fastest growing of all energy businesses. The industry itself must create entire advocacy divisions to articulate this necessity, as we are unfortunately seeing a decline in LNG export support in Canada (here) and others looking to stop projects in the U.S. and Mexico (here). This should never, ever be the case.

Remember oil and gas industry: 40% of Americans cannot name a fossil fuel. We’ve got our work cut out for us.

So, let me help out, again. Given its fewer CO2 and local pollutant emissions (here), natural gas will be the energy source relied on most to meet COP21 environmental goals, and gas is the essential backup source for wind and solar power (here). Natural gas is quickly evolving from a nationally used product into a globalized commodity sold like oil. Today, only about 30% of the world’s used gas is traded internationally, versus nearly 65% for oil.

But, the LNG trade is the future because in a perpetually connecting world LNG goes far beyond the geographical limitations of pipelines and can connect distant markets across our vast oceans and seas. Even in a down environment, LNG still grew 3% last year and is a rising 11% of all usage.

There is great opportunity for the U.S. to make headway in this continually emerging LNG market and buffer the influence of riskier, resource-rich gas suppliers. I’ve already documented the boom in U.S. natural gas reserves that could make us the largest LNG exporter in the 2020s (here).

Enter Russia, now the political nemesis of NATO (here)? Russia is the world’s 2nd largest gas producer and easily the largest gas exporter. Of the 348 Bcf/day global gas market, about 105 Bcf/day of that gets internationally traded, and about 22 Bcf/day of that comes from Russia. Qatar is 2nd, exporting about 12-13 Bcf/day of almost entirely LNG, but domestic demand has nearly doubled in recent years and there are no plans for increased export capacity (here).

The notion that Russia won’t/can’t be producing copious amounts of oil and gas far into the future is nonsense and indicates an obsession with today that clouds our energy security thinking that must hinge on the longer-term. The fact is that Russia’s power over the globalizing gas market could drastically increase. I’ve already documented how much energy Russia has (here), with nearly 20% of proven gas reserves. Russia is also facing a 10% decline in population in the coming years (here), which will open up even more opportunities to export.

Considering a currently unused production capacity of 17-20 Bcf/day (nearly an entire Texas worth of extra gas production!), Russia’s gas exports could easily double over the next 15-20 years, in a world where overall annual global gas demand is rising by 6-8 Bcf/day and could soar 35% to reach nearly 470 Bcf/day by 2030. In a world where gas could surpass oil to become the world’s primary fuel.

Thus, the rapidly expanding gas consuming world is depending on large amounts of gas not just from the U.S. but also from our allies Canada and Australia, free markets, democracies, and predictable energy suppliers unburdened by often inefficient, politically compromised international oil companies and national champions.

Russia does have LNG plans, but its gas export business will stay overwhelming pipeline-based, limiting its flexibility to meet the rising needs of the world. There could be 30 new LNG markets before 2030, up from nearly 35 total markets today.

As the natural gas market continues to evolve, we have a great opportunity to splash onto the LNG scene, especially now that the Panama Canal is expanded and larger tankers can more easily reach growing gas markets in developing Asia, where demand is absolutely certain to boom over the mid- and long-terms. Not leaving the globalizing gas market to OPEC and Putin should be common policy sense, but the industry simply must do a better job advocating it.

We all must become LNG Allies: U.S. and global gas security depends on it.

Many importers have already indicated a willingness to work with the U.S. to reduce the power of Russia by even accepting higher prices (e.g., Eastern European consumers). The global LNG glut is most likely to dissipate post-2020, and current homeless LNG is improving liquidity in Asian and global markets, thereby helping U.S. chances going forward. Short-term LNG contracts are now at 30% of all trade, versus 18% in 2010, a constant rise that will make more flexible U.S. LNG more attractive. Some have modeled us exporting 10-12 Bcf/day by 2025 – about a third of the entire current market.

The DOI Five-Year Plan

In the United States, drilling in the offshore and other environmentally sensitive areas has become an increasingly controversial topic of discussion and often a political football over the last 40 years or so.  Even in the Gulf of Mexico, where operators have been exploring for and developing rich oil and gas resources for many decades, proposals to drill in certain areas have run up on the shoals of political pushback.

The Bill Clinton administration set most of the Eastern third of the Gulf off limits in the late 1990s due to political pressure from Florida officials citing concerns about potential impacts to tourism should a spill occur.  The George W. Bush administration appeared inclined to reverse that decision, but ended up only freeing up a small sliver when brother Jeb’s gubernatorial re-election desires took precedence over the public interest.  In the Obama Administration, the Department of Defense has even been engaged in developing rationales involving interference with training exercises as an excuse to keep some of these areas off limits.

So if you see this many political machinations from Republican and Democrat administrations alike to prevent development of the nation’s mineral resources in a mature province like the Gulf of Mexico, imagine what you get when you start talking about exploring for oil and natural gas in the Arctic.

As Russia gears up to dominate the Arctic region, having created the world’s largest fleet of ice-breaking ship and even going so far as to plant its national flag at the North Pole, DoD officials have let it be known that they see no conflict between energy exploration in the Beaufort and Chukchi and their own military operations.  Indeed, there is a strong case to be made that oil and gas operations in the region can actually coordinate with and help to strengthen the U.S. military’s presence there.

In a recent study commissioned by the Department of Energy, the National Petroleum Council (NPC) affirmed this potentially beneficial relationship:

“Investments by any party in new or upgraded airfields, ports, roads, navigational aids, satellites, radars, and high-bandwidth communications facilities could confer wide benefits. The Coast Guard and Navy, which play key roles in the areas of safety, search and rescue and security, and national defense, are subject to many of the same resupply and support requirements in the Arctic as the oil and gas industry. These organizations could also play a complementary role in the sharing of infrastructure.”

Many former DoD officials, free from the political constraints of current service, have also come out publicly in favor of the inclusion of the Arctic areas in the DOI plan.  In a recent op/ed piece published at CNBC.com, General James Jones and General Joseph Ralston reinforced some of the points made in the NPC report:

A Race To The Bottom For Tight Oil

A worker prepares to lift drills by pulley to the main floor of Endeavor Energy Resources’ Big Dog Drilling Rig 22 in the Permian basin outside of Midland, Texas, on Dec. 12, 2014. (Brittany Sowacke/Bloomberg)

Remember the shale gale and Saudi America? The scale of those outlandish delusions has now dwindled to plays in a few counties in West Texas and southeastern New Mexico. Saudi Permian.

It’s a race to the bottom as investors double down on the tight oil companies that can still tell a growth story. Permian-weighted E&P companies are the temporary darlings of Wall Street as other tight oil plays have lost their luster.

A Silly Price Rally: Catch-22

We are in the middle of a truly silly price rally. Other rallies of 2015 and 2016 took place despite substantial production surpluses and too much inventory. Then, there was some hope that higher prices might result if over-production could be brought under control. Now, the world’s production and consumption are near balance but oil prices remain mired in the $40 to $50 per barrel range.

This current rally will end badly because there is something more fundamental keeping prices low. Despite repeated assurances from IEA and EIA that demand growth is strong, it is not strong enough to draw down outsized global inventories.

Soaring Corporate Demand Causes Utilities To Shoot For The Sun

A decade ago, Duke Energy DUK +0.24% didn’t own any renewable energy assets. Today it owns or contracts for 3,000 megawatts — a number that it expects to increase to 8,000 megawatts by 2020. Its purchase of a majority stake in REC Solar is a primary vehicle to getting there and one that will focus on selling solar energy to small-to-mid-sized commercial customers.

Duke is hardly alone. Other utilities are moving aggressively into this new energy world. The choices are stark — to either get into the game or to watch it from the sidelines. As utility customers seek to reduce their bills and to lower their emissions, they are looking to increasingly develop onsite energy sources such as rooftop solar. And while the bigger companies may go a step further and construct localized microgrids, they are all after the same thing:

“Small-to-mid-sized commercial businesses want to become more sustainable and cleaner,” says Matt Walz, who is now the chief executive for REC Solar, in an interview. “At the same time, they want to save on their electric bills.”

Companies can own the projects outright and REC Solar will develop them, which it has already done for CVS Health CVS -0.16% Corp. in Hawaii, CostCo Wholesale Corp. and Ikea. If businesses don’t have the upfront capital, they can lease the assets and buy the output in the form of a 20-year power purchase agreement. REC will then own and operate the project.

Duke purchased a majority stake in REC Solar in 2015. Altogether, it expects to invest $3 billion in new wind and solar farms in the next five years, up from the $4 billion it spent on renewables over the prior 10 years.

Just how big is the solar market in the United States? GTM Research says that more than half of all utility-scale solar plants in 2016 will be built irrespective of state mandates. Utility-scale refers to those centrally-located projects that aggregate thousands of solar panels and that must ultimately connect to the transmission grid, with the power most often being sold to other utilities.

Yearly US Solar Installs

According to the firm, the U.S. will install more than 6,000 megawatts of non-renewable portfolio standard utility-scale solar in 2016. That’s compared to the roughly 4,000 megawatts installed in 2015. Still, the growth potential for onsite rooftop solar for homes and businesses is also enormous, largely because of the falling price of solar panels.

Cost to Install Solar

GTM Research says that utilities are procuring green power because it has value. That is, it is fairly priced and it is displacing fossil-fueled energy at the most expensive time of the day, which helps offset carbon emissions. At the same time, power companies are able to lock-in prices over several years, which is also giving the project developers a guaranteed income so that they can build.

“More and more utilities have been procuring solar as a hedge against other fuel prices,” says Colin Smith, an analyst with GTM. “These are now largely voluntary procurements.”

What other utilities are being proactive? Southern SO +0.54% Co. plans to invest about $5 billion in renewable energy over the next two years. And Berkshire Hathaway's BRK.B +% energy unit has invested $16 billion in renewablesand now owns 7 percent of the country’s wind generation and 6 percent of its solar generation. And NextEra Energy develops these projects for other utilities.

Edison International, meanwhile, is well positioned to compete. It says that the billions it is spending on upgrades goes predominately to its networks — that it only owns about 15 percent of the generation that its customers consume. The other 85 percent is purchased on the open market.

ReD Associates’s research says that companies are in dire need of experts to guide them. They are concerned about managing energy costs and commodity prices, as demonstrated by a finding that 25 percent of those surveyed do not have an accurate overview of their total energy spend. 

“We see this more as opportunity than a threat,” says Ted Craver, chief executive of Edison International, whose unit Edison Energy provides such services. “We see an explosion of distributed energy resources, as opposed to central generation.”

That’s why Edison bought in 2013 SoCore Energy that is in the commercial PV development business. It also purchased ENERActive Solutions, an energy efficiency company that works with major companies with worldwide operations. And, it acquired Delta Energy Services, which does data analytics, and Altenex, which helps companies buy renewables at the wholesale level.

“Utilities smell an opening,” says GTM’s Smith. “They would not be making moves like this if they didn’t think it would be profitable. But they are also acquiring a skillset to help them better understand this new market place.”

Indeed, as corporate energy consumers continue their quest for cheaper and cleaner fuel forms, utilities are pushed to meet that challenge — or have other alternative providers step up and potentially replace them. Power companies must thus secure their respective niches in an evolving but greener world.

UL Working To Ensure Used EV Batteries Can Be Safely Re-Purposed

Image: Tesla.com - when you're done with the battery for driving, take your house for a spinElectric vehicles are sexy. They accelerate from zero to sixty in no time. Some of the coolest models from BMW and Tesla have gull-wing doors. And they are beginning to gain traction in the market. To date, some half a million have been sold in the U.S. This year, we are on a record pace both in the U.S. and globally.Last year, 550,000 EVs were sold worldwide. This year, the numbers are already at 308,000 through the first half of the year. Those numbers may appear large, but in the context of the nearly 89 million vehicles sold worldwide last year, they are still quite small, implying tremendous room for future growth.

As EV prices continue to fall, some analysts project that price parity between electric vehicles and gasoline-fueled cars will occur as soon as 2022. That cross-over date may occur soon or it may be later, but this is no longer a question of if, but simply when. So in the very near future, we will have hundreds of thousands, and ultimately millions of electric vehicles ready for the scrap heap. When that day comes, what happens to their lithium ion batteries?

As it turns out, while a used EV lithium ion battery will not be that useful in a car anymore, it will still likely have plenty of value in a secondary market for stationary energy storage on the power grid. Some of the larger EV batteries will be capable of storing multiple days’ use for the average residential customer (the new Tesla SP100D highlighted in the August 23rd press release boasts a 100 kWh battery, equal to more than three full days’ home power consumption).  Taken in total, used EV batteries may make a meaningful contribution to tomorrow’s power grid.

Many companies have already recognized this fact, and have begun piloting the interaction of EV batteries with power grids. Among the various initiatives, BMW has been working with Pacific Gas and Electric to optimize the interaction of repurposed EV batteries and the grid. In June, it announced a stationary storage offering that will ultimately involve second-life batteries. Nissan and Eaton have announced a similar offering in the UK, available for pre-order in September. Sumitomo and Nissan have been working on this opportunity for several years. And there are multiple other initiatives as well.

Repurposed batteries will ultimately find their way into millions of locations across the globe, adding value to the grid and facilitating the integration of ever more wind and solar. But before that occurs, there is a good deal of work to be done to ensure the safety, reliability, insurability, and bankability of these resources. In a 2014 paper on the topic, UCLA Law and Berkeley Law Schools identified several barriers to widespread adoption of EV batteries for the purpose of stationary storage. These include:

  • An existing regulatory environment with complex structures that inhibit market opportunities while raising costs,
  • Lack of data about battery performance in second life applications, and,
  • Liability concerns relating to responsibilities once batteries are re-purposed.

A critical first step in addressing these concerns is to fully understand the performance and safety issues related to second-life batteries and that is where UL (Underwriters Laboratories) is stepping in to reassure the market and make a difference.

Image: UL - ensuring 2nd life batteries can be used safely

If you are not familiar with UL, a bit of background may be helpful. The organization was founded in 1894 and has been evaluating products since then. Its website states that UL “certifies, validates, tests, verifies, inspects, audits, advises and educates.” The organization has a very wide reach, with UL customers in 104 countries, and 170 UL laboratory testing and certification facilities. To date, it also has 22 billion UL marks on various products (on a hunch I just ran upstairs to look at my wife’s hair dryer. Sure enough: “UL listed” is embossed in plastic on the device). In 2015, the organization conducted over 96,000 product evaluations. UL is about to add second-life lithium ion EV batteries to that list of products, but what will UL do and why?

To answer that question, I contacted Ken Boyce, UL’s Principal Engineering Director of Energy and Power Technologies. Boyce indicated that the organization has been eyeing this area for a few years, as it became obvious that the number of used EVs would rapidly increase and that there was a need for a lifecycle management program for an asset with so much remaining potential. He noted that there are a number of challenges involved in taking used batteries from a car and successfully and safely re-deploying them to support the power grid, whether on-site or at utility scale.

When you repurpose anything, it’s a challenge because the piece of equipment has gone through a life of its own and now we are saying ‘here you go for round two.’”

He observes that with lithium ion batteries you “pack a lot of energy into a small footprint. The electrochemical state of health is important as it relates to safety expectations.

UL’s goal is to define standards for safety and other critical attributes and to finalize a set of safety requirements so that there is “a good common set of expectations” concerning the product evaluated. In this instance, UL will develop a protocol under which samples of used EV batteries will be put through a pre-determined series of tests to ensure safe applications. The organization will also establish a surveillance program addressing those critical safety attributes to “establish confidence that the ongoing program is the same as what we have run through in the test program. That’s how the certification program generally works.”

In many cases, UL can utilize destructive tests, but in this instance, with a repurposed technology, that’s not possible. Instead, the focus will be on employing advanced analytical techniques to thoroughly understand the health of the battery. To ensure that they have assessed this from various perspectives, UL will work with a broad community of stakeholders including national laboratories, academia, industry experts, and the user community. Once an agreed-upon set of standards is developed, Boyce notes that UL will push those out into the public domain “so everybody in the stakeholder community knows what those requirements are.”

This will take the form of internal testing programs adopted by various corporations. Boyce notes that the goal is to “provide a signal of confidence to the consumer that there has been independent testing done by UL.” Once the protocols are established, though, UL’s work is not done. “We work with manufacturers and go into locations and do audits to establish confidence that products meet requirements.”

How Sungevity Could Be A Solar Survivor

 

Solar skepticism is easy. To start with, solar power is a temperamental technology. It works, after all, only when the sun shines. It provides less than 1% of America’s electricity. Many investors are fleeing. Shares of three big installers of residential solar panels–Sunrun, SolarCity and Vivint Solar–have lost more than 50% of their value in the past year. SunEdison, which makes photovoltaic panels and builds big solar installations, went bankrupt in April.

Making the skies still cloudier: massive overcapacity among state-subsidized Chinese manufacturers of those panels. A couple years ago it was a big deal when the costs of new rooftop solar-panel systems dropped low enough (at least in green states like California) to compete with grid power. Prices have kept falling, and by the end of this year the industry will be facing a photovoltaic glut. That’s bad news for any American panel manufacturer, such as Elon Musk’s SolarCity, which is spending $750 million in taxpayer money to erect a panel factory in upstate New York. That could set up a scenario similar to the one in which Solyndra burned through $535 million constructing a factory for its innovative cylindrical solar panels before going bankrupt in 2011.

So it’s intriguing when the head of a solar company says he welcomes the wave of cheap Chinese gear. “It’s great for us. Our costs go down, and a lot of savings will be passed on to the customer,” says Andrew Birch, CEO and cofounder of Sungevity. The company, based in Oakland, Calif., is one of America’s biggest solar installers, having sold about 9,000 systems in the past year at $19,000 a pop. That accounts for the majority of its roughly $200 million in revenue in the last year.

The industry might have a bleak outlook, and Sungevity still isn’t profitable after nine years, but Birch, a 40-year-old Scot who worked for BP’s solar division before starting Sungevity with Danny Kennedy, 45, and Alec Guettel, 48, sees a brightly lit future. Sungevity will go public later this year in a merger with Nasdaq-listed Easterly Acquisition (a so-called blank check company, which is essentially a publicly traded private equity fund). Easterly (to be renamed Sungevity) will contribute $200 million cash in exchange for 41% equity in the company. Why throw good money into a bad sector? “We looked at over 100 companies to invest in. We weren’t targeting solar,” says Darrell Crate, Easterly’s chairman and the former CFO of money manager Affiliated Managers Group AMG +0.49%. “The platform nature of this business is what we think leads to success.”

 

Unlike SolarCity, for example, Sungevity doesn’t have any capital-intensive factories, a fleet of installation trucks or a financing division. And it doesn’t want them. Instead the company cultivates what it calls an “ecosystem” of outside suppliers and contractors. Its founders drew inspiration from Michael Dell’s mass-customization approach: “Source the right components in the bundle and change them as better ones emerge,” says Kennedy, an Australian and a former Greenpeace activist. “Give them what they want while leading the horse to water.” And do it all online.

Sungevity sources battery systems from Germany’s Sonnen, which has been making them a lot longer than Tesla has been making Powerwall residential batteries. “But we’re totally agnostic,” says Birch. Meaning if a customer wants a Powerwall to go with a Tesla, no problem.

The Web platform in which Sungevity has invested hundreds of millions of dollars (from the likes of Apollo Investments and GE Ventures) represents a sophisticated departure from the way companies usually sell customers on solar. Used to be, if you were interested in solar panels, someone had to climb up on your roof to measure it. Today, in the 14 solar-friendly states where Sungevity operates (like California, Colorado, New Jersey and North Carolina), entering an address on Sungevity.com immediately sets in motion a behind-the-scenes digital dance: Sungevity’s software hoovers up every available image of a house from Google GOOGL +0.56% Earth, Google Street View, Bing’s Bird’s Eye and even lidar surveys (like radar, but with lasers).

A combination of algorithms and humans then analyze a home’s angular measurements, and within five minutes Sungevity has a rough-and-ready plan to fit as many panels on the roof as possible. “It’s essentially rooftop Tetris,” says Sungevity designer J.T. McCook, who works on 50 systems a day for potential customers. Sungevity coaxes them into solar ownership with vital stats like how much money they’ll save versus grid power and how much carbon they’ll keep out of the atmosphere. Phone reps at Sungevity’s Kansas City call center help close deals.

Your Next Nuke Will Be Small And Modular

electricy demandFor at least two decades, nuclear engineers have been talking about new reactor designs, but few have progressed to become important components of the industry. Naturally, as with any new technology, there are always boosters and their enthusiasm should be treated with caution, but there is definitely potential for advances that could mean a surge in nuclear power. One aspect that needs greater attention is the benefit of smaller reactors, which greatly reduce risk on the part of investors.

Some new designs are more incrementally advanced, such as the European Pressurized Reactor (EPR) developed by Areva and EDF in France, with units under construction in Finland, France and China (The proposed British unit at Hinkley Point is on hold). They operate more efficiently than existing reactors and have much greater safety and security measures, making it a third-generation reactor.

The biggest drawback of some designs remains the size and length of construction as well as the design novelty. The Pebble Bed Modular Reactor, which has been under consideration for at least two decades, is a fourth-generation reactor with a design that appears to be very safe and easy to operate, but the radically different design has apparently contributed to slow adoption. South Africa cancelled its planned reactor due to lack of finance and demand, and only China is now planning construction of a full-scale reactor.

With other reactor types like the EPR, the risk is in the large size, meaning longer construction times and thus, more demand risk. Before the 1980s, there was a sense in the U.S. utility industry that demand growth was inexorable, that nothing could reduce it and utilities merely needed to arrange for construction of new capacity. The figure below shows that annual demand growth from 1955 to 1970 was roughly 7% per year, which was a reason why utility stocks were considered especially low-risk.  You built plants, sold the electricity, paid your dividends. But slower economic growth and higher electricity prices caused a sea change in the industry, with demand growth not only dropping but becoming much less certain.

 Long construction times for plants in the U.S. that were started in the 1970s have generally been blamed on political and legal opposition, and with some justification. But even in the case of Hinkley Point in Britain, construction is expected to take 8-10 years by the builders. Already, many worry that the price being offered for the electricity to be produced in 2025 (about 12 cents per kwh) would be well above recent market prices. Indeed, one large buyer claimed to have purchased nuclear power from France at half the price Hinkley Point has been offered. Price risk is very serious and not eliminated by government guarantees, as the European solar industry has discovered.

Demand risk is always present, partly because of uncertainty about long-term economic growth, partly because prices will have an uncertain effect on demand over the next decade, and partly because policies towards renewable energy cannot be predicted over that time. An appropriate reckoning of these risks by investors should lead to fairly high borrowing costs.

An Update On U.S. Natural Gas Production

Marcellus natural gas development is the most significant in all the world. Credit: Chuck Anderson, Penn State

The U.S. is now easily the largest natural gas producer, passing Russia in 2009 and producing about 80 Bcf/day, or nearly 25% of the world’s total. Although U.S. gas prices have been stuck in a low cost environment for years, proven reserves now stand at over 400 Tcf, a 33% increase since 2011 alone.

IEA’s WEO 2015 now projects that U.S. output will jump to 83 Bcf/day in 2020 and to 87 Bcf/day in 2030. EIA’s AEO 2016 takes a more bullish stance and has us increasing to 84 Bcf/day in 2020 but then surging to 104 Bcf/day in 2030, which is what other reporting agencies have been saying for a few years now.

In 2017, gas prices will rise 20% to over $3 per thousand cubic feet and we will produce 82 Bcf/day. Although U.S. gas demand will also continue to increase, our ability to export gas is also steadily increasing, with perhaps as much as 12-15 Bcf/day of excess gas to export in 2025 in LNG alone. U.S. shale exports via LNG started in February and one of our shipments reached China on Monday.

The ability to export, piped gas to Mexico and Canada and shipped LNG to the rest of the world, is a critical advantage for the U.S. because it will give our producers another baseload demand market to tap into when domestic market conditions weaken.

Gas companies have been struggling with low prices, but at some point rising demand here and around the world will surely help increase prices and ultimately allow for us to produce even more gas. Natural gas after all is the only fossil fuel to increase in usage modeled under the COP21 environmental commitments made at Paris in December.

This month producing 17-18 Bcf/day of gas, the Marcellus shale play in Pennsylvania/West Virginia will remain the centerpiece. At some point though, there will need to be a huge pipeline build-out in the area to help producers: an infrastructure shortage has sunken gas prices in the region, with Marcellus gas often trading at a discount of 60 or 70 cents to the U.S. Henry Hub benchmark. “Shale gas prices stymied by pipeline delays.” 

Marcellus shale is wanted as far away as Florida (here). Industry efficiency continues to impressively increase: the Marcellus now has a new-well gas production per rig that is more than 50% higher than the second place Utica shale play (here).

But, lower local prices have some Marcellus companies looking to acquire assets down in Texas, where gas prices are higher and the emerging Mexican export valve is more easily within reach. U.S. exports to Mexico could double to over 6-7 Bcf/day by 2020.

Mexico is in a bit of a predicament, as lower prices, security issues, and an often over-burdening national oil company Pemex hurt the country’s chances at developing its own shale. And for now, Mexico is understandably content with just importing very affordable U.S. gas: piped import prices were just $2 per thousand cubic foot in May, down almost 60% from May 2014. Mexico will be heavily relying on U.S. gas until 2020 at least.

Why Did Walmart Take The Unusual Step To Tackle Chemicals?

FILE – In this Thursday, Sept. 19, 2013, file photo, reusable shopping bags are offered for sale at a Wal-Mart Neighborhood Market, in the Chinatown district of Los Angeles.  (AP Photo/Nick Ut, File)

This is a guest post from Michelle Harvey, Directory of Supply Chains at Environmental Defense Fund.

Walmart recently announced progress on its groundbreaking Sustainable Chemistry Policy, a 2013 plan that set the stage for some 700 suppliers to rethink how they make more than 90,000 home and personal care products.

Result: The world’s largest retailer drove out more than 11,000 tons – 23 million pounds, or 95 percent by weight – of prioritized chemicals from that group of products in less than 30 months.

A lot still remains to be done. But this story is a good one and Walmart’s leadership, sustainability team and buyers – deserve credit for what they accomplished.

What’s perhaps equally extraordinary is that they chose to do so at all.

Sustainability wins are typically also economic wins. Reduce greenhouse gas emissions, and your energy expenses drop. Address water use in drought-prone areas, and you avoid costly supply chain disruptions that cause price spikes and make customers unhappy.

Changing chemicals is difficult and risky

Even when the science says it’s time to make a change because one or more legal ingredients we once believed to be safe turn out not to be – changing a product formula without changing the product can be difficult. It also takes time: on average 18 to 24 months.

Product ingredients are the smell, the feel and the way a product cleans or softens or does whatever it’s supposed to do. Change it, and you risk sales if customers reject the alternative.