Hurricanes and energy security
Living in the five day cone...
As I write this morning, Hurricane Rita is bearing down on some of the most critical energy infrastructure within the United States of America. I cannot overemphasize this enough. Investment mangers based in New York, Boston, Chicago and LA have no idea how serious the situation is vis a vi our domestic energy security. Rigs in harms way...
As humans we are most comfortable with things that we are most familiar, investment managers are no different. Most have never been to the "working" gulf coast where the majority of our natural gas and oil assets are located. They don't fully realize that a we are in the five day cone of a supply shock and/or a bear market in stocks.
An SPR release can manipulate crude oil prices downward in the short term, the only thing is, there is no SPR for Natural Gas. And today, Natural Gas is very, very important for our marginal energy production.
After Katrina CNBC and the other P.T. Barum players were spinning "how to make money from the storm". Home Depot? Lowes? Manufactured homes? Capitalist, yes but a little short sighted as well.
We contend that energy markets prior to Hurricane Katrina were well supplied and rising prices where a function of rising domestic and global demand. The problems we have had was that we didn't have enough of the right thing, in the right form, at the right place, at the right time. Gasoline, Diesel, Natural Gas you name it.
Case in point, a great deal of OPEC and Non OPEC marginal production capacity isn't light sweet crude (the black kool aid of choice for 9 out of 10 dentists surveyed) it is sour crude. Most refineries cannot handle the high sulfur content of sour crude, therefore, it doesn't do much good satisfying demand in the world markets to pump more of it out of the ground.
There are not enough refineries around the world configured to handle sour crude, much less make low sulfur gasoline and diesel from it. Yikes....
Where am I going with all of this? Well yesterday at a breakfast function I sat next to a retired Gulf Coast Natural Gas executive. I asked him, "how bad is it going to get?" he said, "If Lake Charles, LA gets a direct hit from Rita, it is lights out. It is insane what we have done. All our eggs are in one small basket along the central gulf coast. I guess people are going to have to be cold this winter and hot next summer before we make the necessary changes."
He also shared a number he heard that Natural Gas could hit this winter under a worse case scenario. It was a factor of current prices. If you feel "safe" because you locked in your rate, or your rates are fixed don't forget about Force Majeure or simple economics. Your local utility cannot cash flow buying Natural Gas for $20 per 1000 btu's and sell it to you for $14. Period.
A short rant here, I feel like Ross Perot in that I would like to lock the do gooder environmentalists and the major petrochemical companies in a room and not let them out until they have a 20 year plan to utilize the energy resources we have in the US in a environmentally smart way. We are drilling in the Rockies, off of Florida, in the Arctic National Wildlife Refuge, breaking ground on some new nukes prior to Easter of 2006, you get the picture. Now, not "the permitting process will be complete in the year 2012, after an EPA study", the situation is much more dire than that.
Just in time with energy is just not enough. We have other shoes that are going to drop in the coming months. The real national crisis is not with the homes destroyed or the people displaced, it is the lack of a cogent national energy policy that balances between the environment and security.
The time to act is now, the projects we need to undertake will take a decade or more to complete. Either we act now, or plan on invading Venezuela to secure supplies.
Forget the post storm spin on TV and in the blogosphere. 90% of it is crap from people who don't know what they are talking about or won't share what they really believe. Watch the Jan 06 Natural Gas contract on the NYMEX, back to pre Katrina levels and we are good. Higher still from where we are today, bad.
As I write this morning, Hurricane Rita is bearing down on some of the most critical energy infrastructure within the United States of America. I cannot overemphasize this enough. Investment mangers based in New York, Boston, Chicago and LA have no idea how serious the situation is vis a vi our domestic energy security. Rigs in harms way...
As humans we are most comfortable with things that we are most familiar, investment managers are no different. Most have never been to the "working" gulf coast where the majority of our natural gas and oil assets are located. They don't fully realize that a we are in the five day cone of a supply shock and/or a bear market in stocks.
An SPR release can manipulate crude oil prices downward in the short term, the only thing is, there is no SPR for Natural Gas. And today, Natural Gas is very, very important for our marginal energy production.
After Katrina CNBC and the other P.T. Barum players were spinning "how to make money from the storm". Home Depot? Lowes? Manufactured homes? Capitalist, yes but a little short sighted as well.
We contend that energy markets prior to Hurricane Katrina were well supplied and rising prices where a function of rising domestic and global demand. The problems we have had was that we didn't have enough of the right thing, in the right form, at the right place, at the right time. Gasoline, Diesel, Natural Gas you name it.
Case in point, a great deal of OPEC and Non OPEC marginal production capacity isn't light sweet crude (the black kool aid of choice for 9 out of 10 dentists surveyed) it is sour crude. Most refineries cannot handle the high sulfur content of sour crude, therefore, it doesn't do much good satisfying demand in the world markets to pump more of it out of the ground.
There are not enough refineries around the world configured to handle sour crude, much less make low sulfur gasoline and diesel from it. Yikes....
Where am I going with all of this? Well yesterday at a breakfast function I sat next to a retired Gulf Coast Natural Gas executive. I asked him, "how bad is it going to get?" he said, "If Lake Charles, LA gets a direct hit from Rita, it is lights out. It is insane what we have done. All our eggs are in one small basket along the central gulf coast. I guess people are going to have to be cold this winter and hot next summer before we make the necessary changes."
He also shared a number he heard that Natural Gas could hit this winter under a worse case scenario. It was a factor of current prices. If you feel "safe" because you locked in your rate, or your rates are fixed don't forget about Force Majeure or simple economics. Your local utility cannot cash flow buying Natural Gas for $20 per 1000 btu's and sell it to you for $14. Period.
A short rant here, I feel like Ross Perot in that I would like to lock the do gooder environmentalists and the major petrochemical companies in a room and not let them out until they have a 20 year plan to utilize the energy resources we have in the US in a environmentally smart way. We are drilling in the Rockies, off of Florida, in the Arctic National Wildlife Refuge, breaking ground on some new nukes prior to Easter of 2006, you get the picture. Now, not "the permitting process will be complete in the year 2012, after an EPA study", the situation is much more dire than that.
Just in time with energy is just not enough. We have other shoes that are going to drop in the coming months. The real national crisis is not with the homes destroyed or the people displaced, it is the lack of a cogent national energy policy that balances between the environment and security.
The time to act is now, the projects we need to undertake will take a decade or more to complete. Either we act now, or plan on invading Venezuela to secure supplies.
Forget the post storm spin on TV and in the blogosphere. 90% of it is crap from people who don't know what they are talking about or won't share what they really believe. Watch the Jan 06 Natural Gas contract on the NYMEX, back to pre Katrina levels and we are good. Higher still from where we are today, bad.
