Subsidize, baby, subsidize!

By Hilton Price

Another U.S. Presidential election is just around the bend and, as always, this is the one that will make or break us for the rest of time. The issues, at least the ones that stir a large enough constituency, are being argued heatedly in sound bites and video snippets every day. The fight continues on social media, where I’m watching friends torn by differing views, and people shunned and insulted for speaking what they feel is right.

Among the issues is one that pertains to me and probably all of you – subsidies. Oil subsidies tend to be the one railed against the most, but any type of economic business assistance tends to have its own pack of nay-sayers. It’s typically argued that there are more deserving places for the money to go, and that the oil industry can support itself. Honestly, that’s not wrong, but it’s irrelevant.

Shell spent billions of dollars securing the right for its recent Arctic drilling attempt. That attempt was abandoned due to ice and equipment damage. I bring it up not to speak ill of Shell, the company was the victim of Mother Nature and circumstance, but to show that this is an industry which is sometimes forced to make a billion-dollar gamble. It’s an industry where day-to-day business costs millions of dollars, a sum not seen by most people in a lifetime. It’s easily one of the most expensive businesses in the world and honestly, shouldn't it be?

Almost everything I do all day long is possible because of the energy industry, and most of the time it’s oil and gas doing the work. From simple room lighting to my car to the phone in my pocket, the energy industry enables my entire life. Above I mentioned there are places more deserving for subsidiary money to go. Teachers are a perfect example. But not one of those teachers will be able to as effectively do their job, if those classroom lights won’t come on.

And yes, I absolutely think teachers need a pay raise and corporate CEOs (many in the energy sector) need a pay cut, but I don’t want to flip the two. Oil and gas execs are welcome to make more money, even a lot more, if it keeps those industries staffed with people who are looking to produce energy effectively. Keep the lights on, and find new and better ways to do it!

There’s an image problem in the oil and gas sector, at least in how the industry is seen by the country, and maybe the world. I addressed it’s need for a make-over in my last post. Being honest about how the industry spends money, and being transparent about the true costs of the business, will aid in that make-over. There are cuts that need to be made, and adjustments that need attention, but they can be relatively minor. The real cost will be the courage to be honest about the industry’s role in our lives.

What's old is new again- Revisiting energy storage

By Dorothy Davis

The electrical grid is a complex network connecting thousands of power sources with millions of consumers all across the U.S. While producing enough power to supply the energy needs of a nation is an extremely difficult task, just as challenging, if not more so, is the need to balance supply and demand on the grid.

Traditionally, the key approach to addressing this issue has been a centralized one, with power generators adjusting daily production based on anticipated levels of demand. But as the supply and demand picture continues to become more complex, emphasis is beginning to shift again toward energy storage - systems that can hold excess electricity until it is needed and then responsively release it into the grid.

The utilization of energy storage in the U.S. is far from new. A report by the Energy Storage Council (ESC) highlights power generators in the 70’s and 80’s recognized the potential of these technologies - creating a base of large-scale storage facilities that accounted for nearly 3 percent of the nation’s electric capacity by the early 90’s. However, the industry suffered major setbacks under the pressures of deregulation causing development to stall.

In the last decade energy storage technologies have enjoyed a resurgence spurred primarily by the burgeoning electric vehicle industry and private investment. Utilities and investors are again recognizing the broad potential benefits of energy storage technologies for power generators as they strive to meet demand.

The potential economic impacts of energy storage are fairly widespread, but the most basic idea is that these technologies will benefit utilities by maximizing power generation and conservation through reliability. Instability can lead to higher electric costs both because of inefficiencies at the generation level and the need for greater maintenance at lower levels.

The prospective benefits of energy storage are also gaining government attention and support. Most recently, the U.S. Department of Energy announced $43 million in funding from its Advanced Research Projects Agency-Energy (ARPA-E) for 19 new projects aimed at developing energy storage technologies.

Energy storage also offers a more cost effective solution for intermittent renewable energy sources like solar and wind, which are incapable of scaling generation up or down in response to changing demand.

At the same time, energy storage also has the potential to allow for more consistent use of coal-fired power plants, which have difficulty adjusting their output based on demand.

Energy storage holds the potential to address many of the key challenges facing the electric power industry. By raising the overall capacity and flexibility of energy storage helps meet the needs of a high demand modern grid by optimizing existing assets.

With such wide ranging benefits, growing the energy storage sector is certain to open up new and innovative opportunities for the electric power market.

Progress as promised...

By Hilton Price

Growing up, I was a good kid. I listened to my elders, asked before doing anything crazy, and pretty much played by the rules. My cousin Steve, not so much. He was a bit of a problem child. He liked mischief, rarely asked permission, and often found himself on the wrong end of a spanking… or worse.

Steve wasn’t a bad kid. He just had trouble staying on task. This made it harder for him even as he got older, and learned some discipline, because everyone around him still thought of Steve as a bad egg. By the time he was entering high school, he was doing well in class, excelling at extra-curricular activities, and becoming a responsible and thoughtful young man. But the stigma from his childhood still stuck around, leading to some people judging him incorrectly for much of his young adult life.

When Hurricane Isaac started heading toward the Gulf of Mexico this summer, the companies working in the region’s deepwater oil fields took notice. They sent crews away, battened down the hatches, and prepared for the storm. And after the winds and rains had died down, they didn’t rush back to the platforms and start flipping on each switch.

The companies working in the gulf began a series of checks to make sure the equipment was able to safely be restarted before production began again in the Gulf. No company rushed back into business, because no company dared risk overlooking some minor damage from the storm that could grow exponentially once the platform was operating again.

At Power-Gen International 2011’s keynote address, reshaping the image of the oil industry was touted as an important goal for the future. Finding lots and lots of oil and using it to power the world was probably also covered, but the “image reshaping” really stuck in my head. I absolutely agree that this industry should be shouting its best practices to the world, especially when they are followed diligently.

But when the companies returned to the Gulf after Isaac, the public knew little to nothing about the extensive checks underway before production began. I know it’s typically the bad news that gets attention, and “Companies slowly checking everything in the Gulf” is a pretty boring headline, but I also remember a young man I knew growing up who also needed all the good P.R. he could get.

To my new eyes on an old industry, the oil industry and my young cousin Steve have something very important in common. Both need to have their successes celebrated twice as loud as their failures, to ensure those watching understand they are doing good work.

The public’s poor perception of the oil industry isn’t without some cause, but it is certainly overkill. Companies within the industry are constantly working to ensure oil is discovered, extracted, and processed in the most safe, secure, and reliable way possible. The people working in those companies live on this planet too, and are trying to minimize impact on Earth while utilizing its resources. These are good and important companies, and this is (overall) a good industry. But there is a lot of bad press, and overcoming it means publicizing every positive moment.

Just as Steve needed his accomplishments touted twice as loud as his failures, to show his progress and promise, so should the industry be ensuring the good news gets out. It’s the best way to reshape an image, allowing companies to grow, much like my cousin, into even more productive and valuable members of society.

The new leadership needed in energy

By Dorothy Davis

I was recently invited to participate in an energy focused panel for the University of Tulsa’s newly launched Master of Energy Business program. Being in the middle of wrapping up the Summer issue of PennEnergy's EnergyWorkforce magazine, I was inspired by its theme of the Big Crew Change. What had been planned as a presentation on the increasing trend toward integration in the industry became instead a call to my peers to take up the mantle of leadership.

As a member of the PennWell team I am fast approaching my sixth year of being engaged in energy. In my role as content director for one of the most comprehensive energy news portals in the world, I am immersed in all segments of this industry. I live and breathe it. While it is abundantly clear that it is a good time to be in energy, it’s also clear we are on the cusp of change that goes far deeper than our standard boom or bust cycles.

Energy touches everyone. It is as vital, pervasive and complicated as agriculture in its global influence. Energy today, not in some unspecified future, desperately needs to cultivate its next thought leaders. On the near horizon is the loss of close to half of our industry professionals. While this is unfolding, global energy demand is poised to nearly double. Energy professionals both in outlying roles such as mine and in more direct fields such as engineering or the geosciences will need to fill those gaps with fewer tangible resources. It will require a leadership armed with a new set of dynamic guiding principles.

Diversity, collaboration and innovation are the words to remember. While functional and technical specialists will always be needed; those beginning or continuing their professional lives within energy must bring more to the table. For the energy industry to continue to thrive it must extend that table to accommodate more than its traditional business models.

The burdens of a strained global economy, environmental issues, resource limitations and the need to modernize are not petroleum problems or utility problems - they are global challenges. As our industry moves ahead in finding ways to connect and integrate diverse sources across large and small networks to meet these challenges, those of us who strive to lead must do the same with our business approach.

We must adopt an all-of-the above tactic in all things energy. I do not say that lightly. Those words are deeper than a proposed policy or some biased political statement. It is a way forward that respects the heritage of the energy industry while taking the necessary steps to ensure it continues to flourish.

A culture of diversity, collaboration and innovation is required for the years ahead. What once constituted business as usual no longer applies. Business is anything but usual. It is indeed a good time to be in energy, but it’s an even better time to be a trailblazer.

But Syriasly, folks…

By Hilton Price

Nearly a year and half ago, Syrians began an uprising against their government. The protests and armed conflicts revolve around the Ba’ath political party, which many in Syria see as corrupt and beholden to Islamic militant group Hezbollah. The protestors want the Ba’ath party out, and many international governments seem to agree with this sentiment.

It’s hard to know what the U.S. really wants here, due to some baffling maneuvering from Washington. Earlier this month, the U.S. announced new sanctions against the Syrian government and the country’s state-run oil company. However, as sanctions traditionally limit the economic and political options available to a group or country, these latest sanctions seem to be intended to show American concern over the conflict, but not any interest in actually getting involved. They are largely “symbolic,” even according to U.S. officials.

It all reminds me of a bad parenting decision I made a few weeks back. When my little girl refused to go to sleep one night, I found myself struggling to choose a fitting punishment. A time-out would keep her out of bed longer. A spanking would only exacerbate the situation and delay sleep even more. So, as I stood in my daughter’s room, determined to find some way to make her understand she needed to close her eyes and try to sleep RIGHT NOW, I reached for the first toy I saw. With her Etch-a-sketch in my hands, I looked sternly at my little girl and said, “I’m taking this toy away until you can go to sleep.” With that, I closed her door and walked back to the living room.

It took another hour before she finally went to bed. Later that night, I stared at the taken toy wondering what, if anything, I could have done differently. Suddenly, I realized I could not remember ever seeing her play with the Etch-a-sketch.

I called her mom, and sure enough, she also could not remember the toy being used. Grandma, grandpa, and Aunt Judy also had no recollection of seeing the Etch-a-sketch being played with. It was now no wonder my daughter wasn’t bothered by me taking the toy. She didn’t even like the toy!

To my new eyes on an old industry, symbolic sanctions are like punishing a child by taking away a toy it doesn’t like. It may look like a serious action, but it’s really a meaningless gesture.

Punishment has to mean something, or anyone with basic problem-solving skills will see the emptiness of the gesture. I know, because I’ve spent the past couple years with a little someone who has only basic problem-solving skills, and even she would think these sanctions were pointless. Of course, she doesn’t know what a sanction is, but honestly, why would I dare spoil that. I wish I didn’t know what a sanction was. Ah, the ignorant bliss of childhood…

Sorry, where was I? Oh yeah, fake-punishing Syria…

If the U.S. wants to stay out of this conflict, that’s fine. It’s the right of any sovereign nation to determine its involvement in the actions of others. Likewise, if the country wants to say, “We don’t like this, but we’ve got way too much going on right now to deal with this,” I’m okay with that. I don’t remember Syrians jumping into our civil war. Of course, they weren’t an independent country until 1946…

My point is, my little girl knew taking her etch-a-sketch away meant nothing. It wasn’t something she cared about, so losing it was not a problem. The United States’ symbolic sanctions against Syria are the same type of thing. Since they will be meaningless to the Syrian government, they will accomplish nothing.

New swaps definition provides needed exemptions for energy industry

By Dorothy Davis

In 2010 Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act with the primary goal of re-regulating the financial system with stronger consumer protections and greater transparency. But the act's broadly written rules also inadvertently folded in an array of day-to-day transactions carried out by the U.S. energy industry, which frequently uses derivative contracts that are not easily standardized.

Of major concern to energy companies was the possible inclusion of physically deliverable forward contracts as swaps and being designated as swaps dealers if the notional value of their transactions fell into ranges as low as $100 million annually.

Energy companies often enter into long- and short-term physical transactions to buy and sell electricity, natural gas and other fuels to serve customer needs, and sometimes use financial hedges to manage volatile prices, outlines Reuters.

After two years of deliberation, federal regulators have at last approved a definition for swaps under the Dodd-Frank Wall Street Reform and Consumer Protection Agency, which includes crucial exemptions for many energy companies.

The two agencies overseeing the implementation of the new rules - the Commodity Futures Trading Commission and the Securities Exchange Commission - approved the rule on Wednesday, setting in motion more than 20 separate regulations that were waiting only on a definition for swaps.

The financial instruments are intended to help control the risks facing companies by exchanging two distinct streams of revenue. However, there were some worries that certain contracts allowing energy companies to purchase fuel in response to changing consumer demand could fall under the definition, potentially raising costs around the country.

Risk magazine notes that the CFTC ultimately proved receptive to concerns from the energy industry about unnecessarily raising costs in a sector that relied on swaps contracts for legitimate hedging, both with the definition of swaps and the inclusion of an end-user exemption to clearing requirements.

Businesses meeting the newly revised definition of a swap dealers will have 60 days to register after the final rule is published.

Dumping Oil Speculation (and Other Bad Habits)

New Eyes on an Old Industry
By Hilton Price

This year, I finally managed to do something I’d wanted to do for years; quit smoking. Before I worked for the greatest website in the oil & gas sector, I was in television news. If you’re unfamiliar with the behind-the-scenes goings-on of a TV news station, allow to me to impart one important fact: Quitting smoking is next to impossible when you work in TV news. I always promised myself once I left the industry I’d finally quit, and a few short weeks after beginning my tenure with PennEnergy, I made good on my promise.

I remember being a smoker very well. I remember the anticipation of my next cigarette break, especially if it meant getting away from my daily workload for a few minutes. I remember the soothing feeling nicotine had on me, truly a sign of my (at the time) serious addiction. Most of all, I remember how I always knew how bad those little sticks were for my health, and how I smoked them (sometimes eagerly and happily) despite this knowledge.

I bring all this up because in learning about the oil & gas industry, I have been reminded my former tenure with cigarettes. Smoking cigarettes is a lot like oil price speculation. If my new eyes on an old industry understand this right, neither makes any logical sense and seems to only cause harm, yet the practice continues largely unabated every single day.

The process of speculation is headache-inducing due to its complete lack of regard for supply and demand. Oil pricing revolves around futures, essentially a pre-set price for a delivery sometime down the road, making the classic supply/demand model no longer applicable. Now, oil sellers need only offer a price that they believe the buyer will agree to, no matter how the price is determined. The final price could be determined by a gust of wind, conjured from animal bones, or simply pulled from the ether by the imagination of an inebriated hobo. As long as the buyer agrees, congratulations! You just set the price for oil!

It’s a wonder every business across the globe hasn’t adopted this approach to pricing. If they could, I’m sure every store at my local mall would love to implement this. Instead of paying $120 for a pair of jeans today, shoppers would now agree to buy a $500 pair of jeans in 5 years. Denim futures would create a whole new generation of millionaires. Personally, I think having to sign promissory notes would make the whole shopping mall experience a lot more interesting. And don’t get me started on the food court. Panda Express would be the new high-water mark in upscale dining, with reservations made 3 years in advance.

Smoking (and exaggeration) wasn’t my only pointless habit. I’ve also always been a bit of a collector (trading cards, comics, games,) so I understand that sometimes things are priced excessively high. Every comic book store has a few books hanging behind the counter because they are “collectible.” The demand may not be obvious and immediate, but since the book is rare, it can demand a higher price than others.

But we’re not talking about some niche collector market. This isn’t baseball rookie cards or obscure comic books from the 50s. This is the one commodity, besides food, that nearly everyone in every industrialized nation is using. So, we’re essentially ignoring the demand on one of the few items that will always have demand. The growing interest and shrinking cost of renewables means demand for oil will one day be replaced by demand for something else. So, not only are we ignoring the massive demand for oil, we’re failing to take advantage of that demand while it exists! Save the futures and speculator nonsense for 100 years from now, when every home has solar panels and our cars are powered by canola oil. That will be the time to charge prices pulled from thin air. That will be the time to sucker buyers with talk of future pricing. Today is not the time for imagination in pricing. Today is the time to sell the oil to the people that want it for a reasonable price.

But, instead, the success of our speculator market has other countries interested in their own game of financial make-believe. Much like younger friends I had who once considered smoking because they saw me do it, now other countries are considering picking up our bad financial habit. Although, the U.S. is younger than China, so the metaphor is getting a little shaky. Point is, speculation has been successful for some, and now others want in. Meanwhile, there may be a chance that rational thinking could one day return to our own markets.

President Obama, always a favorite topic around the office, announced plans to crack down on speculation. At least, I think I saw that somewhere. As the 24-hour news cycle does, it was soon replaced with other stories. But I swear he said that, and whether it’s a political ploy or a real concern for the man, it’s very much needed. People are getting rich making stuff up, and not in a cool way like Stephen King or DEVO or those guys behind LOST. Their making up pricing, and we’re playing along because we think there’s no other way.

I remember another time I felt like I did something because there was no other way. I smoked cigarettes. Why? Because I had smoked for years, and I was addicted, and it was just part of who I was. Well, then I quit. Now, I don’t smoke. It’s dumb and dangerous and I don’t want any part of that. Speculation is the same. Together, as a planet, we need to quit, and keep our friends, the other countries, from starting. It’s dumb and dangerous and trust me, we don’t want any part of it.