Oil Rules

I have been graced with another insightful guest blog entry from Claire Scoggin, director of the Wiess Energy Hall at the Houston Museum of Natural Science.

The Good the Bad the Energetic: Part 2
In a previous blog entry we discussed what questions we need to ask in order to effectively compare the different sources of energy being presented to us as alternative to oil. As an example I have chosen nuclear energy to analyze.

Nuclear Energy Analysis

Q: Is it used for electricity or transportation
A: Electricity

Q: What per cent of our power comes from this source today?
A: The United States has 104 commercial nuclear reactors which produce about 20% of our national electricity. There are about 400 nuclear reactors in the world with 33 reactors under construction and 94 ordered.

Q: What are the processes involved?
A: Nuclear energy is used to produce electricity in much the same way that all electricity is produced - heat energy is converted into mechanical energy, which generates electricity. A large plant generates about a million kilowatts of electricity.

The Nuclear Fuel Cycle
Nuclear energy has 4 main processes:
1. The uranium ore is extracted from the mine.
2. Conversion, enrichment and fabrication processes prepare the uranium for use in the plant.
3. Inside the power plant, uranium atoms are slowly and carefully split apart in a process called fission, which releases heat energy. This heat energy is used to boil water in the core of the reactor to produce steam. The steam then powers the turbine which in turn generates electricity.
4. Spent uranium in the U.S. is currently stored at the power plant. The U.S. government is trying to build an underground site for storage of the radioactive materials.

This Nuclear Simulator Game looks like fun!

Q: If the source is for electricity, will it steadily supply the base load or is it intermittent?
A: Nuclear energy is continuous so it easily supplies the base load. Nuclear plants are difficult to shut down and restart so they are not used as “peak load” plants.

Q: What are the resources required to supply the fuel on a continuous basis (fossil fuels, biomass, wind, solar etc)?
A: Resource: Uranium or any combination of thorium and uranium. Known uranium sources are expected to last the world for about a century at the current rate of usage.
Availability of resource:
Uranium is found in rocks and is abundant worldwide with the largest deposits in the Rocky Mountain regions of North America. It requires about 200 tonnes (440,800 pounds) of U308 per year to keep a large nuclear reactor running.
Cost of resource:
In 2008 the average cost of uranium UX-U3O8-SPT per pound was $106.90 and expected to be $91.90 in 2009. The cost of the fuel is not a major factor in the price of electricity produced by nuclear power plants so a sharp rise in the cost of uranium would have a small effect on the cost of the electricity.
Procedures for producing resource:
Uranium is mined by removing the ore, or rock, from the ground in underground or open pit mines. Then the rock is taken to uranium mills where the uranium is taken from the rock by leaching with a variety of chemicals. The uranium is made into cakes that are yellow so they are called “yellow cake.”
Our relationship with the nations providing the resource if a high percentage cannot be provided domestically
Since uranium is easily mined in the U.S. we can assume that we will not have problems with obtaining the resource.
Current and future global competition for resource
Uranium is also mined in other mountainous regions around the world so competition will not be a problem.

Q: What is the cost of production - per KWH produced?
A: Once the reactor is built, the cost of generating electricity from a nuclear plant is about 0.4 cents a kilowatt-hour. Another estimate of 2.86 cents per KW- Hr includes the cost of building the plant, feedstock, waste disposal projected costs and decommissioning costs. It does not include interest on the money borrowed to build the plant.

Q: What is needed to produce electricity from this source?
A: The following is a list of what is needed.
Front end costs to build electricity production facility
Nuclear power plants are relatively expensive to build and the cost may have doubled in the past 2 years to $5-10 billion for a one reactor plant to as much as $24 billion. The need to use special materials and to incorporate sophisticated safety features and back-up control equipment raises the cost of building a nuclear power plant significantly higher than for coal or gas-fired plants. Once the plant is built the operating cost is much the same. It is estimated that new reactors would cost up to $6,000 per kilowatt of capacity to build.
Time required to build facility
It is said to be possible to build a facility in 4-5 years and 2 more for licensing and approvals. Most believe the numbers are double that.
Are building materials domestic or foreign?
Nuclear power plants are built of mostly concrete and steel which are easily available although the economic growth of India and China is rapidly increasing its demand.
Other resources required to process
Most nuclear plants are built on the shores of oceans, lakes and rivers in order to use the water to absorb the heat left after powering the generator. The amount of water needed varies according to the design of the plant but it is huge amounts of water, most of which is reused. Some estimates are 4 million gallons of water a day.
Ability to shut down and restart plant
Nuclear plants are very difficult to stop and restart. Every 1-2 years most reactor must be shut down to be partially refueled.
Maintenance – speed of equipment deterioration
The Nuclear Regulatory Commission will license a plant for 40 years. After that they can renew their license or decommission the plant. Decommissioning means shutting down the plant and taking steps to reduce the level of radiation so that the land can be used for other things. The NRC requires that the decommissioning process can take no more than 60 years.
Personnel needed and training involved
A nuclear power plant employs about 1,000 people. Engineers and technicians for reactors require 4-5 years of training. Universities are re-establishing nuclear training programs and bachelors degrees and the PHD programs.
Cost to rebuild and how often this will be necessary.
A nuclear power plant is expected to last for about 40 years. New technologies are making it possible to prolong that time.

Q: Are there geographic limitations?
A: Most types of nuclear plants are built near a large water source in order to use the cooler water to chill the hot water used to produce steam.

Q: is the resource near the market and distribution facility?
A: Uranium mines are not near the nuclear plants so the ore must be transported long distances by highways, trains or waterways. Containers have been designed to carry dangerous nuclear materials that are capable of withstanding enormous impact.

Look for Part 3 soon which, will cover the environmental effects of nuclear energy.

When I arrived at a large Houston mall on Friday evening at 6 p.m., I figured that most of the holiday shoppers would have thrown in the towel, or at least realized that they had charged far too much in one day.

But Memorial City Mall was still booming when I arrived and spent a whopping $15 on a pair of jeans. And apparently that wasn’t the only mall in America thriving this weekend, since Black Friday spending actually went up by 3% compared to last year.

In July, I did a series of blog entries called, “Gas Is So Expensive…” that gave a few suggestions of what depths the general public would stoop to in order to avoid high gas prices:

• Gas Is So Expensive, People Might Actually Carpool
• Gas Is So Expensive, People Might Stop Driving Like Jerks
• Gas Is So Expensive, Stop Mowing Your Grass

Now, four months later, our nation is seeing the lowest gas prices it’s seen in three years. Even in California, prices are on the path to falling below $2/gallon. The price of gasoline is one of the bright spots in the downward economy, so I figure it’s time to celebrate.

Gas is so cheap…

*It costs more to clean a month’s worth of laundry with Clorox than to get one gallon of gasoline. Clorox is $1.99/gallon.

*It costs more to buy a gallon of 2% milk ($3.99/gallon) to dip your favorite cookies in than it does to buy one gallon of gas.

*Do Monster Energy Drinks keep you awake 20 hours a day? Well, Monster is going to cost you $12.80/gallon. In Texas, you currently could buy about seven gallons of gas for that amount. Who needs an energy drink when you have enough gas in your car to get you from Austin to Houston?

*Do you rely on Windex to solve all your problems, much like the family on “My Big Fat Greek Wedding?” I love the scene when Tula wakes up with a wedding day pimple, and her father’s advice is, “Put some Windex on it.” Well, Windex costs a pretty penny these days: $17.29/gallon. That can fill up my Chevy Prism’s entire tank with today’s low gas prices.

So while today’s economy may have some people down in the dumps, at least we can be grateful this Thanksgiving for Windex-whippingly low gas prices.

This morning was the dawn of Hart’s webinar endeavors, launching with a great discussion between Bruce H. Vincent, vice chairman of IPAA and president of Swift Energy Co. in Houston, and Mike McAdams, Hart Energy Consulting lobbyist in Washington D.C. The gentleman discussed what changes may occur in the energy industry with the Obama administration. If you missed the webinar, never fear — you can still view the archived webcast by registering at this link.

Bruce spoke on specific legislative regulations that can be anticipated, such as a windfall profits tax, the offshore moratoria and the Clean Air Act. He also touched on the IPAA’s representation in Washington and their plans for building relationships with the new office-holders.

Mike gave a briefing on the new members of Congress and their energy agendas.

Together, our speakers answered a number of audience-generated questions, including:
–Who do you expect will be the most vocal representatives and senators in favor of increasing domestic production in the next Congress, either Democrat or Republican?

–Is there any talk or rumor that IDCs may be reduced or taken away?

–Will the IPAA be updating its survey from a few years ago that describes the demographics of U.S. independent producers?

–What is the potential for the new administration to pass a windfall profits tax on oil and gas producers?

–Who may become the Energy Secretary?

–What impact will this administration have on the Canadian oil & gas industry, particular tarsands?

To hear the entire webcast from this morning, register here.

Recently, one of our temporary helpers here at Oil and Gas Investor has been telling me about the popular 1980’s television shows “Dyansty” and “Dallas.” I’m pretty sure my parents didn’t allow me to watch these evening soap operas, since I was mostly watching “Care Bears” and such at the time.

But after hearing so much about the lush lifestyles of the oil tycoons and their families in these sitcoms, I can’t help but reflect on how such sitcoms would never make it into the evening TV lineup of 2008. These characters were fabricated at a time when the oil industry was at its peak, and we may never see such a jetting peak again.

Over the last year, I have asked many industry veterans at our Hart conferences if they worry about ever hitting the low that the industry hit in the late 1980’s. Time and time again, there response has been something like, “No, because we will never hit such an outrageous high again. We’re on more level ground now.”

In addition, taxes for the higher echelon of society have only increased since the 1980s, limiting the allowance for extravagance. However, I wonder, as many in the industry do, how effective the current tax system is. And I wonder how effective Obama’s proposed system to raise taxes on families that make more than $250,000 annually will be. Aside from the moral that taxing the wealthy could lead to an attitude of national “underachievement,” I wonder if raising taxes on the wealthy will have a huge effect on philanthropy. Many of the greatest givers in our nation are also the hardest workers, who happen to bring in the largest paychecks.

We’ll never get back to the days of “Dallas” and “Dynasty,” for better or for worse…

–Lindsay Goodier, Online Editor, OilandGasInvestor.com; www.OilandGasInvestor.com; lgoodier@hartenergy.com

This is part one of a three-part guest blog series from Claire Scoggin, director of the Wiess Energy Hall at the Museum of Natural Science in Houston. For more from Claire, check out the Beyond Bones blog.

The recent election and rising gas prices have raised the topic of energy to a higher level of importance for most Americans. Whatever it takes to make us examine what is required to produce the energy we crave in this country is good because it causes us to consider our responsibilities to the world today and to future generations.

Theodore Roosevelt, years ahead of his time, was an instrumental force in initiating wise conservation of our resources.

“In utilizing and conserving the natural resources of the Nation, the one characteristic more essential than any other is foresight… The conservation of our natural resources and their proper use constitute the fundamental problem which underlies almost every other problem of our national life.”

Address to the National Editorial Association,
Jamestown, Virginia, June 10, 1907.

The importance of the resources used for the production of energy show that Teddy Roosevelt was especially correct in predicting that conservation of resources would affect every other problem in our lives.

Yet for a long time in this country, people who were environmentally conscious were considered to be just a bunch of fanatics who were against economic growth for the sake of saving a few wild animals or trees. Fortunately, conservation has recently become a major issue as people are finally raising their heads and saying, “What are we doing?”

Most agree that it is practical to use some of our natural resources for the betterment of humanity, but a mature society looks out for its future generations. The word “sustainability” has become widely used. In the context of energy, it means the ability to supply our current needs without compromising the health, safety and environment of future generations.

The issue of energy and its global environmental, economic, and political ramifications is one of the most controversial issues facing our government today.

It is vital in a democracy for the citizens to be able to distinguish facts from verbal manipulation. How do we know what information we need to know in order to evaluate the information presented to us? Energy is a multi-faceted topic and requires clear criteria to evaluate the sources of energy such as solar, wind, fossil fuels, geothermal etc.

Below is a tool to use to compare energy sources.

Sources of Energy Analysis

What do we need to look at in order to evaluate an energy source?

• Is it used for electricity or transportation?
• What per cent of our power comes from this source today?
• Understand the processes involved – study the science.
• If the source is for electricity, will it steadily supply the base load or is it best for peak load? (Base load is the amount of electricity needed all the time in a steady supply. Peak load is energy that can come from intermittent sources during just the peak times of day when the most electricity is used – from about 4-9 p.m. )
• Resources required to supply the fuel on a continuous basis
  • Source (fossil fuels, biomass, wind, solar etc)
  • Availability of resource
  • Cost of resource
  • Procedures for producing resource
  • Our relationship with the nations providing the resource if a high percentage cannot be provided domestically
  • Current and future global competition for resource
  • Cost of transporting resource

• Cost of production - per KWH produced if for electricity
• Energy Production Facility

o Front end costs to build production facility

o Time required to build facility

o Are building materials domestic or foreign?

o Other resources required to process

o Ability to shut down and restart plant

o Maintenance – speed of equipment deterioration

o Personnel needed and training involved

o Cost to rebuild and how often this will be necessary.

• Transportation requirements – is the resource near the market and distribution facility?
• Environmental effects
  • Carbon footprint

o Effects on local environment and wildlife

o Pollution – Air, Noise, Water

• Safety factors – effects of a natural or man-made disaster
• Waste produced and storage necessary
• Precedence – historical perceptions
• Regulations – local, state, federal and international
• National security issues involved
• Changes on the horizon
  • Technology – research and development
• Criticisms

Gasoline prices keep falling, with the national average settling at $2.55 today, down four cents from yesterday.

Yesterday, I visited my local gas station and pre-paid my gas guy (he’s there every time I pay for gas) $25. My tank would only take $23.50, so I just decided to just tip the gas guy. It’s probably the first time he’s received tips in the last 16 months.

Yes, it took an economic crisis for gas to get this low. It took people exchanging their Hummers for hybrids. It took moms combining shopping errands into one trip instead of going out three times a day. It took daddies deciding to carpool with coworkers. But gas is once again low.

But how long will these lifestyle changes last? As long as it’s still somewhat taboo to drive a gas-guzzler, or until the next hip gas-guzzler is introduced?

Or are these low gas prices brought to you in part by the fact that the election is five days away? That’s another blog altogether…

Around the Oil and Gas Investor editorial crew yesterday, the topic of conversation was, “What will the next ‘trend’ word be?” Last year, the hot phrase was MLPs (Master Limited Partnerships). However, with the rising fame of shales, the popularity of MLPs died as quickly as Britney Spears’ popularity after her meltdown. But just like all recyclable pop stars, Britney is making a comeback, as is the fame of MLPs.

But with the changing markets, shales seem to be dying down as well. E&P companies are starting to draw back on shale production, and a couple weeks ago, it seemed that production in the Haynesville may have hit its peak. As my colleague Stephen Payne stated in his blog yesterday, natural gas prices are hanging just above $6 per MMBtu, the minimum threshold needed to keep unconventional gas plays like the Haynesville shale solvent. So the shale frenzy seems to finally be fading, just like the squealing over Brangelina’s twins is finally a distant yelp in our weary ears.

What will the next hot oil and gas word be? Even if shales decrease in popularity, will the new Eagle Ford shale that Petrohawk is working in march its way into the limelight? Will the natural gas market, which has swept its way into politics, be racing its way onto the cover of Oil and Gas Investor? Only 2009 will tell.

The stock market continues to ride the roller coaster downward, with U.S. markets down more than 1% in the first hour of trading today. Global markets are also down, with shares in Japan falling to their lowest level in 26 years. With bad news seemingly knocking at every door, it is easy to become overwhelmed with negative news.

Yesterday, I was taking a peaceful walk through a local university, enjoying the Sunday sunshine. A few folks in their 50s or 60s were sitting on some benches. Instead of having a calm, friendly dialogue that is appropriate for a Sunday afternoon, they were nervously discussing their stocks. I continued walking, wondering how my perspective of the changing markets would be different if I were a Baby Boomer.

Needless to say, we need to keep in good spirits. As I mentioned in an earlier blog, this kind of market is one that instills character! And when you’re having a really bad day, Getty Images has created an incredible “moodstream” that allows you to choose what mood you are in (or the mood you want to be in), and Getty Images will create a reel of photos and videos to enhance your mood, or to help create the mood you desire.

Just a little mood saver for your manic Monday!

Election Day: T minus 13 days.

And Palin mania is at its peak. Yes, the election comes just after Halloween. So you can guarantee that you will see plenty of Sarah Palin Halloween costumes — even for your dog.

And of course, every remarkable political figure needs an action figure.

What will they think of next?