Maine Owl

Lock in was a bad deal:

Buyer’s Remorse Chills New Englanders Who Locked in Oil Prices
By Tom Moroney and Brian K. Sullivan - Nov. 26 (Bloomberg)

Buyer's remorse is afflicting tens of thousands of customers in New England, where heating oil is used more than in any other U.S. region. Their eagerness to nail down a guaranteed rate backfired when oil prices fell.

"There was a belief that heating oil could rise to $6 or $7 a gallon," based partly on predictions by Goldman Sachs Group Inc. and billionaire oilman T. Boone Pickens, said Matt Cota, executive director of the 120-member Vermont Fuel Dealers Association in Montpelier.

"Some dealers had lines out the door," Cota said. "People were coming in with their checkbooks to sign contracts. There was a palpable panic in the cold-weather states."

The term "suckered" is used by people who lost this bet.

Along about June, time comes to decide about oil price lock in. Yes, we heat the Maine Owl residence with no. 2 fuel oil. This year caused a bit of a panic because the price had skyrocketed to about $4.70/gal by June. In April we had filled at the astonishing price of $4.05/gal, causing a surprise $600 budget shortfall. Should we now lock in $4.80 in anticipation of $6 or $7 prices by heating season?

My strategy was not to lock. I told the oil dealer to stop automatic fills and that I would be buying oil on the open market from the cheapest dealer at the cash price when I choose to fill. This was precisely the right call this year. Coupled with strong conservation measures, I'm now forecasting that we will end up buying about 575 gallons at $2.50 or less per gallon. The bill for this year will be more like $1400, rather than the $3000 it might have been under a lock.

Since 2003, I've made this call six times and only locked once for 2005-6. That was a good call, saving about $300. Last year, I did not lock and that was the wrong call. That $600 could have been saved. Other years I have not analyzed but my sense is locking would have been a wash to costing slightly more.

I'd like to say I foresaw the early-fall financial crash. But this is not the case. It was more a sense that with all the fuel switching going on in the spring and summer, demand would be suppressed, and it would be hard for prices to maintain. My break point was like $4, at or below which I probably would have locked. When the crash came, the floor on the oil price was pulled out and lock in became moot.

Crazy weeks. More frequent posts will resume soon. Meanwhile, please read about the IEA 2008 World Energy Outlook HERE, HERE, and HERE.

Also, Maine has entered state budget meltdown mode while a worldwide "uproar" has ensued over a local wingnut's Obama assassination pool.

Talk amongst yourselves, all zeroone of you...

On Saturday, I looked at a nice pellet stove at the Broadway Hardware store in Bangor, 50,000 btu/hr, $1700. Can I have that delivered with 3 tons of pellets? No, the guy has no pellets.

Here's a story from the Bangor Daily News today:

Wood pellet supply fails to meet demand
Sellers tell consumers: No reason to panic
By Eric Russell - BDN Staff

Wood pellet manufacturers and suppliers in Maine are urging consumers to be patient and let supply catch up to demand as the winter heating season approaches.

In the last several weeks, a number of pellet fuel distributors in Greater Bangor have been running out of pellets within a day or two of shipments. Many have been simply catching up on pre-sale orders that were made earlier this summer from customers looking to buy in bulk.

This stockpiling of pellets — heating fuel made from wood waste and sawdust that is pressurized into compact pieces — has created a unique bubble in the market, pellet experts said.

"The analogy I've been using is that if everybody who uses oil had [an empty 275-gallon oil tank] and wanted to take their entire full supply in July, there wouldn't be any oil left either," said George Soffron, CEO of Corinth Wood Pellets LLC, the state’s largest pellet manufacturer. "People need to hang on."

No evidence is offered in the article about total seasonal supply-demand balance so that we could evaluate if there really will be enough pellets this season. However, I am confident there will be plenty of $4 oil.

"Predator-prey dynamics"

I've been wanting to study the demand/production vs. price curves in recent behavior of the oil markets. It's just too big a project for me to even think about. Today there is a great contribution in this area posted at The Oil Drum:

Predator-Prey Dynamics in Demand Destruction and Oil Prices
Posted by jeffvail on August 26, 2008 - 11:01am

One of the classic ecological modeling problems is the oscillating populations of predators and their prey in an ecosystem--as prey population rises, predator population follows suit until prey population begins to fall off, resulting in a subsequent drop in predator population (illustrated below). The same dynamic also applies, to some degree, to the relationship between oil price (prey) and marginal production/demand destruction/energy policy (predator). This post will explore that relationship and its ability to help us avoid poor energy policy choices.

In our current tight supply situation, because of inability of world production to continue to grow without limit in support of economic growth, the price will try to scale a vertical wall. When demand pulls back a little in response, the price can fall back rather quickly. That is exactly the condition we have now. (Harry Shearer had a good item on the demand pull-back a couple of weeks ago, HERE.)

I'll try to examine this dynamic in more detail in subsequent posts. Meanwhile, no one should relax because we have a temporary climb-down of the gas price.

Wind turbine on the move


Major operation: turning off of I-35

We have been seeing these massive trailer rigs that are used to carry huge wind machines up and down I-35 in Minnesota. We got caught behind one here, trying to make a turn from I-35 onto MN 95 in North Branch.

Raise more questions than answers

First I should tell you that the thought of winter scares me to death this year. Our little house uses 650 gallons of heating oil even with the significant conservation measures we took last year. I considered purchasing a wood pellet stove a few weeks ago, but decided against it when it appeared that both the equipment and pellet supply had evaporated due to a mad rush from people in the same fix.

Today the BDN ran three interesting pieces on wood pellets. One contained news of an oil-dealer-sponsored study concluding that wood pellets are "more polluting" than oil heating systems. (I guess the wood pellets have frightened our friendly oil dealers.)

I'll set the pollution issue aside for now, and just give a couple of thoughts about the story headlined "Don't panic: Popular pellets plentiful." This is an interesting headline, because just about every quote in the actual story suggests exactly the opposite:

• In the short term, the demand for pellets is like a gold rush
• we could sell more pellets than we are making
• people are panicking and hoarding both stoves and pellets
• people are unnecessarily buying enough pellets for two to three years
• The retailers are panicked and are overbuying
• We can’t even begin to scratch the surface of the demand
• Firms in the United Kingdom are already sourcing wood pellets in Maine
• homeowners are unable to obtain pellet stoves because manufacturers did not increase production fast enough
• Bell said his company sells only to retailers and "we are very, very busy. We aren’t taking on any new customers."

If you have a pellet stove and you don't have pellets, maybe you should think about panicking?

I would only consider putting in a pellet unit if I could at the same time stockpile about 5 tons, enough for perhaps a bit more than a year.

UPDATE (Fri., noon): Please post your wood pellet reports below in comments. One very interesting item on supply experience is already there. ...

Bangor Hydro completely down for three hours

Imagine my surprise at about 7:50 am when the power winked off. As far as I can remember, we haven't had a significant outage for 18 months. I come to find out this one was a doozy:

Power Restored To Most Of Bangor Area
Strong Storms Knocked Power Out

POSTED: 10:56 am EDT July 24, 2008
UPDATED: 11:13 am EDT July 24, 2008

BANGOR, Maine -- Power is restored to most of Bangor Hydro-Electric's service area after eastern Maine was left in the dark Thursday morning due to a suspected lightning strike as strong thunderstorms rumbled across the state.

More severe thunderstorms were predicted for later in the day in much of Maine.

More than 118,000 customers lost their electricity shortly before 8 a.m., but Bangor Hydro spokeswoman Susan Faloon said the total was trimmed to just under 1,300 in scattered areas within two hours. ...

What I want to know is how storm effects caused such a widespread outage. This recalls the August 14, 2003 East Coast blackout: a relatively small storm effect cascades through an entire grid.

People should understand that our energy systems are more fragile than they appear to be.

Gore


He's right. "The future of human civilization is at stake." We must think big on energy.

I wrote this in a private list a few days ago:

The Owl: The oil price is inflating at a 100% rate. That can't go on for long before a lot of people really start getting hurt. It's a F---ING EMERGENCY! Big, bold, massive solutions are needed, both short and long term.

FOR GOD SAKE, the DEMOCRATS just passed $165 billion for war. How much do you think it would take to give 4 kilowatts of photovoltaics to every household in America? $3 trillion. You could probably do that with plenty of extra money left to jumpstart a plug-in hybrid industry. In 20 years the transport fleet could run 40-60% on solar energy and only need a gallon of gas for every 200 vehicle-miles. Sounds expensive, but that's the overall cost of just Iraq and they're doing that.

The Democrats still aren't thinking big enough. But that might change.

I hope so, but I remain skeptical despite some signs that Obama may be starting to "get it." I cited THIS recent swing state ad attacking the Republican drilling bromide, released by the Obama campaign ten days ago.

My problem with Obama is stuff like these quotes from his energy issue page:

Foreign Oil: America's 20-million-barrel-a-day oil habit costs our economy $1.4 billion a day, and $500 billion in 2006 alone. Every single hour, we spend $41 million on foreign oil. ...

[Obama would] Invest in a Clean Energy Future
Invest $150 Billion over 10 Years in Clean Energy: Obama will invest $150 billion over 10 years to advance the next generation of biofuels and fuel infrastructure, accelerate the commercialization of plug-in hybrids, promote development of commercial-scale renewable energy, invest in low-emissions coal plants, and begin the transition to a new digital electricity grid. A principal focus of this fund will be devoted to ensuring that technologies that are developed in the U.S. are rapidly commercialized in the U.S. and deployed around the globe. ...

Sounds good, eh? WELL LOOK AT THE NUMBERS! Obama is a PIKER! He correctly gives the scale of the current foreign oil bill (inflating at a 100% rate), then gives and absolutely puny number for alternatives investment in response, $15 billion per year, not even ten days of the nation's gasoline bill, now almost $2 billion per day.

Al Gore's figure, on the other hand, "$3 TRILLION", well, that's my idea too of the scale of investment needed. (Note- I'm extremely wary of "biofuels" and "low-emissions coal plants", but those critiques will be for other posts.)

So, thanks, Al Gore, for giving some profile to the "energy tsunami" that a recent letter from of "27 former Cabinet members, White House aides and lawmakers" called the situation. I hate to agree with any panel that had Henry Kissinger as a member. But I do have to. It IS that serious.

The coming winter

Maine Owl is always glad to hear from readers. Recently, this comment came in,

Could you do more on the local front like you said when you started The Owl? Maybe instead of so much national, more state/local area issues, Dirigo insurance stuff, energy issues (ie solar, wood, pellets), what the state (our elected officials) are doing or not doing to help the people of Maine for the coming winter.

Also, "more photos".

Thanks so much, reader, for these excellent suggestions. I especially like the note about asking how we are going to deal as a state with the coming winter. There is a paralyzing gloom sinking in already. We know that there will be an emergency.

Our local newspaper, the Bangor Daily News, has had a few stories concerning government response to the fuel crisis and other energy-related matters. From reading them, I'm not sure how hopeful I should be. Here are some of the links:

• July 10: Bangor eyes wood to heat school, BIA
• July 10: Governors urge expansion of home heating aid
• July 10: State approves Kibby wind farm project
• July 9: Misdirected Energy (Editorial)
• July 2 (related to above): Support builds for energy session
• July 8: Lincoln mill boss calls for energy plan
• July 8: Gas costs sap volunteer drivers
• July 5: Credits available for energy upgrades (Note: The lede is buried in this story, "We had to suspend our program for solar energy improvements," Bever said...)
• July 2: Katahdin mill switches to biomass
• June 28: A growing passion for pellets (Note: We've heard anecdotal evidence that wood pellet availability is now poor and prices will skyrocket. This story says there are long waits for stoves. This will be investigated in future posts.)

So, thanks reader. Local energy issues have always been a significant interest for me and your request for more coverage is appreciated.

Somebody read THIS and tell me what the overall point is:

Pat LaMarche: Beggars on the boulevard of oil dreams
By Pat LaMarche - Wednesday, June 04, 2008 - Bangor Daily News

We live in a black-and-white world. We’d like to believe that we have all these shades of gray; subtle nuances that lend shadow and light to our existence, but we don’t. For citizens of the United States, something’s right or wrong, in or out, with us or against us. And because of those black-and-white terms by which we live, we have folks killing in our name, dying in our war and begging on our behalf.

Certainly you heard about the begging. Our president went to Saudi Arabia to beseech the royal family to take pity on us and lower our fuel prices. The New York Times reported that President Bush asked King Abdullah to "consider the strain the high cost of oil was having on the American economy."

Funny he didn’t beg his buddies at Exxon Mobil to lighten our burden.

Why should Saudi Arabia lose money? ...

Is it "Saudi is bad, but we'd like more of their oil"?

Is it "Hemp is the savior"?

You might find a phrase or two in there that makes sense/is a good anti-war point. But I find many of the assertions lacking, like the one suggesting Saudi has roughly unlimited oil. She's talking out her ass. So, I find the overall effect pretty much incoherent.

Oil price inflation near 100% level, barrel price headed for $200





A few years ago I used to post more on oil and oil prices. That was a time just after the Iraq invasion when a barrel cost less than $50 and very few people understood or had ever heard of "peak oil."

Despite the recent shocking run-up, few truly understand it today. The misconception is that volume of oil in the ground is the proper measure of oil supply adequacy. Nope. If you hear that there is lots of oil still left in the ground, that is true. But it is the global rate oil is able to be withdrawn for use that has hit a brick ceiling of about 85 million barrels per day, give or take a million, three years running now.

Witness the pathetic groveling of President Bush at the feet of the Saudi dictators last week. It's an interesting story of utter failure (a "snub" in the story at this link), but this time perhaps not the immediate fault of President Bush. In fact, I think Bush may be doing the right thing in the interest of relieving the immediate crisis. Trust me, I'll be pulling for him if his actions relieve some the cost burden. But in the long run, he is pathetic. Oil resources Saudi or otherwise simply cannot be marshaled for limitless increase in production of American gasoline and heating oil.

The Saudis do possibly have some extra capacity, but you have to read the buried lead in this USA Today story to get the real picture, "Saudi leaders said that there was inadequate refining capacity worldwide to process Saudi crude oil, which is heavy and difficult to turn into gas."

So the rub is that while Saudi may have some extra oil, it's not the kind the world wants for making gasoline. The subtext here is that even the Saudis are at full capacity in production of the most desirable crude grades.

Meanwhile, Bush is very tentative in reporting to the American people about the oil situation, aiming his remarks at providing good PR for the Saudis to the U.S. Christian audience Saturday (May 17) in his radio address:

PRESIDENT BUSH: On Friday we visited another of America's friends in the Middle East -- Saudi Arabia. I had a series of productive meetings with King Abdullah at his farm. We celebrated the 75th anniversary of diplomatic relations between the United States and Saudi Arabia. We reaffirmed our shared objectives of peace in the Holy Land, a secure and united Iraq and a sovereign, independent Lebanon that is free of outside interference. We talked about oil production and gasoline prices. We discussed the King's efforts to diversify his nation's economy, and the importance of political reform. And I thanked him for Saudi Arabia's strong commitment to fighting terror.

It's almost as if he thinks we can't handle/don't want to hear the truth about oil depletion. A day later in Egypt, the president had a more provocative message for a gathering of diplomats, where he makes a clear statement that oil "is limited" and will lead to economic trouble:

PRESIDENT BUSH: This is also a time to prepare for the economic changes ahead. Rising price of oil has brought great wealth to some in this region, but the supply of oil is limited, and nations like mine are aggressively developing alternatives to oil. Over time, as the world becomes less dependent on oil, nations in the Middle East will have to build more diverse and more dynamic economies.

Everyone knows that the second Bush term is an incredible disaster. He has no credibility left and faces massive hostility even when he wants to deal in diplomatic reality and operate on a genuine problem-solving basis. His penchant for force and war and the resentment that causes dominates the scene. If Bush's wars are in fact oil wars, they will in the long run achieve exactly the opposite if the strategic goal was to secure the Middle East fields.

Hot topic: States and energy independence


Governor John Baldacci (D-ME): Savvy politics, good comments

In parts not in the clips above of the session at the National Governor's Association conference in Washington D.C. this weekend, New York Times columnist Thomas Friedman admits that the ratio of people who know anything about energy to those who talk about it is low, one to a million maybe. True. And Friedman has written a "green energy" tract for the Times magazine within the last year. On his hiatus from his column, I think he's working on a book on the subject? I missed the beginning of this so I did not catch the reasons the governors might have found Friedman worthy of the expert's seat.

But as "green" as Friedman positions himself, he turns out to be a "flat"-out promoter of coal and nuclear--reinforced by big-nuke-builder General Electric Corporation Chairman & CEO Jeffrey Immelt.

Friedman: (with big arm gesture and deadpan expression): Between now and when we get to that clean fuel future, ... there's only two ways to fill it in a cleaner way--that is, some kind of cleaner coal, and nuclear. At scale, I don't see any other way.

It's not that Friedman's points are all wet, it's just that the creativity of his thinking is very limited. He is clearly correct that direct-conversion solar energy does not presently supply much of the input to the world energy grids. But why is the only solution a crash course into getting new nukes up, as Immelt obviously dearly would like to see?

And what of "clean" coal? I thought our governor, John Baldacci, took the right tack.

Governor Baldacci: It's just that for the life of me, this industry, in nuclear, and in coal, and I have supported clean-coal technologies, have had opportunities to come forward with next-generation products. And sometimes it gets very frustrating because we've been left at the gate, and there's so many other opportunities. ...

But I just think there's so many opportunities, ... we've been held at the gate too long by the older technologies.

Thank you, Governor Baldacci. Now the governors need to be talking to a truly creative thinker with plenty of technical punch, Arjun Makhijani, Founder and President of the Institute for Energy and Environmental Research in Tacoma Park, Maryland. His book on a "Carbon-free, nuclear-free" roadmap is HERE. And I have a very good podcast up HERE, where Dr. Makhijani disembowels the case for nuclear power.

With creative thinkers who really know energy like Arjun Makhijani around, why should the governors bother with Friedman?

In ABC News interview with Terry Moran, Bush almost desperate for Saudi help


A Daily Show, January 17, 2008

The part of this Daily Show piece that shows President Bush's plaintive wail for more oil from the Saudi king in a media interview is about 2 1/4 minutes in. America apparently is great at spreading weapons and violence, but its Achilles heel is evident in the president's voice.

But you know what? I'm going to give Bush credit here for actually caring about the very serious issue of high oil prices that land mostly on top of the heads of the poor. Unfortunately, it's a bit pathetic and it's not very likely the Saudis could help much if they wanted to.

See this post yesterday for Bush's "stunning admission" on peak oil.

Saudis are tapped? "Stunning admission" from president

For some years we've been use to hearing a news story that says (roughly) that there is demand pressure/rising price in the oil markets and the Saudis can swing into play and just open the valves wider to pump more oil. That story may be over, and the president has suggested just that.

Because he seems genuinely to understand that high oil prices are hurting the domestic economy, President Bush in the Middle East this week asked for more oil:

Saudis and other exporters using more of their own oil


Year-on-year change in world oil exports, which clearly have peaked ("World Oil Exports: A Comprehensive Projection", The Oil Drum, October 10, 2006)

With oil breaching $100 the last couple of days, it is a good time to analyze a key trend that soon will affect major oil importing countries like the USA in a big, big way. This trend is the falling net quantity of world oil available for export. Just as an example from this key October 2006 post at The Oil Drum, Mexico will no longer export oil after 2015. Mexico! That country currently supplies a significant chunk of US imports.

More recently, a page-one story appeared in the Wall Street Journal for December 12, 2007 that explained what the Saudis have...

"in the works are new seaports, an extended railroad system, a series of new industrial cities and a score of refineries, power stations and smelters." All of that building means that more oil will stay inside the Arab nation. For every 100 barrels of oil produced by Saudi Arabia, 22 are used there. That is up from 16 barrels just seven years ago.

Another story in the International Herald Tribune elaborates:

Oil-rich nations use more energy, cutting exports
By Clifford Krauss - Published: December 8, 2007

The economies of many big oil-exporting countries are growing so fast that their need for energy within their borders is crimping how much they can sell abroad, adding new strains to the global oil market.

Experts say the sharp growth, if it continues, means several of the world's most important suppliers may need to start importing oil within a decade to power all the new cars, houses and businesses they are buying and creating with their oil wealth.

Indonesia has already made this flip. By some projections, the same thing could happen within five years to Mexico, the No. 2 source of foreign oil for the United States, and soon after that to Iran, the world's fourth-largest exporter. In some cases, the governments of these countries subsidize gasoline heavily for their citizens, selling it for as little as 7 cents a gallon, a practice that industry experts say fosters wasteful habits.

"It is a very serious threat that a lot of major exporters that we count on today for international oil supply are no longer going to be net exporters any more in 5 to 10 years," said Amy Myers Jaffe, an oil analyst at Rice University.

Rising internal demand may offset 40 percent of the increase in Saudi oil production between now and 2010, while more than half the projected decline in Iranian exports will be caused by internal consumption, said a recent report by CIBC World Markets.

There is no issue I can imagine that impacts American security more than this situation. America at once consumes oil with an intensity three times that of any other country, yet it is highly dependent on resources that must be brought in from outside. Meanwhile, those countries that supply the oil desire to keep more of it for themselves for their own development.

Individual states are in an even more dangerous situation. Maine, for example, has zero oil resources yet has a high per capita rate of consumption.