Case Study – Kings Village
Natural gas prices rose by 59% in 2016 compared with 2015. That was the highest increase since 2005.
The highest price of 2016 was $3.99 per MMBTu (Million British Thermal Units) on December 28th, 243% higher than the lowest prices of 2016 of $1.64 on March 3rd.
So what are the main drivers of such price increases in the gas markets?
First, is the weather forecast. In mid-January, an arctic blast is expected to hit northern and northwest and temperatures will be as low as they were in 2013-2014 (when gas prices skyrocketed). Around 50% of the US households use natural gas a source for heating. Cold weather drives the demand up which will lead to price increases.
Secondly, is the level of gas inventories. The level of inventories fell from the 5-year average due to high demand (caused by cold weather). In December of 2015, the inventories fell by 58 Bcf (billion cubic feet) while in the last week of December 2016, it fell by 209 Bcf (almost 400% higher). The 5-year average was 80 Bcf.
Thirdly, is the natural gas production. In 2016, the US gas production fell for the first time in 10 years. The President Elect, Donald Trump, has promised to reduce regulatory restrictions on the exploration and production of natural gas and oil. These actions will increase the level of natural gas supply and pressure the prices to go down.
In the third week of December 2016, the gas consumption rose by 25% compared with the same period in 2015. The EIA (U.S. Energy Information Administration) estimates that US natural gas prices could average $3.27 per MMBtu in 2017. It averaged $2.49 per MMBtu in 2016 and $2.63 per MMBtu in 2015.
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BUCHANAN, N.Y. — Every so often, catastrophes prompt fresh worries about the Indian Point nuclear power plant, whose twin domes loom over the Hudson River about 45 miles north of Midtown Manhattan.
In 2001, the terror attacks on Sept. 11 spurred calls to shut down the two reactors here, amid concern of a similar attack on the plant. Five years ago, the Fukushima nuclear accident in Japan raised fears about the impact of a natural disaster on Indian Point.
Now, a construction project — the planned expansion of a natural gas pipeline across Indian Point property — is again putting the power plant in a harsh glare. Elected officials, residents and environmental activists have criticized the project, saying that a rupture of the pipeline could unleash a nuclear catastrophe.
Federal regulators have already approved the pipeline expansion, and Spectra Energy, the company overseeing the pipeline project, has begun construction along parts of its 1,000-mile line running through New York, Connecticut, Rhode Island and Massachusetts. In Westchester County, work has begun on the pipeline, including at the 240-acre Indian Point site, where Spectra plans to replace its existing 26-inch wide pipeline with one measuring 42 inches wide.
In recent months, Senators Chuck Schumer and Kirsten E. Gillibrand, both New York Democrats, as well as other federal, state and local officials, have demanded an independent safety evaluation of the risks posed by the pipeline expansion at Indian Point. The project’s approval by the Federal Energy Regulatory Commission was based in part on an analysis conducted by Etnergy Corporation, which owns the power plant, and the Nuclear Regulatory Commission, which determined that the plant could continue to operate safely in the event of a rupture or could be temporarily shut down.
On Monday, the state plans to notify the Federal Energy Regulatory Commission that it will take a hard look at the project in light of a series of problems at the nuclear plant since last May. In addition, the state will ask federal regulators to suspend their approval of the project — effectively halting construction — until the study is completed.
“I am directing my administration to commence an immediate independent safety analysis of the natural gas pipeline project,” Gov. Andrew M. Cuomo, a Democrat, said. “The safety of New Yorkers is the first responsibility of state government when making any decision.”
So far, federal agencies have declined to conduct independent assessments of their own. Neil Sheehan, a spokesman for the Nuclear Regulatory Commission, said a specialist within the agency had looked carefully at hypothetical accidents. “Our expert confirmed that both units could safely shut down, even if the pipeline were to rupture and a blast of flame were to come from that line,” he said.
But the Union of Concerned Scientists, an advocacy group, has asked Stephen G. Burns, the regulatory commission’s chairman, to evaluate the methodology used by its own staff. “It is not sufficient to have the right answers until all the right questions have been asked,” David A. Lochbaum, director of the group’s Nuclear Safety Project, wrote in a letter in August. Mr. Burns declined the organization’s request.
Officials from both Spectra Energy and Entergy, which will receive a one-time payment for use of the right of way on its land, say that the new pipeline will be located several hundred feet farther away from the nuclear reactors than the smaller, existing pipeline. Jerry Nappi, a spokesman for Entergy, said the new pipeline would cross the southeast corner of its property, about 1,200 feet from the Unit 3 reactor.
In addition, he said, the larger pipeline would be buried deeper than the existing one and would be covered by thick concrete slabs.
Environmental activists from New York City and Westchester County are not mollified by those precautions. Since Spectra was given the go-ahead to proceed with construction, they have gathered 30,000 signatures on a petition demanding that Mr. Cuomo stop the project and study the risks.
Mr. Cuomo has been vociferous in his demand that federal regulators not relicense Indian Point. (The reactors’ licenses expired in 2013 and 2015, and the Nuclear Regulatory Commission is now considering their renewal.) But until now, Mr. Cuomo has been largely silent about the pipeline.
Spectra, based in Texas, is expanding sections of its so-called Algonquin Pipeline in several states to increase delivery of natural gas to meet what the company says is growing demand in New England. Besides safety concerns, critics of the pipeline also say that enhancing the delivery of fossil fuels like natural gas will hurt efforts to counter climate change.
The Massachusetts attorney general, Maura Healey, last fall released an energy report of the region. “This study demonstrates that we do not need increased gas capacity to meet electric reliability needs and that electric ratepayers shouldn’t foot the bill for additional pipelines,” she said, adding that increasing energy efficiency would “significantly reduce greenhouse gas emissions.”
Problems have bedeviled Indian Point for years, sometimes leading to the temporary shutdown of its reactors. In May, a transformer fire knocked out one of the reactors and spewed oil and fire-retardant foam into the Hudson. This month, Entergy revealed that radioactive water was found in three of 40 monitoring wells on site, the result of contamination from tritium, a radioactive isotope.
In recent months, activists have turned up the intensity of their protests against the pipeline expansion. Members of faith organizations and environmental groups held a vigil on Saturday outside the house in Mount Kisco, N.Y., that Mr. Cuomo shares with his girlfriend, Sandra Lee. Their home is less than 10 miles from Indian Point.
Activists have also held rallies and engaged in acts of civil disobedience. In November, nine people joined hands and blocked a road near a site where some of Spectra Energy’s construction equipment and vehicles were stored in Montrose, a hamlet in the town of Cortlandt, not far from Indian Point.
The activists were arrested and charged with disorderly conduct. The defendants, who call themselves the Montrose Nine, are awaiting trial. “They felt it was their obligation to stop the construction of what they believe is an extraordinarily dangerous venture,” Martin R. Stolar, their lawyer, said.
A group called ResistAIM, which stands for the Algonquin Incremental Market project, as Spectra calls the expansion, has organized periodic workshops on the ABC’s of civil disobedience.
“We organize nonviolent direct action to stop the AIM pipeline from being built,” its website says. “We do this because it is clear that we have no other alternative — we have tried everything to get the attention of elected officials and to use regulatory channels, and Spectra is building the pipeline anyway.”
Patrick Robbins, co-director of Sane Energy Project, which advocates renewable energy, also works with ResistAIM. He contends that continued resistance to the pipeline project, despite the fact that it has the needed approvals, was not fruitless. Indeed, he and others are focused on the larger war against fossil fuels, more than any one battle.
“Every day you stop construction, it hurts their timetable,” he said, referring to Spectra Energy. “And it sends a message to other companies, investors and political officials that the landscape has changed on building these pipelines, and that it’s not going to be an easy fight for them.”
The oil industry, with its history of booms and busts, is in its deepest downturn since the 1990s, if not earlier.
Earnings are down for companies that made record profits in recent years, leading them to decommission more than two-thirds of their rigs and sharply cut investment in exploration and production. Scores of companies have gone bankrupt and an estimated 250,000 oil workers have lost their jobs.
The cause is the plunging price of a barrel of oil, which has fallen more than 70 percent since June 2014.
Prices recovered a few times last year, but a barrel of oil has already sunk this year to its lowest level since 2004. Executives think it will be years before oil returns to $90 or $100 a barrel, a price that was pretty much the norm over the last decade.
What is the current price of oil?
Brent crude, the main international benchmark, was trading at around $34 a barrel on Thursday.
The American benchmark was at around $32 a barrel.
Why has the price of oil been dropping so fast? Why now?
This a complicated question, but it boils down to the simple economics of supply and demand.
United States domestic production has nearly doubled over the last several years, pushing out oil imports that need to find another home. Saudi, Nigerian and Algerian oil that once was sold in the United States is suddenly competing for Asian markets, and the producers are forced to drop prices. Canadian and Iraqi oil production and exports are rising year after year. Even the Russians, with all their economic problems, manage to keep pumping.
There are signs, however, that production is falling because of the drop in exploration investments. Wood MacKenzie, a consulting firm, identified 68 large oil and natural gas projects worldwide, with a combined value of $380 billion, that have been put on hold around the world since prices started coming down, halting the production of 2.9 million barrels a day.
Meanwhile, RBC Capital Markets has calculated projects capable of producing more than a half million barrels a day of oil were cancelled, delayed or shelved by OPEC countries alone last year, and this year promises more of the same.
But the drop in production is not happening fast enough, especially with output from deep waters off the Gulf of Mexico and Canada continuing to build as new projects come online.
On the demand side, the economies of Europe and developing countries are weak and vehicles are becoming more energy-efficient. So demand for fuel is lagging a bit.
Who benefits from the price drop?
Any motorist can tell you that gasoline prices have dropped. Diesel, heating oil and natural gas prices have also fallen sharply.
The latest drop in energy prices — regular gas nationally now averages around $1.82 a gallon, roughly down about 25 cents from the same time a year ago — is also disproportionately helping lower-income groups, because fuel costs eat up a larger share of their more limited earnings.
Households that use heating oil to warm their homes are also seeing savings.
For starters, oil-producing countries and states. Venezuela, Nigeria, Ecuador, Brazil and Russia are just a few petrostates that are suffering economic and perhaps even political turbulence.
The impact of Western sanctions caused Iranian production to drop by about one million barrels a day in recent years and blocked Iran from importing the latest Western oil field technology and equipment. With sanctions now being lifted, the Iranian oil industry is expected to open the taps on production soon.
In the United States, Alaska, North Dakota, Texas, Oklahoma and Louisiana are facing economic challenges.
Chevron, Royal Dutch Shell and BP have all announced cuts to their payrolls to save cash, and they are in far better shape than many smaller independent oil and gas producers that are slashing dividends and selling assets as they report net losses. Other companies have slashed their dividends.
What happened to OPEC?
A central factor in the sharp price drops, analysts say, is the continuing unwillingness of OPEC, a cartel of oil producers, to intervene to stabilize markets that are widely viewed as oversupplied.
Iran, Venezuela, Ecuador and Algeria have been pressing the cartel to cut production to firm up prices, but Saudi Arabia, the United Arab Emirates and other gulf allies are refusing to do so. At the same time, Iraq is actually pumping more, and Iran is expected to become a major exporter again.
Saudi officials have said that if they cut production and prices go up, they will lose market share and merely benefit their competitors. They say they are willing to see oil prices go much lower, but some oil analysts think they are merely bluffing.
If prices remain low for another year or longer, the newly crowned King Salman may find it difficult to persuade other OPEC members to keep steady against the financial strains. The International Monetary Fund estimates that the revenues of Saudi Arabia and its Persian Gulf allies will slip by $300 billion this year.
Is there a conspiracy to bring the price of oil down?
There are a number of conspiracy theories floating around. Even some oil executives are quietly noting that the Saudis want to hurt Russia and Iran, and so does the United States — motivation enough for the two oil-producing nations to force down prices. Dropping oil prices in the 1980s did help bring down the Soviet Union, after all.
But there is no evidence to support the conspiracy theories, and Saudi Arabia and the United States rarely coordinate smoothly. And the Obama administration is hardly in a position to coordinate the drilling of hundreds of oil companies seeking profits and answering to their shareholders.
When are oil prices likely to recover?
Not anytime soon. Oil production is not declining fast enough in the United States and other countries, though that could begin to change this year. But there are signs that supply and demand — and price — could recover some balance by the end of 2016.
Demand for fuels is recovering in some countries, and that could help crude prices recover in the next year or two. There is now little or no spare production capacity to give the market a cushion in case of another crisis in a crucial oil-producing country.
Article Source: http://www.nytimes.com/interactive/2016/business/energy-environment/oil-prices.html?smid=pl-share
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