Making Hay While The Sun Shines

In this case, the sun is the plummeting price of natural gas. Utilities are "making hay" buying up natural gas companies.

I have been opining for some time now that something is up in the natural gas business. I continue to see more stories validating my hunch that natural gas will be the bridge to a new energy framework for the United States. T. Boone Pickens and others have advocated for increased use of natural gas in the US but to date not much seems to have changed. But I think, off the radar scope, smart folks are buying up natural gas at bargain-basement sale prices.

In today's Boston Globe there is another report of utilities buying natural gas companies. Utility company UIL will buy three natural gas companies this year: Southern Connecticut Gas Co., Connecticut Natural Gas Corporation, and the Berkshire Gas Company. These companies serve customers in Massachusetts and  Connecticut.

[October 11, 2014: the Boston Globe link is broken; the story is available at Reuters.]

Cape Wind -- Another Boring Posting On Wind Energy: Skip It

Updates

December 2, 2017: dead, RIP. 

Original Post

Yes, this is a burr under my saddle. If you're not interested in wind energy ignore this article.

I've been following the wind energy story in Massachusetts. You can see original posts here and here.  As you read the note below, you may want to look at what "Wall Street" thinks of wind energy and the challenges it faces. In case that last link is broken, here are the three challenges wind energy faces:

• Price: up to three times higher than conventional sources
• States are ahead of federal and local mandates for alternative energy use
• Bottlenecks: lack of transmission lines

Quick summary: Wind Cape is a $1 billion off-shore wind farm in Nantucket Sound within view of Hyannis Port; it has been in the works for nine years. No turbines are yet in place. One regional utility, National Grid, has signed a 15-year contract for half the electricity produced by this wind farm at a cost significantly more than twice the rate for conventional electricity. The Massachusetts attorney general has now stepped in to see if this contract is in the best interest of the rate payer (obviously not). The wind farm is now courting another regional utility, NStar, who seems rather lukewarm about the offer. You think?

Update: Wind Cape officials have been close-mouthed on actual costs and likely rates of increase in the price of wind energy going forward, but in today's Boston Globe we have a few new data points:

• Wind Cape energy: 21 cents/KWH and will increase at 3.5% annually
• NStar electric rate, no wind energy:    9 cents/KWH
• NStar price will drop in July because of decline in oil price and huge natural gas supplies
• Massachusetts already pays some of the country's highest utility rates

Quotes:

NStar's chief executive: "he supports alternative energy, but is not counting on Cape Wind to meet state requirements that utilities buy a percentage of their power from renewable energy producers."

NStar's cheif executive, again: "Clean energy isn't cheaper energy."

President of Alliance to Protect Nantucket Sound: "We now know that Cape Wind energy will not be cost-effective for National Grid customers. It won't make economic sense for NStar customers either."

Executive Director of advocacy group supporting Cape Wind: "To talk about price per kilowatt hour in a vacuum is to miss the point."

Natural Gas BTUs vs Cape Wind BTUs
Comments:

This is the first time the consumer has seen how much wind energy will cost. Every other argument against this wind farm has been used, so to say "to talk about price in a vacuum is to miss the point" is incorrect. There  has been no vacuum; price is just the latest to enter the discussion.

One issue that has not entered the debate is the fact -- fact -- that the "science" behind man-made global warming has been debunked. As noted, global warming allowed the Vikings to populate Greenland, as noted by no better source than the National Geographic.    

My hunch (note -- my hunches are usually wrong): NStar will out-wait Wind Cape. If, and it's a big if, government mandates remain in place for alternative energy use by utilities, NStar will go with nuclear, about the same price as coal; much less than wind energy. National Grid will be left holding the bag. Assuming of course Cape Wind comes on-line. To date, there are no turbines off the coast of Massachusetts. If the attorney general of Massachusetts says it is not in the economic best interest of ratepayers to pay three times the going rate for conventional electricity, it puts the whole project in question. Again, the US is "swimming" in natural gas for as long as one can see, and nuclear energy remains a very viable alternative.

UPDATES

September 12, 2017: silly rabbit, I thought this project was dead. 

March 30, 2016: regulators appear ready to deny Cape Wind developers permission to lay a transmission cable. 

November 10, 2015: Danish company promotes a much bigger wind farm farther off-shore of Martha's Vineyard, BAY STATE WIND. Data points:

• 100 turbines
• 1,000 MW
• 15 miles south of Martha's Vineyard
• several other wind energy firms also active in same area

September 30, 2015: as of May, 2015, Cape Wind was dead. But that doesn't mean supporters won't quit. Cape Wind supporters have no customers (both customers dropped out when Cape Wind did not meet deadlines) but they have asked for more time. Inquisitr is reporting:

To imagine that building a huge area between Cape Cod and Nantucket with 130 wind turbines more than 400 feet tall that would look like an airport off shore at night time, with all the lights on them, to generate electricity that would cost three times market rate, and that such a project would be supported, does indeed take a lot of hubris. Other than the few who would financially benefit from this offshore Solyndra, its failure is great news for the rest of us, say critics of the Cape Wind project. 

What were the rates that Cape Wind was going to charge?

The rate the two Massachusetts utilities were going to pay for the electricity generated by Cape Wind would have started at 18.7 cents per kilowatt-hour, and would have increased 3.5 cents each year for 15 years, the Institute for Energy Research reported early this year in its analysis of the electricity purchase agreement between Cape Wind and National Grid and Nstar. The report stated the average cost of electricity in the U.S. is about 10.08 cents per kilowatt hour in 2013. At the end of those 15 years under the agreement, Cape Wind would be selling that electricity to the two Massachusetts utilities for 31.19 cents per kilowatt-hour after 15 straight annual increases of 3.5 percent.

This was clearly electricity that was well above the market rate.

January 22, 2014: not exactly a feel-good story coming out of Cape Wind. The Washington Post is reporting that European companies are getting the contracts to provide the steel. I'm not exactly sure what Americans are getting out of this. I know President Obama would not know, though his speechwriters will tell us all the jobs wind energy will bring.


April 5, 2013: Outgoing SecInterior Ken Salazar says Cape Wind likely to "break ground" this year. Cape Wind has "sold" 75% of its electricity (I believe contracts say it has to break ground by end of this year, or the deals are off). The government, like the US Naval bases will buy the last 25% if necessary to get this project off the ground.


May 15, 2012: a huge underwater power line from the off-shore turbines has cleared a regulatory hurdle (yesterday) but is still years away from construction. 

[No link: print edition WSJ, this date, p. A6.] Google and other investors have pledged up to $5 billion for a network of transmission lines. The regulatory hurdle: "The Interior Department said no competitor had proposed a similar project, allowing Atlantic Wind Connection to move forward knowing it is likely to secure a federal right of way. Construction could begin by 2014. 

October 4, 2011: Cape Wind developers want regulators to require new NStar / Northeast merged company to purchase 50 percent of power generated by Cape Wind .

May 15, 2011: So much for that Federal permit. The Feds pull their loan guarantee.


April 19, 2011: Cape Wind gets Federal permit, but still numerous obstacles, least of which is financing. It has only taken ten (10) years. I wonder when venture capitalists start getting a return on their investment?

April 11, 2011: The Cape Wind project might begin construction this year. Developers are looking for financial backers; they are looking for $500 million to get started. A reminder: National Grid will pay an initial price of 18.7 cents a kilowatt hour in 2013--roughly double market prices--which would rise by 3.5% a year over the remaining life of the contract. Expect to see a rate increase request by National Grid.

November 23, 2010: Cape Wind passes last big hurdle -- National Grid can purchase output. For a typical $76 residential electricity bill, $1.26 will go to pay Cape Wind for its energy, if all turbines are built. The cost will rise 3.5% each year. I honestly don't see how Cape Wind can make it financially. Seems like a lot of effort for little return. Remember: all wind energy estimates have been on the high side (exaggerated).

July 29, 2010: The court denied Alliance's request for a three-week delay to review recently released information. The court noted that Alliance waited one week to make the request after the information was released; since then another week has gone by, and before you know it, another three weeks as passed anyway.

July 21, 2010: Cape Wind foes want to delay the project once again. Remember, this project had cleared all hurdles a few weeks ago and looked ready to commence construction after nine years of study and delay. A recent stumbling block was whether or not to release pricing information. The judge has since ruled that pricing information must be kept confidential for three years (competition issues; standard business practice), but the National Grid did release that pricing information to the Alliance to Protect Nantucket Sound after signing a nondisclosure agreement. Now the Alliance say they need another three weeks to review the data. And so it goes. My hunch: we're never gonna see turbines off Teddy Kennedy's (RIP) back porch.

American Energy Update

Of the first four American Energy (AEZ) wells of high interest, three have now been reported, and all have been very good wells.

The Summerfield 15-15H is in Bear Creek, not a particularly well known field but in a fairly active area. The Little Knife and Rattlesnake Point oil fields are in the area. The Rattlesnake Point oil field recently caught my interest with announcement of a CLR Eco-Pad there as well as another CLR Eco-Pad in the immediate area (Jim Creek oil field). The Summerfield is a short lateral and was fracture stimulated with 14 stages. AEZ owns an approximate 33% working interest in this well.

Ron Viall 1-25H is a wildcat that was clearly in an undeveloped area and was a very nice well, at least based on initial results. Time will tell how good the well really was. But if it turns out to be a good well, we have more evidence that there are still "new" places to go for oil in the Williston Basin. The Ron Viall had a similarly high flowback rate and averaged 1,748 bopd in its first seven production days.

Tong Trust 1-20H is in the Ray oil field.  The town of Ray is near the epicenter of the oil success in the Williston Basin, but it is a small oil field and hasn't been particularly active.

Taken as a whole, it certainly appears that AEZ has staked out some new areas and has been very successful, at least based on initial results.

Again, AEZ tends to report 24-hour flowback rates which are significantly higher than the 30-day average. I assume the 30-day average will be closer to 800 and then further decline over the next 60 days where daily production will start to plateau at 500 barrels/day if they are to remain "good" wells.

Now #1 in Growth

North Dakota is #1 in growth among the 50 states over the past ten years.

#1 in several grains, #1 in honey production, #1 in nuclear arsenal, #1 in economic growth.