Sometimes statistics lie and liars use statistics, yet when it comes to the shale gas revolution the numbers are saying that the energy world has changed forever. Numbers released yesterday by the Energy Information Administration speak volumes and they tell a story of an industry that has achieved what many said was impossible. They tell a story of the free market place, where high prices and the pursuit of profits inspired men to think outside of the box and solve the impossible. Instead of talking about “peak oil” or being held hostage to foreign oil producers, we are now trying to decide the best way to handle our energy abundance.
In the past I used to say that peak oil believers and their theories were more like a religion than a science because if you look at the history of the energy markets there has always been innovation when prices got high enough. If you would have predicted numbers like the Energy Information Agency predicted yesterday the “peak freaks” as I called them would say that it was impossible. Yet the impossible is happening now. Just think that according to the EIA US crude oil production is going to increase by a whopping 25% in the next two years. On the other hand the EIA is predicting that US oil imports are going to drop to the lowest level in 25 years. This is a far cry from the doomsday predictions we were hearing during the last decade. Instead of declining production, US production is on the rise and is expected to hit 7.9 million barrels a day by 2014.
That rise in production means that US dependency on foreign oil will decline by as much. US net imports of liquid fuels which include crude oil and petroleum products will fall by 6 million barrels per day in 2014, which is the lowest level since 1987. That is almost half of the 12 million barrels per day plus we were importing just before the economic crisis. These types of numbers project a positive bright spot for our economy going forward and the promise of prosperity in the years to come.
The Energy Information Administration gave us some great news on natural gas reporting that natural gas spot price fell 31% last year. This drop in natural gas price may be a major reason why our economy has been performing better than many expected. The EIA reported that average wholesale prices for natural gas fell significantly throughout the United States in 2012 compared to 2011. The average wholesale price for natural gas at Henry Hub in Erath, Louisiana, a key benchmark location for pricing throughout the United States, fell from an average $4.02 per million British thermal units (MMBtu) in 2011, to $2.77 per MMBtu in 2012. This was the lowest average annual price at Henry Hub since 1999. Of course today the markets focus will be on the reports. Buckle up!
The American Petroleum Institute reported whopping builds in products and not as much as I expected in crude. The API reported crude stocks up by 2.4 MLN BBLS. The surge came in gasoline where we saw a 7.9 Million barrels and distillate stocks 5.9 Million barrels. In Cushing, Oklahoma, the oil delivery point, stocks rose by 332,000 barrels. Refinery runs dropped weekly crude imports up 1.2 million barrels. Heating oil stocks UP 537,000 Barrels to27.16 million barrels per day.
Bloomberg News reported that last year was the warmest on records going back to 1895 for the 48 contiguous U.S. states and the second-worst for weather extremes including drought, hurricanes and wildfires, according to a U.S. report. The average temperature in the region in 2012 was 55.3 degrees Fahrenheit (12.9 Celsius), 3.2 degrees higher than the average for the 20th century, the National Oceanic and Atmospheric Administration’s Climatic Data Center said today in an analysis of the year. According to the U.S. Climate Extremes Index, which takes into account temperatures as well as tropical storms and drought, 2012 followed 1998 into the record books for extreme weather with almost twice the average value. Eleven disasters caused at least $1 billion in damage, including hurricanes Isaac in August and Sandy in October, the center said.
The 2012 heat surpassed 1998’s record by 1 degree, a significant amount considering that only 4 degrees separate 1998 from the coldest year on record, 1917, said Jake Crouch, a climate scientist at the Asheville, North Carolina, center. The warmth is a reflection of natural variability as well as the impact of climate change, he said. Each of the lower 48 states had an annual temperature that was higher than average, said the center. Nineteen set records. Of course in Europe and Asia they would be praying for some warm weather. The cold and below normal temperatures there has been a supporting factor for heating oil.
According to the South China Post, China’s coldest winter in 28 years has damaged some sugarcane crops in the top producing region of the world’s second largest sugar consumer, state media and traders said on Wednesday, as fears of another cold front push local futures to a five-month high. They say a new cold front set to hit southern China this week will take temperatures down as low as minus 5 degrees this weekend, Chinese weather authorities said on Tuesday, and may bring snowstorms to some provinces, such as Guizhou and Hunan. A cold front earlier this week has already damaged cane crops in Guangxi, which produces 60% of the country’s output, traders said. While it may be too early to assess the extent of damage, a lower domestic harvest could prompt Beijing to ease control over imports. Beijing has not issued any import quotas so far in the year as it has focused on stockpiling domestic supplies in a bid to shore up sugar prices. Temperatures in China have plunged to their lowest in almost three decades, cold enough to freeze coastal waters and trap 1,000 ships in ice, official media have said.
China imported 3.48 million tons of sugar between January and November of last year, up 44 per cent from the preceding year. Yet the cold has not dampened the Chinese demand for gold. We saw a big bounce in Chinese buying.