BY the time President Obama gave his State of the Union address last year, the speech felt like an old friend. It had been part of my life — from the brainstorming sessions in late November 2009 to the last minute fact-checking. I knew when all of my favorite lines were coming. That led to an awkward moment during the address when I sprang to my feet, applauding the president’s tacit endorsement of the free-trade agreement with South Korea, before noticing that the only other person cheering seemed to be Ron Kirk, the special trade representative.
The Dilemma
September 23, 2011
Natural Gas prices continue to be very competitive.
However…
This has presented a dilemma.
When you request pricing for an existing client,
Who has been participating in the deregulated market…
And
You compare the proposed price
vs
What the client has paid over the past 12 months.
Guess what???
The price normally is higher than what they have paid.
The client’s response normally is:
Why is it more?
Why can’t I play less?
That’s a good question,
Now what answer do you
want?
Let’s just stick to
the facts
The truth is that the natural gas market is a moving target
It is a commodity that is being traded 24/7
Several years ago (2008),
Natural gas prices shot up
Market prices were $12 – $14 a decatherm
Which translates into $1.20 – $1.40 a therm
That was the commodity cost to the providers
So consumers were even paying a higher rate
Since that time, prices have steadily dropped
You have probably seen me reference
That many analyst saw natural gas pricing
Reach a floor in
Late October / November 2010.
Problem is….
That nobody knows where the floor is…
Until you pass it
Well guess what??
Prices may once again be creating a floor as we speak.
The Nymex continues to drop
It has gone full circle over the last year
What do you mean the
last year?
It has gone full circle over the past 2 months
I have a friend, who
is a chiropractor,
He asked me what is
wrong with my neck.
I told him I have been
watching the Nymex!!!
The problem becomes….
There is more upside risk
Then there is downside risk.
Translated……
How much lower can prices go?
All future indications show prices going up
What are your options:
Float the market while prices continue to remain low
If you see prices starting to go up
You can always turn around and lock your position
There are various other options…
Winter locks…Lock in the price for months with the highest
usage
Basis locks….Lock in the transportation cost and float the
nymex
Anyone of these options can be used
To be proactive against future price spikes
Another issue:
We spoke in the past that natural gas prices
Are made up of 2 components
Nymex… The cost of natural gas out of the ground in Gulf of
Mexico
Basis…… The cost of transporting the gas from LA to your
local provider
Index…….The sum of the 2 or the base cost of the commodity
to the provider
While the Nymex prices are creating new floor space
The basis cost is higher than it should be
The result….
Adding a low Nymex cost
To a higher than normal basis cost
Gives you a higher overall cost
Then what you were paying over the last year
I find this all very
interesting…
(You have to say that
while you are rubbing your chin)
What should you do?
HBS presents all the options
We look at where the market has been
What are the future projections showing?
We look to educate our clients
So they have a full understanding of how the market works
We want our clients to feel comfortable
Knowing that they made the best decision
For their company
When all the facts were presented
To learn more about
deregulated energy opportunities for your business email george@hbsadvantage.com
Visit us on the web www.hutchinsonbusinesssolutions.com
NJ Energy plan goals debated
August 19, 2011
As reported in Courier Post 8/19/11
New Jersey’s proposed energy policy calls for 22.5 percent of the state’s power to come from renewable sources within 10 years a goal that was the subject of heavy debate at a legislative hearing attended by nearly 100 people Thursday.
Environmentalists said they want a 30 percent target, but business leaders said that would drive their costs up.
State Sen. Jennifer Beck, R-Monmouth, defended the goal proposed in Gov. Chris Christie’s draft energy master plan, calling it fair and an “aggressive standard.”
Only eight states have higher renewable portfolio standards than 22.5 percent, according to the U.S. Department of Energy website. The standards are state policies that require electricity providers to obtain a minimum percentage of their power from renewable energy resources, including the sun and wind, by a certain date.
After Jeff Tittel of the New Jersey Sierra Club made a case for the higher benchmark, Beck said: “I’ve been told on many occasions that’s a stretch for us. We know solar and wind are great sources, but they’re not particularly reliable, and that’s a challenge. There’s also a responsibility for us to be realistic to set goals that can be met.”
New Jersey currently obtains less than 10 percent of its electricity supply from renewable energy sources.
But Tittel noted that New Jersey has ramped up, with more than 10,000 solar arrays installed. Only California has more.
“We’re No. 2 in solar installations. We shouldn’t go back,” said Tittel, who added that he fears Christie’s policy could jeopardize funding for renewable energy projects for homeowners and small businesses and affect more than 200 solar companies in New Jersey.
Corporate executives who testified said the current relative high costs of solar energy should not be discounted.
Michael Egenton, senior vice president of government relations for the New Jersey Chamber of Commerce, said the poor economy underscores the need for an energy policy that loosens restrictions. He praised Christie’s plan.
“I think you have to look at everything in context,” said Egenton, who said money spent on higher energy costs by companies would lead to less money spent on operations and investments. “You have to look at the bigger picture.”
The joint legislative hearing took place at the Toms River town hall and was co-chaired by Sen. Bob Smith and Assemblyman John McKeon, both Democrats.
State energy regulators also are holding hearings this month and will vote to adopt a final energy policy later this year.
The lawmakers on the panel received an admonishment from Janet Tauro, an environmentalist who is co-chairwoman of Grandmothers, Mothers and More for Energy Safety.
With the topic turned to energy conservation, Tauro made a common sense suggestion:
“We can turn down the air conditioning and turn off lights,” said Tauro, also of the New Jersey Environmental Federation.
Most of the panel members were in jackets or sweaters.
There was little reaction from the panel after Tauro, a Brick resident, made her comment. Later the room became colder, and more lights were turned on.
The California-based solar leasing firm Sungevity announced a deal on Monday with home improvement giant Lowe’s that could make obtaining a personalized estimate for installing solar panels a push-button affair at Lowe’s outlets.
The deal gives Lowe’s just under a 20 percent stake in Sungevity, according to a solar industry source, though neither company would discuss specific dollar figures.
Under the agreement, scheduled to launch in 30 Lowe’s stores in California in July, customers will be able to access kiosks equipped with Sugevity’s iQuote system, a Web-based application that allows homeowners to simply enter their address and receive a firm installation estimate within 24 hours, eliminating the expense of an on-site visit.
The system combines aerial and satellite image analysis with research by Sungevity engineers at the company’s Oakland headquarters to assess the geometry of a home’s rooftop, its disposition to the sun at different times of day and year and any potential occlusions presented by nearby vegetation or built objects.
In addition to an installation estimate, customers can also get a visual rendering of their home with solar panels installed. And if interested parties provide information on typical power usage, such as an account number or past electric bills, the iQuote system can estimate potential savings expected from using the equipment.
The iQuote system can already be used online, and the company’s founder, Danny Kennedy, estimated that roughly 25,000 users had taken it for a test drive, though only about 1,500 of those had been converted to sales.
The deal with Lowe’s, Kennedy said, could help Sungevity — a petite player in the solar leasing market compared to bigger players like SolarCity of San Mateo, Calif., or San Francisco-based SunRun, which raised $200 million in financing earlier this month — significantly expand its reach.
“This will help us to get in front of thousands more customers, in front of middle America,” Kennedy told The Huffington Post. “We’ll be taking it to the ‘burbs, as it were.”
Despite tough economic times and often uncertain economic incentives, a number of analyses predict a boom year for solar power in 2011.
A report published in December by IDC Energy Insights, a market research firm based in Framingham, Mass., estimated following a healthy 2010, the solar market in North America could well see two gigawatts of solar power installations this year.
Jay Holman, the report’s lead analyst, told The Huffington Post that those numbers had been revised somewhat, but that 2011 was still expected to bring in 1.6 gigawatts of new solar installations, roughly double the 2010 total.
Part of the reason for America’s interest in solar energy may be a decline in the robust incentives the once drew a deluge of equipment and installations to the European market, particularly countries like Germany, the Czech Republic and Italy, Holman said. Those countries have begun to scale back their subsidies, forcing companies to look to other markets.
Meanwhile, federal tax incentives, including a 30 percent tax cash grant extended through the end of 2011, have helped keep solar alive. Several states have healthy incentives in place as well, including the eight states where the Sungevity/Lowes deal will eventually be rolled out: Arizona, California, Colorado, Delaware, Maryland, Massachusetts, New Jersey and New York.
Holman also said solar leasing companies like Sungevity, SunRun and Solar City, which retain ownership of the equipment while reducing or, in many cases, eliminating the up-front installation costs, also help drive the expansion of solar power.
“Obviously, we’re obsessed with being customer-focused,” said Kennedy. “We hope that this deal will make going solar as easy as shopping for light bulbs.”
Natural Gas Revolution Is Overblown, Study Says
May 12, 2011
Written by Tom Zeller Jr
For the Huffington Post
A veritable explosion in the number of natural gas wells in the United States in the late 2000′s resulted in only modest gains in production, a new study finds, suggesting that the promise of natural gas as a bountiful and economical domestic fuel source has been wildly oversold.
The findings, part of a broader analysis of natural gas published Thursday by the Post Carbon Institute, an energy and climate research organization in California, is one of a growing number of studies to undermine a natural gas catechism that has united industry, environmental groups and even the Obama White House in recent years.
It also comes on the heels of another study, published Monday, lending credence to claims that modern natural gas drilling techniques are contributing to methane contamination of drinking water wells in surrounding communities.
According to the author of Thursday’s study, David Hughes, a geoscientist and fellow at the institute, the bedrock assumptions of the natural gas revolution — that new drilling techniques have cracked open deep layers of shale and made available a 100-year supply of clean, domestic energy that could displace dirty coal and oil — are simply not true.
“The real takeaway here is scale,” Hughes said in a telephone interview. “If you look at the production estimates as the government is making them now, you’re talking about a near quadrupling of shale gas by 2035.”
The estimates come from the Energy Information Administration, which suggested in its most recent projections that shale gas would account for 45 percent of all natural gas production in the U.S. by 2035 — up from roughly 14 percent currently.
But the actual productivity profile of new, unconventional wells — often tapped at tremendous expense — is far less clear than is normally portrayed, Hughes said. Studies at existing fields, or plays, suggest that many shale wells tend to be highly productive in their first year, and then decline steeply — sometimes by as much as 80 percent or more — after that, requiring new wells to be plumbed
Indeed, while the number of active gas wells, which has nearly doubled since 1990, to half a million, has increased in the U.S, production per well has declined by nearly 50 percent over the same period, Hughes said, suggesting that as the industry converts increasingly to shale gas, more and more wells will be needed to maintain even a baseline level of production — much less to create a substantive increase.
If that’s the case, Hughes said, then those hoping that the shale gas boom might one day provide enough natural gas to replace coal for electricity generation, or oil as a transportation fuel, will be sadly disappointed. Indeed, he said, the number of new wells that would be needed to meet these goals would create a dystopian landscape of well pads and gas pipelines that few people would want to inhabit.
“If that were to happen, for those people living in Pennsylvania and New York, well, they haven’t seen anything yet,” Hughes said, referring to those states now sitting atop major shale gas deposits.
Mr. Hughes also highlighted the growing number of environmental costs that come with natural gas development. These include everything from water intensity and heavy truck traffic to the risks of localized pollution associated with hydraulic fracturing, or fracking — the high-pressure injection of water, sand and chemicals underground to break up rock formations and release gas.
More broadly, questions have been raised about the greenhouse gas footprint of natural gas development over its lifecycle, with at least one study suggesting that it may be no better than coal.
Dan Whitten, a spokesman for America’s Natural Gas Alliance, an industry lobby group, said in an e-mail message that the report was retreading old ground and amounted to a smear campaign on natural gas.
“This report is recycling the widely discredited claims of anti-drilling activists on greenhouse gas emissions,” Whitten said. “Their estimates run counter to the accepted scientific consensus and have been heavily criticized by climate scientists and others who are interested in a fact-based debate about our energy choices as a nation.”
Whitten also argued that it is now “the established scientific consensus” that the U.S. has “vast domestic supplies of natural gas that can play a growing role in meeting our country’s energy needs for generations.”
He also said that no one was seriously suggesting that coal or transportation fuel be entirely replaced by natural gas, and that such arguments amount to “unrealistic scenarios” presented by Hughes simply to be knocked down.
“Most experts in our energy debates understand and agree that it will take all kinds of energy to meet our nation’s growing future needs,” he said. “From our initial review, no new ground was broken with this report. As such, it doesn’t change the fact that the vast supplies of clean natural gas right here in North America give our country a chance to substantially improve energy security, clean our air and improve our economy.”
But while the resource is inarguably vast, Hughes is not alone in suggesting that the industry is overstating how much can be economically pulled out of the ground.
Arthur E. Berman, a geological consultant and director of Labyrinth Consulting Services, Inc., also argues that natural gas is not as abundant or as inexpensive as is commonly believed.
“I do not dispute for a minute that the resource size for natural gas is huge. There’s a lot of gas in place in shales,” Berman said in a telephone interview. “The question for me is how much can be produced for a profit?”
Berman says that reserves — meaning the amount of natural gas that is actually commercially available to produce — will last only about 22 years. This is partly because shale gas plays once touted to be monstrous in size have typically contracted to core areas of production a mere fraction of the originally advertised size.
Hughes, meanwhile, cited Berman and and other analysts who also say that gas, at roughly $4 per thousand cubic feet (mcf), is too cheap for companies to recoup the costs of producing it.
From Thursday’s study:
Analysts like Arthur Berman suggest the marginal cost is about $7.50/mcf compared to a current price of about $4.00/mcf. Others, such as Kenneth Medlock (2010), suggest that the break-even price ranges from $4.25/mcf to $7.00/mcf. The Bank of America (2008) has placed the mean break-even cost at $6.64/mcf with a range of $4.20/mcf to $11.50/mcf. One thing seems certain: Shale gas, which appears to be the only hope for significantly ramping up U.S. gas production, is expensive gas, much of which is marginally economic to non-economic at today’s gas prices.
And yet, with easier-to-reach, conventional sources of gas largely depleted, the ability to pull gas from deep layers of shale rock has been touted as a game changer, and the notion was quickly embraced by a broad cross-section of social, political and business interests.
Writes Mr. Hughes:
First, the shale gas industry was motivated to hype production prospects in order to attract large amounts of needed investment capital; it did this by drilling the best sites first and extrapolating initial robust results to apply to more problematic prospective regions. The energy policy establishment, desperate to identify a new energy source to support future economic growth, accepted the industry’s hype uncritically. This in turn led Wall Street Journal, Time Magazine, 60 Minutes, and many other media outlets to proclaim that shale gas would transform the energy world. Finally, several prominent environmental organizations, looking for a way to lobby for lower carbon emissions without calling for energy cutbacks, embraced shale gas as a necessary “bridge fuel” toward a renewable energy future. Each group saw in shale gas what it wanted and needed.
And at least for now, the 100-year slogan continues.
“A lot of times, things are right underneath our feet, and all we need to do is change the way we’re thinking about them,” says Erik Oswold, an ExxonMobil geologist, in an ad circulating on the online video service Hulu. “A couple decades ago, we didn’t realize just how much natural gas was trapped in rocks thousands of feet below us. Technology has made it possible to safely unlock this cleaner burning natural gas. These deposits can provide us with fuel for 100 years.”
President Obama, delivering a speech on energy policy at Georgetown University on March 30, echoed the industry’s mantra.
“Now, in terms of new sources of energy, we have a few different options,” the President said. “The first is natural gas. Recent innovations have given us the opportunity to tap large reserves — perhaps a century’s worth of reserves, a hundred years worth of reserves -– in the shale under our feet.”
November 30th, 2010 Adam Ebner
As reported in Nationwide Deregulated Energy News
In a very competitive marketplace, energy deregulation gives businesses better control of their business electricity costs. Aside from that, there are myriad other benefits and option that their companies would get from a deregulated and competitive energy market – options that were not possible in the past due to high energy expenses and limitations set by the monopolized energy industry.
The deregulation of the many utilities markets gave birth to the emergence of several retail electric providers all competing for subscriptions from both residential and commercial energy users in the state and in energy deregulated cities such as Philadelphia, Pittsburgh, New York City, Chicago, Washington DC, Houston, Dallas and many others. Now given the power to choose, selecting from over 50 retail electricity providers can be a daunting task indeed; with businesses finding themselves at the losing end should they fail to choose the best provider for their needs. This is why businesses should work in partnership with certified electricity brokers to negotiate in their behalf the best electrical rates, payment schemes and other amenities from the various Texas electric companies.
Electricity Brokers:
Your Helping Hand Unlike electricity management at home, businesses have more complex processes and operational needs for electricity that if not managed would find them dealing with extremely high energy costs that would eventually affect their bottom line. Electricity brokers can come into the picture and help businesses find ways on how they can efficiently use Texas electricity and help them minimize their energy costs. These brokers deal and negotiate electrical rates with retail electric providers for the benefit of the business.
No matter what business or industry your company may be in, electricity brokers can provide professional services using up-to-date information of the energy market in a bid to obtain the best commercial electricity deals for the company.
Why Should You Use Electricity Brokers to Shop Electricity?
Businesses may not have the resources available to have an independent study or analysis of the various retail electric providers offering commercial electricity before they switch and commit to the services of one. Aside from this, companies may have to deal with all the other elements in the very complex energy market such as new regulations, changes in fees, penalties, reduction of carbon emissions, etc. Hiring an electricity broker can spare the company from all these, so that all their staff and resources can focus on only one thing – doing business.
Electricity brokers can help companies with their procurement decision, eliminate possible over payments, recover over payments, management of energy consumption, and continuous energy usage analysis. Electricity brokers can uncover and identify areas in the business processes where they can implement significant improvements. These brokers are not in any way tied up with any major retail electric provider, allowing them to give unbiased advice to businesses and help them get the best energy solutions for their companies.
Our Perspective:
Hutchinson Business Solutions (HBS) is an independent energy management company. We represent all the major providers selling deregulated energy in deregulated states. We will do a full analysis of your account and shop your account with our providers to find the best value and savings for your company.
HBS clients are finding savings from 10% to 20% in the deregulated utility market.
To learn more email george@hbsadvantage.com
What Obama Should Say About the Deficit
January 16, 2011
Economic View
By CHRISTINA D. ROMER
Published: January 15, 2011
This year, instead of being on the floor of Congress with the rest of the cabinet, I will be watching on television with the rest of the country. Instead of knowing what is coming, I can write about what I hope the president will say. My hope is that the centerpiece of the speech will be a comprehensive plan for dealing with the long-run budget deficit.
I am not talking about two paragraphs lamenting the problem and vowing to fix it. I am looking for pages and pages of concrete proposals that the administration is ready to fight for. The recommendations of the bipartisan National Commission on Fiscal Responsibility and Reform that the president created are a very good place to start.
The need for such a bold plan is urgent — both politically and economically. Voters made it clear last November that they were fed up with red ink. President Obama should embrace the reality that his re-election may depend on facing up to the budget problem.
The economic need is also pressing. The extreme deficits of the last few years are largely a consequence of the terrible state of the economy and the actions needed to stem the downturn. But even with a strong recovery, under current policy the deficit is projected to be more than 6 percent of gross domestic product in 2020. By 2035, if the twin tsunami of rising health care costs and the retirement of the baby boomers hits with full force, we will be looking at deficits of at least 15 percent of G.D.P.
Such deficits are not sustainable. At some point — likely well before 2035 — investors would revolt and the United States would be unable to borrow. We would become the Argentina of the 21st century.
So what should the president say and do? First, he should make clear that the issue is spending and taxes over the coming decades, not spending in 2011. Republicans in Congress have pledged to cut nonmilitary, non-entitlement spending in 2011 by $100 billion (less if recent reports are correct). Such a step would do nothing to address the fundamental drivers of the budget problem, and would weaken the economy when we are only beginning to recover.
Instead, the president should outline major cuts in spending that would go into effect over the next few decades, and that he wants to sign into law in 2011.
Respected analysts across the ideological spectrum agree that rising health care spending is the biggest source of the frightening long-run deficit projections. That is why the president made cost control central to health reform legislation. He should vow not just to veto a repeal of the legislation, but to fight to strengthen its cost-containment mechanisms.
One important provision of the law was the creation of the Independent Payment Advisory Board, which must propose reforms if Medicare spending exceeds the target rate of growth. But the legislation exempted some providers and much government health spending from the board’s purview. The president should work to give the board a broader mandate for cost control.
The fiscal commission recommended that military spending — which has risen by more than 50 percent in real terms since 2001 — grow much more slowly in the future. It also proposed thoughtful ways to slow the growth of Social Security spending while protecting the disabled and the poor. And it recommended caps on nonmilitary, non-entitlement spending.
President Obama needs to explain that while these cuts will be painful, there is no way to solve our budget problem without shared sacrifice. At the same time, he should give a ringing endorsement of government investment in infrastructure, research and education, which increases productivity and thus improves both our standard of living and the budget situation over time. And, following the fiscal commission, he should ensure that spending cuts not fall on the disadvantaged.
Finally, the president has to be frank about the need for more tax revenue. Even with bold spending cuts, there will still be a large deficit. The only realistic way to close the gap is by raising revenue. Some of it can and should come from higher taxes on the rich. But because there are far more middle-class families than wealthy ones, much of the additional money will have to come from ordinary people. Since any agreement will have to be bipartisan, Congressional Republicans will have to come to terms with this fact as well.
AGAIN, the fiscal commission has made sensible proposals. It recommended broad tax reform that lowers marginal tax rates and cuts tax expenditures — deductions and exemptions for mortgage interest, employer-provided benefits, charitable giving, and so on. Such tax reform cannot be revenue-neutral — it needs to increase tax receipts. But it can make the system simpler, fairer and more efficient while doing so.
Limiting the exemption of employer-provided health benefits would have the further advantage of making companies and workers more cost-conscious about health care.
Another revenue measure should be a tax on polluting energy. Basic economics says that something that has widespread adverse effects should be taxed. A gradual increase in the gasoline tax would raise revenue and encourage the development of cleaner energy sources. A broader carbon tax would be even better.
None of these changes should be immediate. With unemployment at 9.4 percent and the economy constrained by lack of demand, it would be heartless and counterproductive to move to fiscal austerity in 2011. Indeed, the additional fiscal stimulus passed in the lame-duck session — particularly the payroll tax cut and the unemployment insurance extension — is the right policy for now. But legislation that gradually and persistently trims the deficit would not harm the economy today. Indeed, it could increase demand by raising confidence and certainty.
The president has a monumental task. It’s extremely hard to build consensus around a deficit reduction plan that will be painful and unpopular with powerful interest groups. The only way to do so is to marshal the good sense and patriotism of the American people. That process should start with the State of the Union.
Veto urged for N.J. power-plant bill
January 13, 2011
By Andrew Maykuth
Inquirer Staff Writer
Posted Jan. 13, 2011
A coalition of electrical-power interests is encouraging New Jersey Gov. Christie to veto a controversial bill that would subsidize development of a Gloucester County power plant that they say would unsettle the region’s energy markets.
The bill’s sponsors said the legislation approved Tuesday by the New Jersey Legislature would lower energy rates. But opponents, including power generators such as Exelon Corp. and large industrial consumers, call it an anticompetitive sweetheart deal that will cost consumers in the long run.
“We cannot afford an energy surcharge to guarantee billions of dollars of revenue to a few select developers,” said George M. Waidelich, vice president of energy operations for Safeway Inc., which says it now spends about $2 million a year on electricity for its five Genuardi’s stores in South Jersey.
The measure would provide a guaranteed long-term income for developers of several large power plants. The legislation was known as the “LS Power Bill” because its initial aim was to provide guarantees for LS Power Development L.L.C. to build a giant natural-gas power plant in West Deptford, the hometown of state Senate President Stephen Sweeney (D., Gloucester).
Tom Hoatson, director of regulatory affairs for LS Power, said the guarantees were necessary to obtain financing to construct the 640-megawatt plant along the Delaware River, which would cost from $800 million to $1 billion.
Hoatson said the bill would provide the New Brunswick company “an opportunity to compete with other generators.” The plant would employ up to 500 people to build and about 25 people to operate.
Christie spokesman Michael Drewniak said the bill was under review. Legislative sources said the governor was expected to sign it because his office was consulted in drafting amendments that addressed some of the administration’s concerns.
In the arcane world of wholesale electrical markets, the New Jersey bill has attracted intense attention because its opponents say it would turn back the clock on years of efforts to open electrical-power markets to more competition.
But supporters of the legislation say those markets, which are managed by regional power-grid operator PJM Interconnection Inc., have failed to lower prices for N.J. residents.
And they say that many of the interests opposed to the N.J. legislation are incumbent power generators like Exelon Corp. and Public Service Enterprise Group of Newark, which stand to gain by keeping new power generators out of the market.
“I don’t think it’s a system that encourages building new generation to keep prices down,” said Stefanie Brand, the New Jersey Rate Counsel, the state’s consumer advocate.
“The market is not a true free market,” she said. “It’s a constructed market that was created by PJM, and as far as we’re concerned, it doesn’t work.”
N.J. officials complain that the Garden State has suffered more than its western neighbors because it has paid up to $1.9 billion a year in extra capacity and congestion charges that PJM imposes on power transmitted into the state.
Lee A. Solomon, a Christie appointee who is president of the N.J. Board of Public Utilities, told PJM in December that “it is incumbent upon New Jersey to promote new generation in locations where it is needed the most to ensure reliability and to control costs.”
Sweeney, whose West Deptford hometown would host the LS plant, introduced the legislation that would allow the board to sign long-term contracts with several power generators to provide up to 2,000 megawatts of electricity at guaranteed rates. If market rates fall below the threshold, N.J. ratepayers would pick up the tab.
“Consumers have been paying inflated capacity charges,” said Derek Roseman, Sweeney’s spokesman. “This is a chance to reverse that. How can that not be a good thing for consumers?”
The Compete Coalition, a Washington lobbying group that promotes open electrical markets, has appealed to Christie’s antitax sentiments by branding the bill the “Energy Tax of 2011.”
John E. Shelk, president of the Electric Power Supply Association, testified in December that the bill would “artificially depress” rates in the short term, but would discourage other generators from investing in the future.
Shelk said the bill likely would be challenged because it would interfere with federally sanctioned wholesale power markets.
Public Service Enterprise Group, the politically powerful Newark energy company that operates the PSE&G utility, announced its opposition to the measure last week.
Anne Hoskins, the company’s senior vice president for public affairs, said the state’s intervention in the past requiring utilities to enter into long-term supply contracts had “disastrous results.”
In the next six years, PSE&G will pay $1 billion for the remaining costs of the long-term contracts, she said. And Atlantic City Electric recently received approval to raise its customers’ bills 5 percent to recover the costs of its out-of-market contracts.
“Subsidies are a slippery slope,” she said, “and will drive away other nonsubsidized private investment in New Jersey.”
Big Oil Companies Move Toward Natural Gas
December 29, 2010
CHRIS KAHN | 11/ 9/10 06:06 PM | 
What’s Your Reaction?
NEW YORK — Pretty soon, Big Oil will be more like Big Gas.
The major oil companies are increasingly betting their futures on natural gas, with older oil fields producing less crude and newer ones either hard to reach or controlled by unfriendly nations.
They are focusing more than ever on natural gas because it burns cleaner than oil and is gaining traction as a fuel for transportation. The latest move came Tuesday, when Chevron made a $4.3 billion deal to buy up natural gas fields in the Northeast.
Earlier this year, Exxon Mobil bought XTO Energy to become America’s largest producer of natural gas. And Royal Dutch Shell expects natural gas to make up half its total global production in two years.
“If you look at most of the big developments now, they’re not about oil, it’s gas,” said Oppenheimer & Co. analyst Fadel Gheit.
The world will continue to run on crude oil for years to come, but even with new discoveries, oil production is expected to flatten out during the next few decades, according to the latest estimates from the International Energy Association.
Far down the road, Gheit believes, Exxon and Shell will lead the energy industry into a new era where oil companies devote most of their efforts to producing natural gas. The Energy Information Administration expects worldwide natural gas production to increase 46 percent from 2007 to 2035, compared with a 30 percent increase in world production of crude and natural gas liquids.
Gas is becoming more attractive to the oil companies because it’s more accessible. While OPEC controls most of the world’s oil reserves, it controls less than half of the natural gas reserves.
In the United States and Europe, natural gas is primarily used to heat homes. About three in five American homes use it for heat. And more and more power plants are using it to generate power. Natural gas is used to generate 23 percent of electricity in the U.S., up from 16 percent a decade ago.
If the country focuses more on reducing greenhouse gas emissions in years to come, the trend should accelerate. Natural gas emits less carbon dioxide than other fossil fuels.
Natural gas is used in small amounts for transportation in the U.S., mostly for city buses and garbage trucks. The oil industry is pressing Congress to add financial incentives for trucking and freight companies to convert their fleets.
Until recently, Big Oil watched the rise of U.S. natural gas from the sidelines, and smaller companies drilled into underground layers of shale. New techniques allowed companies to drill parallel to the ground and hit previously tough-to-reach deposits, helping them tap ever larger bounties of shale gas.
Production costs fell. Drilling rigs started popping up along America’s shale-rich regions in Appalachia, Texas and North Dakota. Experts now say the U.S. is sitting on enough natural gas to last the country for the next century.
This year, Big Oil jumped in. Exxon bought XTO for more than $30 billion, immediately making it America’s largest natural gas producer. XTO so far has helped Exxon increase its natural gas production by 50 percent.
Then Shell agreed to buy East Resources Inc. for $4.7 billion, and China’s state-owned offshore oil and gas company, CNOOC Ltd., invested $2.16 billion in oil and gas fields owned by Chesapeake Energy.
Production jumped to 1.94 trillion cubic feet in August, the highest monthly total since January 1973, according to available government data.
“Production is screaming,” said E. Russell Braziel, managing director of BENTEK Energy, which tracks natural gas prices in the U.S.
The U.S. now holds about 3.82 trillion cubic feet of natural gas in storage, about 10 percent more than the average over the past five years. And the industry keeps pumping more out of the ground.
There are challenges. The same low prices that make the assets affordable have caused some companies, namely ConocoPhillips, to pull back on production. Natural gas has dropped about 24 percent this year.
And people near shale rigs complained that groundwater supplies were contaminated by the industrial chemicals used in the drilling process. The Environmental Protection Agency is studying the possible effects on drinking water and the public health.
Still, most of the big companies continue to press ahead with multibillion-dollar acquisitions.
“When the market is weak, that’s when it’s time to act,” Argus Research analyst Phil Weiss said.
What is shale gas and why is it important?
December 17, 2010
As reported by 
Shale gas refers to natural gas that is trapped within shale formations. Shales are fine-grained sedimentary rocks that can be rich sources of petroleum and natural gas. Over the past decade, the combination of horizontal drilling and hydraulic fracturing has allowed access to large volumes of shale gas that were previously uneconomical to produce. The production of natural gas from shale formations has rejuvenated the natural gas industry in the United States.
Did You Know?
Sedimentary rocks are rocks formed by the accumulation of sediments at the Earth’s surface and within bodies of water. Common sedimentary rocks include sandstone, limestone, and shale.
U.S. Natural Gas Supply, 1990-2035
Did You Know?
Shale gas in 2009 made up 14% of total U.S. natural gas supply. Production of shale gas is expected to continue to increase, and constitute 45% of U.S. total natural gas supply in 2035, as projected in the EIA Annual Energy Outlook 2011.
Does the U.S. Have Abundant Shale Gas Resources?
Of the natural gas consumed in the United States in 2009, 87% was produced domestically; thus, the supply of natural gas is not as dependent on foreign producers as is the supply of crude oil, and the delivery system is less subject to interruption. The availability of large quantities of shale gas will further allow the United States to consume a predominantly domestic supply of gas.
According to the EIA Annual Energy Outlook 2011, the United States possesses 2,552 trillion cubic feet (Tcf) of potential natural gas resources. Natural gas from shale resources, considered uneconomical just a few years ago, accounts for 827 Tcf of this resource estimate, more than double the estimate published last year. At the 2009 rate of U.S. consumption (about 22.8 Tcf per year), 2,552 Tcf of natural gas is enough to supply approximately 110 years of use. Shale gas resource and production estimates increased significantly between the 2010 and 2011 Outlook reports and are likely to increase further in the future.
Where is Shale Gas Found?
Shale gas is found in shale “plays,” which are shale formations containing significant accumulations of natural gas and which share similar geologic and geographic properties. A decade of production has come from the Barnett Shale play in Texas. Experience and information gained from developing the Barnett Shale have improved the efficiency of shale gas development around the country. Another important play is the Marcellus Shale in the eastern United States. Surveyors and geologists identify suitable well locations in areas with potential for economical gas production by using both surface-level observation techniques and computer-generated maps of the subsurface.
Source: U.S. Shale Plays Map, http://www.eia.doe.gov/oil_gas/rpd/shale_gas.pdf
How is Shale Gas Produced?
Two major drilling techniques are used to produce shale gas. Horizontal drilling is used to provide greater access to the gas trapped deep in the producing formation. First, a vertical well is drilled to the targeted rock formation. At the desired depth, the drill bit is turned to bore a well that stretches through the reservoir horizontally, exposing the well to more of the producing shale.
Hydraulic fracturing (commonly called “fracking” or “hydrofracking”) is a technique in which water, chemicals, and sand are pumped into the well to unlock the hydrocarbons trapped in shale formations by opening cracks (fractures) in the rock and allowing natural gas to flow from the shale into the well. When used in conjunction with horizontal drilling, hydraulic fracturing enables gas producers to extract shale gas at reasonable cost. Without these techniques, natural gas does not flow to the well rapidly, and commercial quantities cannot be produced from shale.
Schematic Geology of Natural Gas Resources
Source: modified from U.S. Geological Survey Fact Sheet 0113-01.
How is Shale Gas Production Different from Conventional Gas Production?
Conventional gas reservoirs are created when natural gas migrates toward the Earth’s surface from an organic-rich source formation into highly permeable reservoir rock, where it is trapped by an overlying layer of impermeable rock. In contrast, shale gas resources form within the organic-rich shale source rock. The low permeability of the shale greatly inhibits the gas from migrating to more permeable reservoir rocks. Without horizontal drilling and hydraulic fracturing, shale gas production would not be economically feasible because the natural gas would not flow from the formation at high enough rates to justify the cost of drilling.
Diagram of a Typical Hydraulic Fracturing Operation
Source: ProPublica, http://www.propublica.org/special/hydraulic-fracturing-national
What Are the Environmental Issues Associated with Shale Gas?
Natural gas is cleaner-burning than coal or oil. The combustion of natural gas emits significantly lower levels of key pollutants, including carbon dioxide (CO2), nitrogen oxides, and sulfur dioxide, than does the combustion of coal or oil. When used in efficient combined-cycle power plants, natural gas combustion can emit less than half as much CO2 as coal combustion, per unit of energy released.
However, there are some potential environmental issues that are also associated with the production of shale gas. Shale gas drilling has significant water supply issues. The drilling and fracturing of wells requires large amounts of water. In some areas of the country, significant use of water for shale gas production may affect the availability of water for other uses, and can affect aquatic habitats.
Drilling and fracturing also produce large amounts of wastewater, which may contain dissolved chemicals and other contaminants that require treatment before disposal or reuse. Because of the quantities of water used, and the complexities inherent in treating some of the chemicals used, wastewater treatment and disposal is an important and challenging issue. If mismanaged, the hydraulic fracturing fluid can be released by spills, leaks, or various other exposure pathways. The use of potentially hazardous chemicals in the fracturing fluid means that any release of this fluid can result in the contamination of surrounding areas, including sources of drinking water, and can negatively impact natural habitats.
