By Andrew Maykuth

Inquirer Staff Writer

Posted on Sun, Jan. 31, 2010

In their exuberance, oil- and gas-industry officials repeat a single refrain when describing the natural gas from Pennsylvania’s Marcellus Shale:

A game-changer.

Tony Hayward, chief executive officer of oil giant BP P.L.C., was the latest to gush enthusiastically when he called unconventional natural gas resources like the Marcellus “a complete game-changer.”

“It probably transforms the U.S. energy outlook for the next 100 years,” Hayward said Thursday at the World Economic Forum in Davos, Switzerland.

The breathtaking emergence of natural gas as America’s energy savior was not in the cards. Just four years ago, after Hurricanes Katrina and Rita devastated Gulf Coast rigs and rattled gas markets, energy pundits forecast a bleak winter of short supplies, high prices, and low thermostats.

The vast scale of shale-gas resources has come into focus quickly, and industry officials are touting the possibility of steady supplies for decades to come.

The Potential Gas Committee in Colorado last year revised its outlook of America’s future gas supply – up 35 percent in just two years. The forecast was the highest in its 44-year history.

The Marcellus Shale is the nation’s fastest-growing producing area. Though it lies under five states, about 60 percent of its reserves are in Pennsylvania, according to Terry Engelder, a Pennsylvania State University geologist.

“In terms of its impact on Pennsylvania, this is probably without peer in the last century,” said Engelder, whose projections in 2008 alerted the public about the size of the Marcellus.

“America’s energy portfolio has undergone a first-order paradigm shift just in the last two years,” he said. “This is such an exciting thing.”

Not everyone has climbed aboard the bandwagon. Some environmentalists are uneasy about the hydraulic-fracturing process that has unlocked the shale gas. The technique requires the injection of millions of gallons of water into a well to break up the shale to initiate production.

And some analysts say they believe the gas industry’s estimates are too optimistic.

“I would look at all this with a bit of healthy skepticism,” said Arthur E. Berman, a Houston gas-industry consultant, who says he believes some operators have overstated the production potential and understated the cost of Texas shale-gas wells. His pointed criticism got him banished from one trade journal – and invited to speak at scores of investor workshops.

“Two years ago, we were talking about importing gas from the Middle East,” he said. “And now we have a hundred-year supply of domestic gas?”

Berman said he had been unable to conduct a similar analysis of Marcellus wells because Pennsylvania law allows operators to keep their production data secret for five years, unlike other states, where output is reported to taxing authorities promptly.

“If something looks too good to be true,” he said, “I need to look more closely.”

Questioning voices such as Berman’s are uncommon in the industry, which portrays natural gas as abundant, cheap, and cleaner than coal and oil – a domestically produced “bridge fuel” to ease the transition to renewable wind and solar generation.

For companies like UGI Corp. – the Valley Forge energy company that operates regulated utilities in Pennsylvania that sell natural gas to retail customers and operates unregulated subsidiaries that consume and transport natural gas – the Marcellus Shale represents a game-changing opportunity on several fronts.

“That activity in the Marcellus Shale is really a win-win, not only for our regulated business, but also our nonregulated business,” UGI chief executive Lon R. Greenberg told analysts in a conference call last week.

Officials at UGI and other Pennsylvania gas utilities say retail customers will benefit in the long run, as utilities begin buying their supplies from Marcellus sources, saving pipeline costs from the Gulf Coast.

UGI’s utilities are in a strong position because many of their 578,000 customers are in Marcellus cities such as Scranton, Wilkes-Barre, and Williamsport. The utility could eventually work out deals to buy gas directly from producers.

Though UGI has no interest in becoming a gas producer, the company is exploring the possibilities for investing in “midstream” pipelines that tie the Marcellus wells to the interstate pipelines that move gas to lucrative urban markets like New York. Expansion of the pipeline infrastructure is critical to opening the Marcellus to exploration.

In addition, UGI is looking at expanding its underground gas-storage operations in Western Pennsylvania, said Brad Hall, president of UGI Energy Services.

“There is a bit of a gold-rush mentality,” he said, “but in this case, there’s really gold.”

UGI may also reap some other, unintended benefits.

The company’s power-generation subsidiary last year announced a $125 million project to convert its aging Hunlock Power Station near Wilkes-Barre from coal to natural gas.

Hall said the decision was made before the Marcellus abundance was fully understood. But when the plant comes online in 2011, it is likely to find eager sellers of fuel nearby.

“It makes us look like we were really smart.”

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By KEITH BRADSHER
Published: January 30, 2010

Shiho Fukada for The New York Times

Components of wind turbines at a factory in Tianjin, China. Shifting to sustainable energy could leave the West dependent on China, much as the developed world now depends on the Mideast.

TIANJIN, China — China vaulted past competitors in Denmark, Germany, Spain and the United States last year to become the world’s largest maker of wind turbines, and is poised to expand even further this year.

As China takes the lead on wind turbines, above, and solar panels, President Obama is calling for American industry to step up.

China has also leapfrogged the West in the last two years to emerge as the world’s largest manufacturer of solar panels. And the country is pushing equally hard to build nuclear reactors and the most efficient types of coal power plants.

These efforts to dominate the global manufacture of renewable energy technologies raise the prospect that the West may someday trade its dependence on oil from the Mideast for a reliance on solar panels, wind turbines and other gear manufactured in China.

“Most of the energy equipment will carry a brass plate, ‘Made in China,’ ” said K. K. Chan, the chief executive of Nature Elements Capital, a private equity fund in Beijing that focuses on renewable energy.

President Obama, in his State of the Union speech last week, sounded an alarm that the United States was falling behind other countries, especially China, on energy. “I do not accept a future where the jobs and industries of tomorrow take root beyond our borders — and I know you don’t either,” he told Congress.

The United States and other countries are offering incentives to develop their own renewable energy industries, and Mr. Obama called for redoubling American efforts. Yet many Western and Chinese executives expect China to prevail in the energy-technology race.

Multinational corporations are responding to the rapid growth of China’s market by building big, state-of-the-art factories in China. Vestas of Denmark has just erected the world’s biggest wind turbine manufacturing complex here in northeastern China, and transferred the technology to build the latest electronic controls and generators.

“You have to move fast with the market,” said Jens Tommerup, the president of Vestas China. “Nobody has ever seen such fast development in a wind market.”

Renewable energy industries here are adding jobs rapidly, reaching 1.12 million in 2008 and climbing by 100,000 a year, according to the government-backed Chinese Renewable Energy Industries Association.

Yet renewable energy may be doing more for China’s economy than for the environment. Total power generation in China is on track to pass the United States in 2012 — and most of the added capacity will still be from coal.

China intends for wind, solar and biomass energy to represent 8 percent of its electricity generation capacity by 2020. That compares with less than 4 percent now in China and the United States. Coal will still represent two-thirds of China’s capacity in 2020, and nuclear and hydropower most of the rest.

As China seeks to dominate energy-equipment exports, it has the advantage of being the world’s largest market for power equipment. The government spends heavily to upgrade the electricity grid, committing $45 billion in 2009 alone. State-owned banks provide generous financing.

China’s top leaders are intensely focused on energy policy: on Wednesday, the government announced the creation of a National Energy Commission composed of cabinet ministers as a “superministry” led by Prime Minister Wen Jiabao himself.

Regulators have set mandates for power generation companies to use more renewable energy. Generous subsidies for consumers to install their own solar panels or solar water heaters have produced flurries of activity on rooftops across China.

China’s biggest advantage may be its domestic demand for electricity, rising 15 percent a year. To meet demand in the coming decade, according to statistics from the International Energy Agency, China will need to add nearly nine times as much electricity generation capacity as the United States will.

So while Americans are used to thinking of themselves as having the world’s largest market in many industries, China’s market for power equipment dwarfs that of the United States, even though the American market is more mature. That means Chinese producers enjoy enormous efficiencies from large-scale production.

In the United States, power companies frequently face a choice between buying renewable energy equipment or continuing to operate fossil-fuel-fired power plants that have already been built and paid for. In China, power companies have to buy lots of new equipment anyway, and alternative energy, particularly wind and nuclear, is increasingly priced competitively.

Interest rates as low as 2 percent for bank loans — the result of a savings rate of 40 percent and a government policy of steering loans to renewable energy — have also made a big difference.

As in many other industries, China’s low labor costs are an advantage in energy. Although Chinese wages have risen sharply in the last five years, Vestas still pays assembly line workers here only $4,100 a year.

China’s commitment to renewable energy is expensive. Although costs are falling steeply through mass production, wind energy is still 20 to 40 percent more expensive than coal-fired power. Solar power is still at least twice as expensive as coal.

The Chinese government charges a renewable energy fee to all electricity users. The fee increases residential electricity bills by 0.25 percent to 0.4 percent. For industrial users of electricity, the fee doubled in November to roughly 0.8 percent of the electricity bill.

The fee revenue goes to companies that operate the electricity grid, to make up the cost difference between renewable energy and coal-fired power.

Renewable energy fees are not yet high enough to affect China’s competitiveness even in energy-intensive industries, said the chairman of a Chinese industrial company, who asked not to be identified because of the political sensitivity of electricity rates in China.

Grid operators are unhappy. They are reimbursed for the extra cost of buying renewable energy instead of coal-fired power, but not for the formidable cost of building power lines to wind turbines and other renewable energy producers, many of them in remote, windswept areas. Transmission losses are high for sending power over long distances to cities, and nearly a third of China’s wind turbines are not yet connected to the national grid.

Most of these turbines were built only in the last year, however, and grid construction has not caught up. Under legislation passed by the Chinese legislature on Dec. 26, a grid operator that does not connect a renewable energy operation to the grid must pay that operation twice the value of the electricity that cannot be distributed.

With prices tumbling, China’s wind and solar industries are increasingly looking to sell equipment abroad — and facing complaints by Western companies that they have unfair advantages. When a Chinese company reached a deal in November to supply turbines for a big wind farm in Texas, there were calls in Congress to halt federal spending on imported equipment.

“Every country, including the United States and in Europe, wants a low cost of renewable energy,” said Ma Lingjuan, deputy managing director of China’s renewable energy association. “Now China has reached that level, but it gets criticized by the rest of the world.”

The Unknown Cost

January 25, 2010

The main topics being spun in Washington lately have been Health Care and the Bank bailout. What has been lost in the discussion is what must be done to get the economy moving and providing jobs for America. That seems to be the mantel that President Obama is just starting to pick up.

Every month the experts look to see the latest unemployment data; this proves to be a strong indicator on how and if a recovery is sustaining. Unfortunately, the unemployment report continues to be dismal. Just last week, I saw an article saying that layoffs were higher than expected in December 2009.

The unemployment rate is still over 10% and this will continue to play a large roll in supporting the economic recovery.

How does this all effect me?

Everyone reads about the rising unemployment, but have you ever stopped to think what this means for your company? You may say, “We have not had many layoffs, so it doesn’t really effect us.”

Don’t be too quick in making this assessment.

The unemployment is a state fund that all employers pay into. Each employer basically has a checking account with the state to help fund claims. The state assigns a rate to each employer, which determines what percentage of payroll is paid into the fund to pay for claims. The state will then notify each employer as to how much they have taken out of this account in payment of claims.

Seems simple enough!

Because of the high rate of unemployment, more dollars are being paid out in claims and there is not enough money in the fund to support these claims. We were lucky last year because part of the bailout went to funding this shortfall.

But, how does the state address this shortfall in funding?

If you look at the unemployment rating structure set up in New Jersey, you will see that there are six tables the state can use to fund unemployment. All they have to do is switch what table they use in assigning the rate and without notice you have just received a tax increase.

As an example: Suppose your company has a positive reserve ratio between 4% to 4.99%

In 2008 – the state assigned your unemployment rate from column A….. your unemployment  rate would have been 2%.

In 2009 – the state started assigning your unemployment rate from column B…. your new unemployment rate would have been 2.6%.

A 30% increase and nothing really changed!

In 2010 – the state is now looking to fund unemployment from column E+10%, guess what your new rate will be?….. 4.1%

That is over a 57% increase from last year. The rate would have doubled since 2008!

Note: This is just not happening in New Jersey, every state is faced with the same dilemma………. How do we fund the higher claim levels?

What is your current rate?

When was the last time you validated that your unemployment rate is correct?

Now more than ever, it would be prudent to ask this question.

There may be a mistake in the calculation or we may offer options that may help to minimize the potential increases in the long term.

We offer a free analysis of your existing unemployment rate.

Would you like to know more?  Email george@hbsadvantage.com or call 856-857-1230

Unemployment is the 2nd highest employer mandated tax on employers. It is the only tax that you have as an employer, have the opportunity to determine what your rate should be.

To learn more about how the unemployment tax effects your business, you may visit our website www.hutchinsonbusinesssolutions.com or feel free to contact us.