Thursday, December 25, 2008
Tuesday, September 30, 2008
Financial Crisis = Energy Crisis?
Up until a few weeks ago, energy was a front-page topic. Now its place has been taken by our financial crisis. But while all the mainstream media attention regarding the present financial crisis has focused on its threat to America’s financial sector, the fact is that threat very much includes our present and future ability to meet our energy needs.
Most of our domestic natural gas production is not the work of so-called “big oil,” but rather by independent producers who are entrepreneurial businesses that make their revenues only by producing natural gas. They utilize the futures market to reduce risk and to ensure a certain return on what they produce but have no retail or other operations that can offset big swings in price. Current domestic production is threatened because of the massive amounts of capital it requires to drill and produce that natural gas here in the U.S. Producers must have access to that capital.
At the same time, the financial crisis has increased the volatility of the energy markets. Bear Stearns, Lehman Brothers, Goldman Sachs and others all played a major role in the commodities markets, including energy. The buying and selling that has occurred, as the major players have had to liquidate some positions and cover others have roiled the markets, making it extremely difficult for independent producers to do any long-range planning. It also has left some holding the bag. Tulsa, Oklahoma-based Semgroup LP’s bankruptcy, caused by the firms’ huge exposure to energy options trading, has left thousands of small producers who sold oil to the firm owed millions, and the producers unable to pay royalty owners.
We don’t have to go far back in time to see what happens if the independent producers are harmed. In the late 1990’s, Venezuela flooded the U.S. market with below-cost Venezuelan oil. Oil fell to $8 a barrel, if you can imagine that now—less than 10 years ago. This was done with the goal of driving America’s independent oil producers out of business, about a million barrels of oil a day. Thousands of independent producers who had hung on through the boom and bust 1980’s were put out of business, and our reliance on foreign oil, and the transfer of American wealth overseas, increased accordingly. But it wasn’t only our domestic oil production that was lost. Many of the independents were also natural gas producers.
But we were able to move from a position of natural gas want to natural gas abundance with new, more expensive technology and new ideas that unlocked natural gas from shales and sands. That brings us to a less tangible, but no less real aspect to the present threat, and it is the fact that independents also bring the kind of “outside the box” thinking needed to solve our energy and environmental problems. In the 1970’s, while the best and brightest of the biggest oil companies were busy telling Congress we were running out of natural gas, such small independents as GHK’s Bob Hefner had the gall to challenge them both in words and deeds, in the end proving that natural gas could be found even where no oil existed, and at depths never before thought possible. Independents were way ahead of the curve in jumping in with both feet when it came to natural gas, to the point where today in America, more than 90 percent of the working rigs are exploring for the natural gas that is so critical to our present and future energy needs. The shale production techniques that have played such a key role in just the past four years in providing abundant supplies of clean-burning natural gas were developed by an independent producer and it is the American independent producers that are leading the way in developing these clean energy sources for the future right now.
This kind of entrepreneurial thinking is also driving the current development of wind, solar, and biomass, which, in conjunction with natural gas, can form an energy portfolio that will secure a green energy future for us. But these sectors are also facing the same threats. Access to capital is essential for these “plays” to develop to their full potential.
The need for wise, forward-thinking policy decisions has never been greater. You cannot have a sound economy without American energy to fuel that economy. A strong capital market is essential to any energy policy. And an energy policy that ignores the environment is self-defeating. It’s not just financial institutions that are at stake in this debate, but our energy and environmental future as well.
Most of our domestic natural gas production is not the work of so-called “big oil,” but rather by independent producers who are entrepreneurial businesses that make their revenues only by producing natural gas. They utilize the futures market to reduce risk and to ensure a certain return on what they produce but have no retail or other operations that can offset big swings in price. Current domestic production is threatened because of the massive amounts of capital it requires to drill and produce that natural gas here in the U.S. Producers must have access to that capital.
At the same time, the financial crisis has increased the volatility of the energy markets. Bear Stearns, Lehman Brothers, Goldman Sachs and others all played a major role in the commodities markets, including energy. The buying and selling that has occurred, as the major players have had to liquidate some positions and cover others have roiled the markets, making it extremely difficult for independent producers to do any long-range planning. It also has left some holding the bag. Tulsa, Oklahoma-based Semgroup LP’s bankruptcy, caused by the firms’ huge exposure to energy options trading, has left thousands of small producers who sold oil to the firm owed millions, and the producers unable to pay royalty owners.
We don’t have to go far back in time to see what happens if the independent producers are harmed. In the late 1990’s, Venezuela flooded the U.S. market with below-cost Venezuelan oil. Oil fell to $8 a barrel, if you can imagine that now—less than 10 years ago. This was done with the goal of driving America’s independent oil producers out of business, about a million barrels of oil a day. Thousands of independent producers who had hung on through the boom and bust 1980’s were put out of business, and our reliance on foreign oil, and the transfer of American wealth overseas, increased accordingly. But it wasn’t only our domestic oil production that was lost. Many of the independents were also natural gas producers.
But we were able to move from a position of natural gas want to natural gas abundance with new, more expensive technology and new ideas that unlocked natural gas from shales and sands. That brings us to a less tangible, but no less real aspect to the present threat, and it is the fact that independents also bring the kind of “outside the box” thinking needed to solve our energy and environmental problems. In the 1970’s, while the best and brightest of the biggest oil companies were busy telling Congress we were running out of natural gas, such small independents as GHK’s Bob Hefner had the gall to challenge them both in words and deeds, in the end proving that natural gas could be found even where no oil existed, and at depths never before thought possible. Independents were way ahead of the curve in jumping in with both feet when it came to natural gas, to the point where today in America, more than 90 percent of the working rigs are exploring for the natural gas that is so critical to our present and future energy needs. The shale production techniques that have played such a key role in just the past four years in providing abundant supplies of clean-burning natural gas were developed by an independent producer and it is the American independent producers that are leading the way in developing these clean energy sources for the future right now.
This kind of entrepreneurial thinking is also driving the current development of wind, solar, and biomass, which, in conjunction with natural gas, can form an energy portfolio that will secure a green energy future for us. But these sectors are also facing the same threats. Access to capital is essential for these “plays” to develop to their full potential.
The need for wise, forward-thinking policy decisions has never been greater. You cannot have a sound economy without American energy to fuel that economy. A strong capital market is essential to any energy policy. And an energy policy that ignores the environment is self-defeating. It’s not just financial institutions that are at stake in this debate, but our energy and environmental future as well.
- Denise Bode
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