Energy/Environment – Page 59 – artdiamondblog.com

Entrepreneur Makes Risky, Massive Infrastructure Bet

A Louisiana site where Cheniere is building a terminal for liquified natural gas. Source of image: online version of the NYT article cited below.

Charif Souki is making a risky business decision. If he is wrong, he and his investors will lose much. If he is right, consumers will be better off, having a larger supply of liquified natural gas (LNG). And if he is right, he should be allowed to make a lot of money, both because that is just, and because it is useful for those who have bet right in the past, to have ample means to bet right in the future.

(p. C1) CAMERON PARISH, La. — The Sabine River channel, where alligators and speckled trout live alongside petrochemical plants and oil refineries, has suddenly become the center of a quiet revolution in the world of natural gas.

And it is mainly at the prodding of a little-known company called Cheniere Energy, with help from Exxon Mobil and Sempra Energy. Together they have overcome formidable regulatory hurdles to build three new liquefied natural gas terminals on the channel that will double the nation’s capacity to import natural gas by 2011.

It has been 24 years since anyone on American shores has built a new liquefied natural gas terminal. Two of the country’s four existing onshore terminals, which dock tankers the size of aircraft carriers ferrying supercooled gas from places like Qatar and Trinidad, were mothballed for years because production at home was plentiful and prices were low.

As recently as five years ago almost nobody in the energy world thought it possible to make money from a new American terminal project — with price tags that start at $600 million — let alone get a federal permit.

One lonely believer was Charif Souki, a Lebanese immigrant entrepreneur who had previously raised (p. C4) money for real estate in Paris and hotels in Hawaii before becoming chairman of Cheniere, a floundering gas exploration company. Not even the 9/11 attacks, which made many people on the Atlantic and Pacific Coasts view liquefied natural gas terminals as potential terrorist targets, diverted him from his vision.

Now, even as natural gas prices sag, along with his company’s stock price, and the word glut is on the tip of the tongue among the drilling crowd, Mr. Souki says he is fixed on the longer view.

He is convinced the nation will need to import more gas because North American production is declining. That is the same view Mr. Souki held six years ago, when he decided to shake up the company’s business plan. He defiantly changed its stock symbol to LNG in 2003, and devoted himself to scoping out the country’s coastlines for potential terminal sites.

The already energy-intensive shoreline along the Gulf of Mexico, he concluded, made the most sense, economically and politically, and he started buying real estate in uninhabited harbors close to existing pipelines and gas-thirsty refineries and petrochemical plants.

“People were actually amused that we would be thinking about importing natural gas,” dryly giggled Mr. Souki, 53, a man with a taste for double-breasted suits. “Nobody took us very seriously.”

Cheniere was so unprofitable and utterly spurned by investors in 2002 that Mr. Souki had to borrow $30,000 from his company’s president just to meet a payroll. But over the last four years, Mr. Souki has managed to arrange financing, sign up long-term buyers and master the regulatory process.

For the full story, see:

CLIFFORD KRAUSS. "A Big Bet on Natural Gas." The New York Times (Weds., October 4, 2006): C1 and C4.

The map shows the area in which the terminal is being built. The bottom photo shows a Louisiana site where Cheniere is building a terminal for liquified natural gas. Source of image: online version of the NYT article cited above.

How Speculators Stablilize Gas Prices

As long ago as 1953, Milton Friedman argued that speculation normally helps to stabilize prices rather than destabilize them.

Mr. Friedman’s argument was applied to currency trading, but the same reasoning works here.  If speculative trading tends to push prices higher when they are already high and lower when they are already low, then traders must be buying high and selling low.

That would mean that traders have to lose money on average — which does not seem very likely.  To the contrary, speculative traders try to buy low and sell high, activities that by their nature tend to push prices up when they are too low and down when they are too high.

Since Mr. Friedman’s 1953 article several papers have been published, both supporting and attacking this argument.  But the general principle seems quite robust.

For the full commentary, see:

Hal R. Varian. "ECONOMIC SCENE; The Rapidly Changing Signs at the Gas Station Show Markets at Work." The New York Times (Thurs., August 24, 2006): C3.

The Milton Friedman article that Varian refers to, is:

Friedman, Milton. "The Case for Flexible Exchange Rates." In Friedman. Essays in Positive Economics. Chicago: University of Chicago Press, 1953.

Unintended Consequences of “Protecting” Rare Woodpecker

Red-cockaded woodpecker. Source of image: http://www.fws.gov/athens/images/Red-cockaded%20woodpecker%20120%20KB%205×7.jpg

BOILING SPRING LAKES, N.C., Sept. 23 (AP) — Over the past six months, landowners here have been clear-cutting thousands of trees to keep them from becoming homes for the endangered red-cockaded woodpecker.

The chain saws started in February, when the federal Fish and Wildlife Service put Boiling Spring Lakes on notice that rapid development threatened to squeeze out the woodpecker.

The agency issued a map marking 15 active woodpecker “clusters,” and announced it was working on a new one that could potentially designate whole neighborhoods of this town in southeastern North Carolina as protected habitat, subject to more-stringent building restrictions.

Hoping to beat the mapmakers, landowners swarmed City Hall to apply for lot-clearing permits. Treeless land, after all, would not need to be set aside for woodpeckers. Since February, the city has issued 368 logging permits, a vast majority without accompanying building permits.

The results can be seen all over town. Along the roadsides, scattered brown bark is all that is left of pine stands. Mayor Joan Kinney has watched with dismay as waterfront lots across from her home on Big Lake have been stripped down to sandy wasteland.

. . .

Like the woodpeckers, humans are also looking to defend their nest eggs.

Bonner Stiller has been holding on to two wooded half-acre lakefront lots for 23 years. He stripped both lots of longleaf pines before the government could issue its new map.

“They have finally developed a value,” said Mr. Stiller, a Republican member of the state General Assembly. “And then to have that taken away from you?”

For the full story, see:

"Rare Woodpecker Sends a Town Running for Its Chain Saws." The New York Times, Section 1 (Sun., September 24, 2006): 20.

Higher Oil Prices Provide Incentive to Seek Deeper Oil

Source of map: online version of the WSJ article cited below.

(p. C1) The successful production of oil from the five-mile-deep Jack well in the Gulf of Mexico is likely to spur more deep-water exploration around the world — and that prospect is helping calm overheated crude-oil markets anxious about future supplies.

. . .

The successful Jack test underscores what a group of economists and oil-industry executives have been arguing for a while: High prices will encourage energy companies to find and pump oil in deep, dark places around the world that otherwise would have been uneconomical.

For the full story, see:

RUSSELL GOLD. "More Companies May Dig Deeper In Search for Oil Gulf of Mexico Discovery Fuels Prospects of Finding New Supplies; Lack of Resources Could Slow Push." Wall Street Journal (Tues., September 19, 2006): C1.

“Responsible Biotechnology is Not the Enemy: Starvation Is”

Source of the book image: http://search.barnesandnoble.com/booksearch/isbnInquiry.asp?z=y&EAN=9781930754904&itm=1

Who won the Nobel Peace Prize in 1970? You may be forgiven for not remembering, given some of the prize’s dubious recipients over the years (e.g., Yasser Arafat). Well, then: Who has saved perhaps more lives than anyone else in history? The answer to both questions is, of course, Norman Borlaug.

Who? Norman Borlaug, 92, is the father of the "Green Revolution," the dramatic improvement in agricultural productivity that swept the globe in the 1960s. He is now the subject of an admiring biography by Leon Hesser, a former State Department official who first met Mr. Borlaug 40 years ago in Pakistan, where they worked together to boost that country’s grain production. "The Man Who Fed the World" describes, in a workmanlike way, how a poor Iowa farm boy trained in forestry and plant pathology came to be one of humanity’s greatest benefactors.

. . .

Mr. Borlaug is still tirelessly working to keep hunger at bay. He remains a consultant to the International Maize and Wheat Improvement Center in Mexico and president of a private Japanese foundation working to spread the Green Revolution to sub-Saharan Africa. He believes that biotechnology will be crucial to boosting world food supplies in the coming decades and decries the underfunding of the world’s network of nonprofit agricultural research centers.

He also laments the unnecessary suspicion with which biotech is treated these days. "Activists have resisted research," he notes, "and governments have overregulated it." They both miss the point. "Responsible biotechnology is not the enemy: starvation is."

For the full review, see:

RONALD BAILEY. "Bookshelf; Going With the Grain." Wall Street Journal (Tues., September 5, 2006): D8.

The reference to the book is:

Hesser, Leon. The Man Who Fed the World: Nobel Peace Prize Laureate Norman Borlaug and His Battle to End World Hunger (Durban House Publishing: Dallas, 2006) ISBN: 1-930754-90-6; Hardback $24.95

World Health Organization (WHO?) Endorses DDT

Source of graphic: online version of the WSJ article cited below.

The World Health Organization, in a sign that widely used methods of fighting malaria have failed to bring the catastrophic disease under control, plans to announce today that it will encourage the use of DDT, even though the pesticide is banned or tightly restricted in much of the world.

The new guidelines from the United Nations public-health agency support the spraying of small amounts of DDT, or dichloro-diphenyl-trichloroethane, on walls and other surfaces inside homes in areas at highest risk of malaria. The mosquito-borne disease infects as many as 500 million people a year and kills about a million. Most victims are in sub-Saharan Africa and under the age of 5.

For the full story, see:

BETSY MCKAY. "WHO Calls for Spraying Controversial DDT To Fight Malaria." Wall Street Journal (Fri., September 15, 2006): B1.

Case for Wind Power is “Absolute Baloney”

I once heard a top MidAmerican Energy executive express considerable, articulate, scepticism about the economics of wind power. (Wind power is unreliable, so that electric companies still must stand ready to provide the electricity by other means.) If wind power made economic sense, you wouldn’t need subsidies to promote it—profit maximizing power companies would pursue it on their own. MidAmerican now invests in wind power, not because it has become an efficient energy source, but because wasteful government subsidies, make wind power profitable for MidAmerican.

Glen Schleede, a retired power company executive, has nothing to lose by speaking the truth:

(p. 1B) The turbines do bother some folks, including Glenn R. Schleede, a retired power company executive from Round Hill, Va., who said the wind power industry puts out "absolute baloney" to justify its existence.

"I’m tired of subsidizing Warren Buffett companies," Schleede said, referring to federal tax subsidies that go to MidAmerican Energy Holdings Co., a division of Omaha-based Berkshire Hathaway Inc. that is headed by Buffett. Those are MidAmerican’s turbines in the fields around Schaller.

Schleede’s criticisms, mostly in academic-style papers he writes, concentrate on the economics of wind power and what he called "false claims about how this is good for an energy system."

"In fact, these things, because they’re intermittent and volatile and unpredictable, they don’t really add a lot of capacity to an electric grid," he said. "When you see these things advertised, they talk about how many megawatts of capacity, the number of homes served and all that garbage.

"I would maintain that they don’t serve any homes."

For the full story, see:

Jordon, Steve. "Harvesting Wind;Farmers like payout, but critics of wind power point to costs." Omaha World-Herald (Sunday September 3, 2006): 1D-2D.

“If Ethanol Made Economic Sense, It Wouldn’t Need a Subsidy”

Source of graphics: online version of the World-Herald article cited below.

(p. 1D) LINCOLN – David Pimentel, a Cornell University researcher, has been criticized repeatedly since he questioned the energy value of ethanol in 1980.

In a government-funded report, he suggested that ethanol provides less energy than is used to produce it. Even though that report has been disputed and rejected by other analysts, Pimentel has not backed down.

He said last week that rural developers, farmers and investors will rue the day they put their money, hopes and dreams into the corn-based alternative fuel.

"It is too bad," he said in an interview, "because it would be a tremendous asset to agriculture if this were a true winner."

Pimentel is among the public critics who raise red flags as momentum gathers for dramatic increases in production, especially in the nation’s top two ethanol-producing states: Iowa and Nebraska.

While Pimentel is perhaps the expert most often quoted – in part because he presented his analysis more than 25 years ago – others also raise questions about the energy value of ethanol and its economic benefits and environmental effects.

Ethanol backers defend the fuel as a viable way to help stabilize the nation’s fuel supply. But they haven’t convinced Jerry Taylor, an energy policy specialist for the Cato Institute, a conservative think tank in Washington, D.C.

"If ethanol made economic sense, it wouldn’t need a subsidy," Taylor said.

For the full story, see:

BILL HORD. "High-octane Clash." Omaha World-Herald (Sunday, August 6, 2006): 1D-2D.

Source of graphics: online version of the World-Herald article cited above.

“DDT Saves Lives, Environmentalists Take Lives”

Connecticut hedge-fund trader, and malaria-fighting activist and philanthropist. Source of image: online version of the WSJ article cited below.

Inside of a year, and working with George Ayittey of the Free Africa Foundation, Mr. Laifer’s efforts have spawned five "malaria-free zones" in Ghana, Nigeria and Kenya. Expansion to Ivory Coast and Benin is in the works. He adds that he has the financing to roll out additional zones this year but — ever the searcher — first wants to assess what’s working and what isn’t. If all is going well, "next year I see us doing something like 100 villages."

Mr. Laifer says a future focus will also be DDT, the pesticide used by Americans and Europeans in the 1940s to win domestic fights against malarial mosquitoes. Indoor spraying of DDT is by far the cheapest and most effective way to control the disease. One South Africa province employing DDT saw malaria infections and deaths drop 96% over a three-year span.

Yet Rachel Carson-inspired environmentalists have convinced many public health agencies that the chemical is dangerous. African nations, fearful that lucrative European and U.S. markets might ban their agricultural exports, make do with less-effective DDT substitutes. Though DDT, like any chemical, can be harmful in high doses, there’s no evidence that using it in the amounts needed to combat malaria has any ill-effect whatsoever on humans.

Mr. Laifer’s been unable to spray DDT in any of his malaria-free zones. "It’s the best thing in our arsenal," he says. "We have a prodigious supply, it’s cheap and we know it works. Our world leaders need to legalize DDT, and people in America need to get mad about this. . . . We need to have people walking around with signs that say, ‘DDT saves lives, environmentalists take lives.’"

For the full commentary, see:

JASON L. RILEY. "Malaria’s Toll." Wall Street Journal (Mon., August 21, 2006): A11.

(Note: the ellipsis is in the original.)

Power to the People

Cooling towers at the Vogtle nuclear power plant in Georgia. Source of photo: the online version of the NYT article quoted and cited below.

A long, and informative cover-story in the NYT, discusses the costs and benefits of nuclear power. My read is that, on balance, the considerations in the article favor nuclear energy. Here are a few passages from near the end of the article:

(p. 64) Gary Taylor, . . ., the C.E.O. of Entergy Nuclear, says he believes a doubling of the number of nuclear plants around the world is inevitable, both to satisfy energy demands and to counter global warming. As Taylor puts it: ”The reality is, what is scalable in the time frame that addresses the issues? If it isn’t this technology, I don’t know what it would be.” Diaz, the former head of the N.R.C., told me he sees a similarly bright future for nuclear. ”The world is going to go nuclear, because they do not have any other real alternatives,” he says. I met plenty of other engineers within the industry who went even further. Their feeling about nuclear power is close to evangelical, in that they seem to approach the technology with moral certitude while being loath to acknowledge any of its many negatives. Would that include the utility executives who will ultimately decide if — and what — to build? I’m not sure it would. To those I spoke with in the uppermost ranks, nuclear power isn’t a belief system. It’s a business. And to them, what might come out of, say, Vogtle Units 3 and 4 — the waste and the power and the profits — would be nearly identical to what comes out of Units 1 and 2.

At least that was my conclusion in Georgia, where Jeff Gasser, the Southern Company’s chief nuclear officer, took me through a long tour of the plant. He was smart, meticulous and intensely committed to the obscure safety protocols that go on at nuclear power facilities. Most of all he was forthright about the advantages and disadvantages of the nukes business. When we went to visit the spent-fuel pool in Vogtle, where the used fuel-rod assemblies are stored under 20 feet of protective water, Gasser let me know that we would die if we pulled one of the fuel assemblies out of the pool. ”We would receive, before we could get to the exit door a few feet away, a lethal radiation dose,” he said. I quickly had to check the radiation dosimeter I was wearing — another legal requirement of the N.R.C. — to see if I was already glowing. (It read zero.) ”The communications people hate it when I use words like ‘lethal’ and ‘irradiated,’ ” Gasser continued. ”But the fact is, there is no perfect way of generating electricity. There are byproducts for every type.” Like many others, he went through the positives and negatives of coal, gas, solar, wind and nuclear. In his opinion, he added, with Vogtle’s engineering, redundancy of safety systems and its trained operators, it was a safe, reliable and efficient way of making electricity. That was his sales pitch.

We had already passed through the containment buildings, where the reactors heat the pressurized water. So Gasser took me through the turbine building, an enormous room the size of a soccer field, where the steam turns the fan blades. Eventually, we went out a back door into the sunlight. The deafening sounds of turbines and machinery subsided to a dull thrum. We removed our earplugs and walked over to a small forest of electrical transformers, our backs to the plant. The electricity from the turbines inside comes out here, Gasser explained, its voltage is transformed, and it is then put into the grid.

Gasser made a pushing motion toward the green hills before us.

”Once the power is sent out of here, it can go everywhere,” he explained. And I could see that it did go everywhere. The high-tension wires stretched away from where we stood, in several directions, through deep cuts in the pinelands, as far as I could see.

For the full article, see:

JON GERTNER. "Atomic Balm? ‘ The New York Times Magazine, Section 6 (Sunday, July 16, 2006), 36-47, 56, 62 & 64.