Qittle SMS Message Solutions

By Jim Jubak

Yikes! Oil at $117 a barrel. It has to go down from here, right?

Wrong. In the short term — say, the next two years or so — we’re looking at bad news about global oil supply that could take the price of a barrel of crude to $180.

Needless to say, today’s $3.50-a-gallon gasoline would look cheap if oil prices hit $180 a barrel. At that price for a barrel of oil, gasoline would cost somewhere north of $5.50 a gallon.

The good news is that’s about the price, experts now say, that would send global consumption tumbling and oil prices into retreat, as drivers scrambled to find ways to conserve.

Of course, experts once thought $3-a-gallon gasoline would lead to a drop in consumption. The latest forecast from the International Energy Agency calls for global oil demand of 87.2 million barrels a day this year. That would be an increase in consumption of 1.3 million barrels a day from 2007 — despite a U.S. economic slowdown and soaring oil prices.

So why do I think oil prices will keep climbing for two more years at least?

A terrible coincidence of geology and geopolitics. Just when oil is getting more expensive to produce, the oil industries in three key countries — Mexico, Russia and Nigeria — find themselves short of cash. And without that cash, oil production in these countries, and global oil production in general, is headed into a decline.

The Russian oil industry, for example, announced that production had fallen 1% in the first quarter of 2008. According to the Russian energy ministry, oil production for the full year could be lower than in 2007.

Any decline would mark a huge turnaround. Russian production has grown steadily over the past 10 years, and in its supply-and-demand projections the International Energy Agency has been counting on growth in Russian production of 5% by 2012 to offset big declines in older fields in the North Sea and Mexico.

With the passage of the Energy Bill, speculators are looking closely at the possible impact of increasing demand on biomass feedstock prices. We have seen the early impact on corn – what about wood?

In the current market the availability of woodchips, a residual from the manufacture of wood construction materials, is down because the housing construction is down. The price for woodchips has gone up because the supply is low.

What can we expect when wood begins to replace coal and natural gas in boilers or is used as the feedstock for conversion to biofuels? Supplies will increase to meet demand and the price will go down, right?

Not so, according to a press released just distributed by Business Wire that can be found at Forbes.com. Here is the story in its entirety…

Alternative Fuel Demand Boosts Prices of Forest Products

An EPI flexible fuel fluidized bed energy system provides an alternative to natural gas with
significant decreases in energy costs. So significant, in fact, that the capital costs incurred can be
repaid, in fuel savings alone, within one to three years depending on the alternative fuel available.
Escaping the natural gas trap is important, but it is equally important to not get stuck with the next
high cost fuel. Installing a boiler that can handle a variety of fuels in the same boiler system
provides long-term energy security at predictable costs. Most of the flexible fuel fluidized bed
systems installed by EPI are operating on a different fuel mix than what they were originally
designed to handle. The ability to change fuels as fuel prices and availability change is a critical
component in keeping a plant profitable in an ever-changing energy market.
Recently, natural gas has been the high cost fuel, so comparisons can be made between gas and other
available fuels. Installing and operating a flexible fuel fired energy system today results in
significant cost savings over natural gas only systems. With natural gas at $9.70 per million BTU
delivered, and agricultural wastes at $0.81 per million BTU delivered, the fuel cost savings alone
for a 150,000 lb/hr boiler operated for one year would more than offset the equipment costs of an
EPI flexible fuel energy system. According to figure 1 below, this size of boiler can realize fuel cost
savings of $12 million per year. Other potential fuels could include waste products that ordinarily
command a tipping fee for disposal. Tipping fee fuels provide for even higher energy savings and
associated profit boosts for the owner as other industrial or municipal entities pay for the privilege
of providing fuel for plant operations. Refuse derived fuel, (RDF), and tires are shown as a sample
of tipping fee fuels but others may be available in the local area.

Panda Ethanol is nearing completion of what’s expected to be the first-ever manure fired ethanol plant in the world in small-town Texas.

The world’s first manure fired ethanol plant is expected to go online in the next two months. Not only will it be environmentally friendly but it will also save Panda Ethanol about $30M a year.