Rail May Hold Its Own Against Pipelines

Friday, August 3rd, 2012

Submitted by Daniel Graeber of OilPrice.com,

The Association of American Railroads reports the number of rail tankers carrying crude oil and petroleum products in the United States increased more than 35 percent during the first six months of the year when compared with 2011. After the U.S. Energy Department, in its report, noted the lack of pipeline infrastructure in North Dakota, British supermajor BP announced it was considering rail to bring oil from the Bakken formation there to its refinery in Washington state. In terms of the environmental footprint, meanwhile, rail deliveries account for less than 1 percent of the total emissions from the transportation sector. These findings come even though rail shipments are three times more expensive than pipeline deliveries

The AAR finds that 241,000 rail tanker cars hauled oil during the six-month period ending in June, a 38 percent increase over the same period in 2011. For June, rail deliveries increased 51 percent over their 2011 levels for the month. Each rail tanker carries around 700 barrels of oil, meaning June deliveries translated to nearly 1 million barrels per day. The U.S. Energy Department’s Energy Information Administration attributes much of the increase in rail deliveries to the oil boom under way in North Dakota, which in March became the second-largest oil producing U.S. state. Oil producers in the region, however, rely on rail to get oil out of the region and BP this week said it was considering a rail project to bring Bakken crude to its 225,000-bpd refinery in Washington. The permitting process could begin as early as next month.

Rail deliveries, however, cost, on average, $15 per barrel compared with the $5 per barrel for deliveries through pipeline systems. On the other hand, the rail system is getting less energy intensive. While the transportation sector accounts for about 25 percent of the global energy-related carbon dioxide emissions, rail represents a minor fraction of that total. Across the board, emissions for transportation are increasing in every sector except rail, which accounts for less than 1 percent of total CO2 emissions for the sector.

When completed, the entire Keystone oil pipeline network could carry about 1.1 million bpd compared with the same approximate total for the entire United States for rail. The 3,100-mile Enbridge Pipeline System, which stretches from the Athabasca oil sands facilities in Alberta to oil refineries in the Midwest, can carry, on average, 1.4 million bpd. Last week, however, more than 1,000 barrels oil spilled from a section of that pipeline in Wisconsin. While Enbridge said much of the release was contained, the incident occurred one day after the two-year anniversary of the costliest onshore crude oil spill in U.S. history from a section of the same pipeline network. Though in terms of volume, pipeline transportation has proved its merit, the move by BP in the Bakken formation suggests rail transit remains a viable option for the industry.

Tags: Association Of American Railroads, Carbon Dioxide Emissions, Energy Department, Energy Information Administration, Environmental Footprint, Global Energy, Graeber, Oil Boom, Oil Producers, Petroleum Products, Pipeline Infrastructure, Pipeline Systems, Rail Shipments, Rail Tankers, Related Carbon Dioxide Emissions, Sector Accounts, State Oil, Tanker Cars, Transportation Sector, U S Energy
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Crude Oil: $84 a Barrel This Week and Could Hit $100 By January, 2011

Sunday, October 3rd, 2010

Last week the shorts were all lined up for another bearish inventory report for Petroleum products from the EIA, but lo and behold, miracles do actually occur. We had an extremely bullish report (Fig. 1) which caught a lot of traders poorly positioned, and many fund managers underexposed to the commodity, which relative to Gold, Silver, and Copper, smelled like a bargain in the face of further quantitative easing expected by the Federal Reserve in the 4 th quarter.

The technicals indicate that upward resistance will not be found until the $84 a barrel level, so despite Crude Oil moving from roughly $75.60 before the report on Wednesday morning to close Friday`s electronic session at $81.73, a $6.13 move in 3 days, there is still more room to go for this upward move in the commodity.  (Fig. 2)

The real surprise in the report was the large drop–3.5 million barrels– in gasoline inventories, and the RBOB contract needed to re-price itself given this change which was largely due to lower imports on the supply side, as demand for gasoline is still relatively anemic year on year.

Distillate demand has recovered strongly over the last 6 weeks from the lows of the summer (Fig. 3), and is quite robust year on year, and a great sign that the double dip scenario is officially off the table. Remember, that distillate demand represents usage from the industrial and manufacturing sectors of the economy which will be the first indications of potential economic strength or weakness.

Expect crude to test the $84 level sometime Monday or Tuesday, and hold below that level before the upcoming inventory report on Wednesday morning. Even if we have another relatively bullish inventory report expect crude to have some solid resistance near $85 a barrel for the week, as the move would be a little overdone in such a short timeframe. It is natural to expect several pullbacks on volatility and profit taking during the week with a potential weekly trading range from $80.50 to $85.70 give or take 30 cents in either direction.

But the longer term trend is clear as traders and fund managers want to be strategically exposed to Oil from this point forward, as the real upward move is just now starting, expect crude oil to hit $100 a barrel by January, and only going higher from there. The signs are there for this scenario, a strengthening euro, weakening dollar, global currency devaluation races fueling all commodities, Oil Moratorium and anti-drilling sentiment from Washington, globally escalating energy needs, global QE2 programs, and natural Inflation Trends.

All one has to do for validation of this thesis is look at Silver at $22 an ounce, and realize that the only thing holding Crude Oil from a $100 a barrel was supply overhangs. It appears that those will be quickly worked off as both the US and global economy are now past the double dip scares. Expect future business confidence and spending to pick up, and with some pro business initiatives around the corner after the elections in November, expect unemployment to start dropping in a meaningful way.

All this portends for not only a monetary-inflation argument for owning Oil, but the fundamentals are now starting to turn, as illustrated by the Distillate demand recovery (Fig. 3), expect gasoline and crude to follow suit, and now you have the makings of a runaway bull market in this explosive commodity.

Moreover, the one element that has been absent from Crude Oil is the lack of a definable trend like the Gold Market.  Well, expect that to change.  From now through 2011`s Summer Driving Season, crude oil should establish a clear upward trend, which attracts further investment capital, ultimately reinforcing the momentum of the move. This is one of the ironies of financial markets, the higher an asset climbs in price, the more attractive it becomes to investors.

So Crude Oil will become the poster child for the success of the anti-deflationary campaign of the Federal Reserve, but we can all look forward to the Political Blame Game over $150 a barrel oil, Congressional hearings on Oil speculation, National Debates on Energy Policy, and attractively discounted Hummers for sale on CARMAX lots.

Disclosure: No Positions
Dian L. Chu, Oct. 3, 2010

Tags: Bullish Report, Commodities, Crude Oil, Double Dip, Economic Strength, Eia, Electronic Session, Fund Managers, Gasoline Inventories, Gold Silver, Inventory Report, Lows, Manufacturing Sectors, Natural Gas, oil, Petroleum Products, Potentia, Pullbacks, Sectors Of The Economy, Silver, Technicals, Th Quarter, Upward Move, Volatility
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The Future Market for Alternative Cars

Sunday, July 4th, 2010

This article is a guest contribution by Frank Holmes, CEO, US Global Investors.

Tesla became the first American automaker to go public since 1956 today as shares began trading under the ticker TSLA on the Nasdaq. With its most expensive car selling for more than $100k, Tesla is looking to strike a chord with wealthy yet environmentally conscious car buyers. Later this year, Chevrolet hopes its Volt (a price tag about half the size of the Tesla Roadster) will become the first electric car for the masses.

Building this industry from the ground up isn’t an easy task. There were more than 260 million registered vehicles in the United States last year and only a small percentage of those are fueled by alternative energies.

The transportation sector consumed 27.92 quadrillion British thermal units (Btus) of energy in 2008, roughly 28 percent of all energy consumed in the U.S. Of that, petroleum products accounted for nearly 95 percent. Electricity and natural gas combined accounted for less than 3 percent.

This story isn’t new. Petroleum products accounted for 95 percent, 97 percent and 96 percent of energy usage by the transportation sector in 1965, 1985 and 2005, respectively.

While Tesla, Chevrolet and others battle it out in the electric car market, tycoons like T. Boone Pickens have been outspoken proponents of natural gas vehicles (NGVs).

Currently the U.S. only represents a smidgen of the global NGV market. Of the more than 10 million NGVs around the world, only 110,000 drive on America’s roadways. Many of these are in cities that have converted their municipal fleets of buses and trucks to liquefied natural gas (LNG).

As you can see from the chart, the U.S. trails China, Colombia and Argentina in the NGV market. More than half of the total vehicle population of Pakistan (52 percent) is NGVs, making it the world’s largest market.

Overall, the global NGV market has grown by more than 20 percent a year since 2000, according to the International Association for Natural Gas Vehicles (IANGV). In the past four years alone, the Asia-Pacific Region has increased its number of NGVs from just over 1 million to almost 6 million.

Some have argued that in order to increase the usage of NGVs in the U.S., there needs to be massive investment in fueling stations and infrastructure but that’s not necessarily true. There were 1,300 refueling stations servicing the 110,000 NGV vehicles as of 2007—roughly one station for every 85 vehicles, according to IANGV statistics.

That’s a substantially better ratio than the world’s leading NGV markets. In Pakistan, there is one fueling station for every 750 NGVs. In Iran it’s one for every 1631 vehicles. In India it’s one for every 1670.

In the near term, it’s unlikely either electric cars or NGVs will grab substantial market share in the U.S. auto business but after 2008’s sky-high gas prices and BP’s Gulf disaster, the American public may finally be ready for an alternative.

Tags: Alternative Cars, Alternative Energies, Car For The Masses, China, Electric Car, Expensive Car, Frank Holmes, Gas Lng, India, Liquefied Natural Gas, Municipal Fleets, Natural Gas, Natural Gas Vehicles, Outspoken Proponents, Petroleum Products, Population Of Pakistan, Quadrillion, T Boone Pickens, Tesla Roadster, Transportation Sector, Tsla, Us Global Investors, Vehicle Population
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The Future Market for Alternative Cars

Tuesday, June 29th, 2010

Tesla became the first American automaker to go public since 1956 today as shares began trading under the ticker TSLA on the Nasdaq. With its most expensive car selling for more than $100k, Tesla is looking to strike a chord with wealthy yet environmentally conscious car buyers. Later this year, Chevrolet hopes its Volt (a price tag about half the size of the Tesla Roadster) will become the first electric car for the masses.

Building this industry from the ground up isn’t an easy task. There were more than 260 million registered vehicles in the United States last year and only a small percentage of those are fueled by alternative energies.

The transportation sector consumed 27.92 quadrillion British thermal units (Btus) of energy in 2008, roughly 28 percent of all energy consumed in the U.S. Of that, petroleum products accounted for nearly 95 percent. Electricity and natural gas combined accounted for less than 3 percent.

This story isn’t new. Petroleum products accounted for 95 percent, 97 percent and 96 percent of energy usage by the transportation sector in 1965, 1985 and 2005, respectively.

While Tesla, Chevrolet and others battle it out in the electric car market, tycoons like T. Boone Pickens have been outspoken proponents of natural gas vehicles (NGVs).

Currently the U.S. only represents a smidgen of the global NGV market. Of the more than 10 million NGVs around the world, only 110,000 drive on America’s roadways. Many of these are in cities that have converted their municipal fleets of buses and trucks to liquefied natural gas (LNG).

As you can see from the chart, the U.S. trails China, Colombia and Argentina in the NGV market. More than half of the total vehicle population of Pakistan (52 percent) is NGVs, making it the world’s largest market.

Overall, the global NGV market has grown by more than 20 percent a year since 2000, according to the International Association for Natural Gas Vehicles (IANGV). In the past four years alone, the Asia-Pacific Region has increased its number of NGVs from just over 1 million to almost 6 million.

Some have argued that in order to increase the usage of NGVs in the U.S., there needs to be massive investment in fueling stations and infrastructure but that’s not necessarily true. There were 1,300 refueling stations servicing the 110,000 NGV vehicles as of 2007—roughly one station for every 85 vehicles, according to IANGV statistics.

That’s a substantially better ratio than the world’s leading NGV markets. In Pakistan, there is one fueling station for every 750 NGVs. In Iran it’s one for every 1631 vehicles. In India it’s one for every 1670.

In the near term, it’s unlikely either electric cars or NGVs will grab substantial market share in the U.S. auto business but after 2008’s sky-high gas prices and BP’s Gulf disaster, the American public may finally be ready for an alternative.

None of U.S. Global Investors family of funds held any of the securities mentioned in this article as of March 31, 2010.

Tags: Alternative Cars, Alternative Energies, Car For The Masses, Electric Car, Expensive Car, Gas Lng, India, Liquefied Natural Gas, Municipal Fleets, Natural Gas, Natural Gas Vehicles, Outspoken Proponents, Petroleum Products, Population Of Pakistan, Quadrillion, Rsquo, Smidgen, T Boone Pickens, Tesla Roadster, Transportation Sector, Tsla, Vehicle Population
Posted in China, Energy & Natural Resources, India, Infrastructure | Comments Off

Andrew Lahde: Sayonara!

Wednesday, October 22nd, 2008

Andrew Lahde, the hedge fund manager, who last year, was catapulted into the limelight when he successfully returned 886% to investors, betting against subprime mortgages, closed up shop last month, claiming that counterparty problems were making it far too difficult and stressful for him to want to keep on going.

Below is Lahde’s farewell and f— you letter to those who deserve it.

Dear Investor:

Today I write not to gloat. Given the pain that nearly everyone is experiencing, that would be entirely inappropriate. Nor am I writing to make further predictions, as most of my forecasts in previous letters have unfolded or are in the process of unfolding. Instead, I am writing to say goodbye.

Recently, on the front page of Section C of the Wall Street Journal, a hedge fund manager who was also closing up shop (a $300 million fund), was quoted as saying, “What I have learned about the hedge fund business is that I hate it.” I could not agree more with that statement. I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.

There are far too many people for me to sincerely thank for my success. However, I do not want to sound like a Hollywood actor accepting an award. The money was reward enough. Furthermore, the endless list those deserving thanks know who they are.

I will no longer manage money for other people or institutions. I have enough of my own wealth to manage. Some people, who think they have arrived at a reasonable estimate of my net worth, might be surprised that I would call it quits with such a small war chest. That is fine; I am content with my rewards. Moreover, I will let others try to amass nine, ten or eleven figure net worths. Meanwhile, their lives suck. Appointments back to back, booked solid for the next three months, they look forward to their two week vacation in January during which they will likely be glued to their Blackberries or other such devices. What is the point? They will all be forgotten in fifty years anyway. Steve Balmer, Steven Cohen, and Larry Ellison will all be forgotten. I do not understand the legacy thing. Nearly everyone will be forgotten. Give up on leaving your mark. Throw the Blackberry away and enjoy life.

So this is it. With all due respect, I am dropping out. Please do not expect any type of reply to emails or voicemails within normal time frames or at all. Andy Springer and his company will be handling the dissolution of the fund. And don’t worry about my employees, they were always employed by Mr. Springer’s company and only one (who has been well-rewarded) will lose his job.

I have no interest in any deals in which anyone would like me to participate. I truly do not have a strong opinion about any market right now, other than to say that things will continue to get worse for some time, probably years. I am content sitting on the sidelines and waiting. After all, sitting and waiting is how we made money from the subprime debacle. I now have time to repair my health, which was destroyed by the stress I layered onto myself over the past two years, as well as my entire life — where I had to compete for spaces in universities and graduate schools, jobs and assets under management — with those who had all the advantages (rich parents) that I did not. May meritocracy be part of a new form of government, which needs to be established.

On the issue of the U.S. Government, I would like to make a modest proposal. First, I point out the obvious flaws, whereby legislation was repeatedly brought forth to Congress over the past eight years, which would have reigned in the predatory lending practices of now mostly defunct institutions. These institutions regularly filled the coffers of both parties in return for voting down all of this legislation designed to protect the common citizen. This is an outrage, yet no one seems to know or care about it. Since Thomas Jefferson and Adam Smith passed, I would argue that there has been a dearth of worthy philosophers in this country, at least ones focused on improving government. Capitalism worked for two hundred years, but times change, and systems become corrupt. George Soros, a man of staggering wealth, has stated that he would like to be remembered as a philosopher. My suggestion is that this great man start and sponsor a forum for great minds to come together to create a new system of government that truly represents the common man’s interest, while at the same time creating rewards great enough to attract the best and brightest minds to serve in government roles without having to rely on corruption to further their interests or lifestyles. This forum could be similar to the one used to create the operating system, Linux, which competes with Microsoft’s near monopoly. I believe there is an answer, but for now the system is clearly broken.

Lastly, while I still have an audience, I would like to bring attention to an alternative food and energy source. You won’t see it included in BP’s, “Feel good. We are working on sustainable solutions,” television commercials, nor is it mentioned in ADM’s similar commercials. But hemp has been used for at least 5,000 years for cloth and food, as well as just about everything that is produced from petroleum products. Hemp is not marijuana and vice versa. Hemp is the male plant and it grows like a weed, hence the slang term. The original American flag was made of hemp fiber and our Constitution was printed on paper made of hemp. It was used as recently as World War II by the U.S. Government, and then promptly made illegal after the war was won. At a time when rhetoric is flying about becoming more self-sufficient in terms of energy, why is it illegal to grow this plant in this country? Ah, the female. The evil female plant — marijuana. It gets you high, it makes you laugh, it does not produce a hangover. Unlike alcohol, it does not result in bar fights or wife beating. So, why is this innocuous plant illegal? Is it a gateway drug? No, that would be alcohol, which is so heavily advertised in this country. My only conclusion as to why it is illegal, is that Corporate America, which owns Congress, would rather sell you Paxil, Zoloft, Xanax and other additive drugs, than allow you to grow a plant in your home without some of the profits going into their coffers. This policy is ludicrous. It has surely contributed to our dependency on foreign energy sources. Our policies have other countries literally laughing at our stupidity, most notably Canada, as well as several European nations (both Eastern and Western). You would not know this by paying attention to U.S. media sources though, as they tend not to elaborate on who is laughing at the United States this week. Please people, let’s stop the rhetoric and start thinking about how we can truly become self-sufficient.

With that I say good-bye and good luck.

All the best,

Andrew Lahde

Tags: Adam Smith, Aig, America, Andrew Lahde, Andy Springer, Bear Stearns, Bp, Canadian Market, capitalism, Congress, energy, Energy Source, EUM, Euro, Focus, food, foreign energy sources, FT.com, George Soros, Harvard, Hedge Fund, Hedge Fund Manager, Hollywood actor, Larry Ellison, Lehman Brothers, Linux, media sources, Microsoft, Mortgage, operating system, Paxil, Petroleum Products, Rally, REW, risk, SMI, Steve Balmer, Steven Cohen, sustainable solutions, the Wall Street Journal, Thomas Jefferson, U.S. government, United States, usd, Wall Street, Wall Street Journal, Xanax, Yale, Zoloft
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