Carpe Diem

Some economic and energy reports

shipments1. The Department of Commerce reported today that shipments of manufactured durable goods increased in December to an all-time high of $230.6 billion. In nominal dollars, that’s a new monthly record for shipments of durable goods from US manufacturers, and surpasses the previous record of $229.7 billion established in January 2008 near the onset of the Great Recession. See chart above and related commentary from Scott Grannis and First Trust Advisors.

2. In another sign of strong economic performance from America’s manufacturing sector, the Chicago Fed reported today that factory output in the Midwest finished last year with a strong increase of 6.2% in December from a year earlier.  Manufacturing output in the five-state area of Illinois, Indiana, Iowa, Michigan, and Wisconsin grew at more than twice the national rate of 2.7% last year, led by an especially strong gain in Midwest automotive output last year of almost 17% (compared to 10.2% nationally).

3. From last Thursday’s weekly rail traffic report, shipments of oil were up by 61%, lumber by 16%, and motor vehicles by +19% (all vs. the same week last year), as energy, housing, and automotive manufacturing continue to be three of the strongest sectors of the US economy.

Speaking of the booming energy sector, here are two items providing more evidence that the shale gas revolution is delivering a powerful energy-driven stimulus to the US economy.

4. Bloomberg reports that falling natural gas prices could save U.S. consumers $16.5 billion annually just on home energy bills.  And it gets even better.  U.S. households might reap total benefits of more than $100 billion a year through 2015 from lower natural gas prices when indirect savings are included from lower product prices and higher wages generated by America’s shale revolution.

5. And it’s not just consumers who are benefiting from America’s abundant shale gas. The AP is reporting that private landowners are reaping billions of dollars in royalties each year from the boom in natural gas drilling, transforming lives and livelihoods even as the windfall provides only a modest boost to the broader economy. In Pennsylvania alone, royalty payments could top $1.2 billion for 2012.

6. In other energy news, Bloomberg highlights a quiet, but promising breakthrough in the next generation of geothermal power technology, which could be the “holy grail of clean power.”

7. In California, foreclosure starts fell in Q4 2012 to the lowest level since Q4 2006, six years ago, the result of rising home values, an improving economy and a shift toward short sales.

28 thoughts on “Some economic and energy reports

  1. regarding point 1, are we to be that excited by a nominal dollar record?

    in real terms, that number looks to be around 10% below the 2007 peak and basically where it was about a decade ago. it seems to me that we are mostly applauding higher prices than we had in 2007 as opposed to a recovery in units.

    regarding point 6, i hope they are onto somehting. alt energy is rife with promotion and questionable data and press releases, but i think the article makes some good points about geothermal and i hope alta really is making breakthroughs (i have no idea about the company, but have learned to verify alt energy PR’s before accepting them).

    geothermal has far more potential than solar or wind and unlike the other 2, can provide consistent baseline power. i am really surprised at how little money/attention it gets relative to the other 2.

    • Actually if you look at power demand curves in the southern us, solar makes a lot of sense. In Tx for example the peak demand is a hot sunny summer afternoon around 5 pm. At that time the sun is still shining so a good bit of solar energy is useful.
      The demand for power varies from 50 to 70% over a day, of course this has been a problem since the Pearl Street Station, when lights were not turned on until evening.
      Baseline power is not the only need peaking power is also as useful and needed. In Tx the demand in the summer varies from about 30 Gw in the morning to around a max of 60 Gw about 5 pm depending on the outside temp (much lower in fall and spring around 40 GW).
      I invite folks to go to the ercot site and look at the demand curves posted there (www.ercot.com). Other parts of the country have similar sites if they have de-controlled electricity.

      The variablity of load has been a problem since the Edisons first generating station, then it was that electric lights were only needed in the evening. So they invented electric streetcars to use the reserves when the lights were not needed. In the 1920s you could get a service that heated your hot water between midnight and 6am at a time of minimum load.
      So Baseline power is not the only need, many plants exist today as peakers or to run maybe 8 hours or less a day. So the issue of non baseload power has already been handled by the grid operators, they have to be able to handle it or we would have regular evening blackouts.

      • lyle-

        you make a good point about peak vs baseline loads, but it’s not quite as simple as that.

        first off, keep in mind that it is not always sunny. sometime you get a cloudy day or rain. also keep in mind that even in the southern us, the wattage per square meter does vary considerably from summer to winter as do the number of hours of sunlight.

        these facts alone make for a difficult planning situation, though, for things like say, air conditioning in vegas, might align reasonably well.

        big plants can take anywhere from 6 hours to days to warm up for full capacity. nat gas is better than coal in this respect (and nuclear arguably better than either) but when you get peak surges (say, a really hot day) the plants that currently take up the slack are small, quick spin gas plants with VERY high costs per mw/h.

        i agree that solar is far better than wind, which likely cannot ever be economic on a systemwide basis, but hot hazy days can be very difficult for such a system and you still wind up needing a lot of backup capacity.

        this would not be the case with geothermal.

        assuming parity in costs, i think you would always want to go geothermal both from a predictability and from a land use standpoint.

        that said, i do not think we are anywhere near parity in costs.

        some are reporting that geo is even cheaper than coal.

        http://www.scientificamerican.com/article.cfm?id=can-geothermal-power-compete-with-coal-on-price

        i am not sure just how much credence to give such claims as if they were true, i’d expect to see a real boom in geothermal and, as this is not happening, i suspect there is some other issue lurking here. (or that the math is wrong)

        • first off, keep in mind that it is not always sunny. sometime you get a cloudy day or rain. also keep in mind that even in the southern us, the wattage per square meter does vary considerably from summer to winter as do the number of hours of sunlight.

          You also get a lot of dust that will need to be cleaned off the panels and a lot of natural sandblasting that will cause problems with long term assumptions made by the promoters.

          i agree that solar is far better than wind, which likely cannot ever be economic on a systemwide basis, but hot hazy days can be very difficult for such a system and you still wind up needing a lot of backup capacity.

          While wind is bad there is no evidence yet that over the long term solar is much better. As I wrote before, once we look at all of the maintenance costs and the life of equipment assumptions, plus the effect of cyclical climate trends that impact cloud cover and other factors the whole thing is a crapshoot.

          assuming parity in costs, i think you would always want to go geothermal both from a predictability and from a land use standpoint.

          I have been hearing the geothermal story for more than a decade and talked to the management of the leading companies in the sector. The funny thing is that while the companies change the management groups remain the same. You typically see the geothermal players attract capital, go under, and have their assets fall into new hands that try to promote the potential as insiders make a killing. I am sure that in a few weeks time I will hear another geothermal story at the PDAC from the same people who told me the old story about how great the potential was. The trouble is that even if the geothermal story were correct the current players are likely to wipe out investors and the contributions to the grid will not appear for a very long time. Given the water ‘problems’ in the US I am not sure that the process can ever be what it is touted to be.

          • i have never looked at geothermal in any great detail.

            what exactly is the issue that keeps it from being viable?

            it seems like a great idea in many respects, but i have long suspected that there must be a serious issue here somewhere as it never seems to gain any traction.

          • i have never looked at geothermal in any great detail.

            what exactly is the issue that keeps it from being viable?

            it seems like a great idea in many respects, but i have long suspected that there must be a serious issue here somewhere as it never seems to gain any traction.

            You need to drill wells that will pump cold water into a heated area and wells that will bring hot water up to the surface. The trouble is that the process takes energy and resources and that there are capacity constraints that limit how much energy can be produced from a given well over a certain period of time. Eventually all that cold water makes the area cooler and the temperature of the hot water that comes to the surface falls. That makes the heat exchange process less effective and more expensive. While areas of high volcanic activity can allow the engineers to deal with some of the issues they have their own problems because they are usually far from the market for the power and have inherent risks that could cause the wells to become useless in a short period of time.

            If you ever get the time and there is a natural resource show in your area I suggest that you go. It will take little time of listening to figure out just how volatile some of these sectors are and just how few winners there will be among the small players who are promising riches if they are successful.

          • v-

            oh, i have been to numerous energy shows. there have been some spectacular short sales to be had in solar, wind, and a variety of ancillary stuff like batteries and ultracapacitors.

            i have just never really focused on geothermal as they have not been many public plays and fewer that ran way up on hype.

          • For wind you do need to upgrade the distribution network, on Ercot we hit 25% wind recently, and as I write this its at 20% wind in Texas. But using wind has required thinking differently about how you manage the grid, and solar will be the same. As to dust in the eastern part of Tx it also rains a lot and rain if more than a mist washes dust away, (every so often we get a big storm, and I get a nice car wash out of it). Now I am talking about rooftop solar not utility scale solar, so since the roofs get rain they get washed if you don’t live in the desert.

            As to geothermal, of course the west has more of it and again just like wind you need to build transmission lines which hit the NIMBY crowd. Nevada in particular because of its high heat flow is full of areas that would work, but because outside of Las Vegas and Reno Nevada is basically empty country, lots of lines are needed.

        • Yet again in the summer situation, a large part of the AC load is due to the sun baking buildings, if its raining the temp drops and the sun load drops, so less power needed. In addition rain washes the panels and we do get gulley washers every so often in Tx up to 6 inches per hour rates. Further after the power cuts 10 years ago in Tx due to wind problems, they got better forecasts and now have a better idea of when the wind will blow, likewise if you get large scale solar, the sort term weather forecasts will get better. A lot of the problems stated can be worked around.

          As to start up times here is a link to a report from Siemens that tells how the cut the startup time, the report says that the market based power situation in deregulated states leads to a demand for quick startup, and tells how it is done: http://www.energy.siemens.com/hq/pool/hq/energy-topics/pdfs/en/combined-cycle-power-plants/OperationalFlexibilityEnhancementsofCombinedCyclePowerPlants.pdf

          • In addition rain washes the panels and we do get gulley washers every so often in Tx up to 6 inches per hour rates.

            And that can be a big problem because you have to account for hale and very high precipitation rates when you are designing the system. Of course, all you need is one tornado and you no longer have a solar farm. Or a very strong wind that uses dust, sand, and other debris to erode the solar surfaces if small enough or break them if they have sufficient mass.

            Further after the power cuts 10 years ago in Tx due to wind problems, they got better forecasts and now have a better idea of when the wind will blow, likewise if you get large scale solar, the sort term weather forecasts will get better. A lot of the problems stated can be worked around.

            No, you can’t work around them if the physical laws are against you. That is the problem with alternatives; they cannot work in most applications because they cannot compete with more competitive methods of generating energy.

  2. “In Pennsylvania alone, royalty payments could top $1.2 billion for 2012 … falling natural gas prices could save U.S. consumers $16.5 billion annually just on home energy bills … U.S. households might reap total benefits of more than $100 billion a year through 2015 from lower natural gas prices …”

    No thanks to the current administration or the environmental left.

    I watched “FrackNation” this weekend. If any further evidence were needed of the environmental lefts gross dishonesty and contempt for the lives of ordinary people this film certainly provides it.

    It seems incredible that no one has legal standing or recourse against the knowing and deliberate campaign of falsehoods and smears leveled by Josh Fox in “Gasland”. This maggot should be bankrupt or in prison. Instead, he is feted by the media and Hollywood, and HBO has offered to produce a follow up to “Gasland”. Meanwhile, Phelim McAleer and Ann McElhinney, the creators of “FrackNation”, will receive no awards or recognition and are left to seek crowd funding for their future endeavors. Unbelievable.

    “In this world, shipmates, sin that pays its way can travel freely, and without a passport; whereas Virtue, if a pauper, is stopped at all frontiers” — Herman Melville, “Moby Dick”

      • Virtually unlimited? Which shale gas producer is not having cash flow problems from operations and not depending on asset sales or new borrowing to stay afloat? What is needed is an understanding that allows one to differentiate between resources, which are defined as natural concentrations of gas or oil of potential economic interest and reserves, and reserves, which meet the geological requirements but are also economically viable and accessible. If you think that the US has “virtually unlimited supply of nat gas” you might be interested in a NY bridge that I have to sell.

  3. The decline in gas has pushed average wholesale electricity prices paid by utilities down 50 percent since fourth quarter 2008, according to a Jan. 11 report from Standard & Poor’s. Meanwhile, retail rates paid by consumers have risen about 5 percent over a similar period, according to data from the Energy Department compiled by Bloomberg .

    I am sorry to be the bearer of bad news but electricity rates will continue to climb because as more and more plants begin to use gas the demand will cause natural gas prices to climb. But sadly the increases will always be just short of what will be needed for the shale gas producers to make a real economic profit. In case you have not noticed, the number of shale gas rigs is down. And once the backlog of drilled wells waiting to be fracked is eliminated the natural depletion rate will cause production levels to fall. I suspect that the Bakken is about done and that by the end of next year the decline will be evident. At that time nobody will be talking about it just as they are no longer talking up the early shale formations that generated all that excitement or the supposed giants discovered in the ultra deep waters in the Gulf of Mexico.

    The simple fact is that electricity demand has not grown very much because of a weak real economy. If it does there is no way that the utilities can keep up with demand as they move away from coal and stay away from nuclear. Prices will rise to ration demand and those increases will drive industry abroad.

    • “I am sorry to be the bearer of bad news … I suspect that the Bakken is about done and that by the end of next year the decline will be evident.” — Vag

      How about being the bearer of an intelligent comment every once and a while? Too much to ask? I suspect that the only thing that will be evident next year is that you’ve pushed your deadline for Armageddon out at least another year.

      • I have not pushed out anything. The facts on this are clear. The shale gas sector has been a great destroyer of capital and the very companies that you guys were hyping not too long ago wound up adding massive amounts of debt because their shale gas projects were not self financing and cannot be self financing outside of a few tiny areas.

    • From what I’ve read, there are approximately 20 shale areas like the Bakken, such as Eagle Ford, Cline, Marcellus, etc.

      I’m not sure the rig counts are an accurate measure. Do they keep track of how many horizontal paths and fracking stages that each well head is drilling? There has been a significant increase in the number of both per well, which might be skewing those statistics.

      • There are many shale areas. But few of them will be as economic as the Bakken. Many of the early shale areas that were being hyped up have now been quietly forgotten and even the gas story has been changed to shale liquids because gas was such a destroyer of capital.

        If you want to look at what the production profile will look line in each of these areas all you need do is look at one of the better and certainly most profitable fields in the Bakken; the Elm Coulee. Production exploded beginning around 2000 and everyone got very excited when the plotted profile showed this. The problem was depletion. It was so high, but not as high as the rest of the Bakken, that drilling could no longer keep the production profile from increasing. And shortly after the peak hype we began a decline that looks like this.

        You see the problem? Everything is driven by two factors. The first is investment in horizontal wells. The second is the depletion rates in those wells. If you look at the math you find that after a while you run into a drilling problem; you have to keep drilling more and more wells just to keep production flat. But the new wells are not as productive as the old ones because they begin to be drilled in the non-core areas. So the production begins to decline and once it does the financing dries up. Companies are forced to sell off assets, merge with ones that can actually make a profit, or have to take write-offs that could drive them into bankruptcy. The math is very clear and very simple.

    • That will only be the case if we decide that the producers of natural gas are more important than the consumers in the US and we export the gas.

      • “VICTORIA — The sense of excitement in Kitimat is palpable, says Mayor Joanne Monaghan.

        The northwest British Columbia town cited by Census Canada in March 2007 as the community with the greatest population decline in Canada now is looking at multi-billion-dollar investments in proposed liquefied natural gas projects, aluminum smelter upgrades and the Northern Gateway pipeline.

        Once posting a rental vacancy rate of 44.5%, Kitimat now is brimming with construction jobs, fighting traffic jams and worrying about rising rents, said Monaghan.

        Monaghan, elected to Kitimat’s council for the past 38 years, says residents are pinching themselves and wondering if it’s all real.” — LNG plans for Kitimat turns doom town to boom town‏, Financial Post

        I love the smell of wealth creation in the morning.

        • It is not clear if the nothern gateway pipeline will ever be built. The first nations (canadian version of native americans) want a large ransom to allow the pipeline to be built, and its not clear that the ransom leaves the pipeline in an economic sense. What makes more sense for Canada is to build pipelines east to Ontario, and push out imported oil. Since there are already pipelines for natural gas running that direction the approval process should be easier. So we need to recall that the local politics makes a difference, and also the question is which party is the mayor from? It is not surprising that the town is suffering since its major industry is aluminum smelting, so its surprising to see the idea that more aluminum lines would be built, or is the mayor being like all mayors and engaging in boosterism?

      • Who is “we”, and why are “we” deciding such things rather than letting producers and consumers decide on price using the law of supply and demand?

  4. “Brisbane company Linc Energy yesterday released two reports, based on drilling and seismic exploration, estimating the amount of oil in the as yet untapped Arckaringa Basin surrounding Coober Pedy ranging from 3.5 billion to 233 billion barrels of oil. At the higher end, this would be “several times bigger than all of the oil in Australia”, Linc managing director Peter Bond said. This has the potential to turn Australia from an oil importer to an oil exporter.” — Adelaide Now

    Saudi Australia

  5. With destruction of capacity (e.g. early retirements, more regulations, part-time work under Obamacare, etc.) and contractionary fiscal policy (i.e. tax hkes and spending cuts), we’ll either get inflation (through faster nominal growth, and if the Fed tightens, we’ll get stagflation) or recession (which won’t take much in this weak “recovery”).

  6. On the geothermal breakthrough—

    “The Department of Energy also gave AltaRock a $21.4 million grant to work on the project. Petty said the well was the equivalent of “a blank slate.”’

    Does this mean if it works, then Obama is a hero?

    Well, it is better idea than Bush’s GOP moonshine: Ethanol, mandated and subsidized.

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