Newspaper column for Monday May 26, 2014
Texas Technology Deals Carbon Emissions a Setback
Crude oil prices moved up nicely this week. This seems to happen on a regular basis as the ‘summer driving season’ approaches. Let’s take a look.
West Texas Intermediate trading on the New York Mercantile Exchange rose to $104.07. That is a new high for 2014 but below the previous highs of the last three years. Those were in the $110-$115 range. Brent Crude, the North Sea version, followed suit closing at $110.55 on the International Commodity Exchange ICE. The government has reported the biggest drop in weekly inventories this year, spurring the prices higher.
The markets have created spiders or exchange-traded funds ETF for near everything these days. Essentially these are composite collections of representative firms in a given industry. The XLE for the energy sector has as the usual suspects in its lineup including Exxon, Chevron, Schlumberger, and Conoco Phillips as the top four. The good news is that it just hit a new high of $94.43, way up from the 2009 low of $35. It last tested its 200 week moving average in the fall of 2011 around $58. It has not tested that 200 month moving average since.
But the Permian Basin has always been more about oilfield service, even given the huge drilling/fracturing boom. The XES ETF includes Weatherford, Key Energy, Diamond Offshore, and Carbon Ceramics; Halliburton comes in as the tenth largest holdings. The XES is bumping up against the old 2011 highs around $45, trading at $45.92. But it gets even better.
One way to judge an out performer is to compare it to a broad index of stocks such as the S & P. A ratio of the XES to the S & P index reveals a reversal in February of this year. The ratio has advanced in the XES favor and is now attempting to move higher through various moving averages. In short, the XES has been outperforming the S & P on a daily basis since mid-February.
The EPA is tightening restrictions on power plants. This continues to result in the closing of coal-fired plants. The Energy Department admits this will raise electric costs an average of 4 percent this year. By 2020, prices are expected to rise another 13 Percent, not counting future regulatory costs( my emphasis). Interestingly there is a new technology on the horizon to help fight just such potential pollution.
A $126 M plant will open in San Antonio October 21 this year. The plant removes carbon dioxide from industrial waste and turns it into sale able products. While this sounds like a Field of Dreams, heavy hitters Zachry (construction) and Conoco Phillips are board members. According to the corporate website the process works as follows.
The SkyMine® technology can be operated at a profit, due to the sale of byproducts. The solid carbonates and bicarbonates are saleable for use in bio-algae applications. SkyMine® also produces green chemicals, such as hydrochloric acid, bleach, chlorine, and hydrogen, which are also profitable and can replace less environmentally-friendly products in market.
The fact that the SkyMine® process removes virtually all SOX, NO2, and mercury and other heavy metals that would otherwise be emitted by the plant means it can replace existing scrubber technologies and eliminate hundreds of millions of dollars in capital expense and tens of millions of dollars in ongoing expenses.
The Sky Cycle process captures carbon dioxide at costs estimated between $16 and $25 a ton. This is much lower than current alternate methods running $150 to $450 a ton. Learn more about this process at www.skyonic.com.
USA Energy Independence continues to strengthen. US Crude Imports hit a 17 year low last week. Crude output rose to 8.43 million barrels per day. Ironically this is the highest number since the last occurrence in October, 1986. The irony relates to that being the time of the 1986 crash in oil prices to $12.
For the time being, things are decidedly looking up. The energy and service sector are outperforming the overall stock market. XLE energy ETF is up 7% to the SPX rise this year of a mere 2%. And technology to reign in those pesky carbon emissions is coming on line, right here in Texas where it is needed.
And so the boom continues, though I do worry that so many energy stocks are so far above their 200 week moving averages.
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