Top 10 Energy Stories of 2008

Tis the season for Top 10 stories, and here are what I think were the Top 10 energy stories of the year.

1. Unprecedented volatility in the energy markets

Oil prices raced to nearly $150 a barrel, and then fell to the $30’s by year end. This marks the highest ever prices for oil, followed by the lowest prices in four years. Gasoline, diesel, and natural gas prices demonstrated the same kind of volatility. There are multiple factors behind the volatility. The role of speculation was hotly debated, and the economic collapse – fueled by cash-strapped consumers who had overextended themselves – resulted in a sharp drop in demand. Some even argued that the real reason behind the plunge in prices was closure of the so-called “Enron loophole.”

2. Oil price volatility fallout

A consequence of the incredibly volatility was the economic damage done at both ends of the price spectrum. At the upper end, airlines were going bankrupt and car companies were in deep financial trouble as consumers stopped buying the higher profit margin SUVs. After oil prices plunged, some non-integrated oil companies found themselves in financial trouble, including Flying J who declared bankruptcy.

3. Barack Obama elected

In a normal year, this would have been my #1 story, especially considering that the new administration is likely to attempt a major shift away from fossil fuels. My prediction is that reality is going to collide with enthusiasm, and while gains are likely to be made along several fronts, aggressive renewable energy targets will not be met.

4. Ethanol producers struggle

Despite production mandates and generous federal subsidies, ethanol producers struggled to make a profit. A combination of high corn prices followed by falling fuel prices pushed even some of the largest ethanol producers to bankruptcy. Corn growers fared much better, as higher prices and mandated demand from the ethanol industry provided them with the same sort of windfall seen recently by the oil industry (prompting some to ask whether a windfall profits tax on corn would be good for consumers). Xethanol finally ceased operations, as I had predicted in early 2007.

5. Somali pirates hijack supertanker

Somali pirates, emboldened by recent multi-million dollar ransom payments, hijacked a Saudi supertanker carrying $100 million worth of oil. At the time of this writing, the situation remains unresolved, although the value of the oil at current market prices is now considerably less than $100 million.

6. 2nd generation ethanol is delayed

The story this year was supposed to be “2nd generation ethanol production begins“, but alas the over-promise, under-deliver meme that I have been critical of continues. Range Fuels had initially intended to start producing in 2008, but that was delayed to 2009 and now production isn’t forecast to begin until 2010. Meanwhile, other 2nd generation ethanol companies continue to promise the world, including Coskata who claims they can make ethanol for “under US $1.00 a gallon anywhere in the world.” (I took a good look at those claims here.) Finally, according to this source (another here), of the six cellulosic ethanol projects selected to receive $385 million in federal funding in February 2007, almost two years later only one plant is actually under construction (Range Fuels).

7. Peak oil becomes fashionable, then unfashionable again

High oil prices demanded an explanation, and peak oil was ready to provide that explanation. 2008 was probably the year that the mainstream began to seriously discuss and debate peak oil. However, when prices began to plunge, the peak oil skeptics began to say “I told you so.” Others suggested that this was just a continuation of the normal cycles.

8. Gas stations in the southeast run out of gasoline in the wake of Hurricanes Gustav and Ike

Some major oil refineries that shut down in the face of Hurricane Gustav had to remain shut down with Hurricane Ike following closely behind. Gasoline inventories heading into the hurricanes were low, so it wasn’t long before spot outages began to show up across the southeast. As I predicted during a panel session at this year’s ASPO conference, the outages were likely to be short-lived, and inventories would recover as refineries came back online. This was in response to wide-spread concern, partially fueled by Matt Simmons’ presentation, that the outages were the beginning of something much more widespread. (I think my answer was literally “This situation is temporary. I expect inventories a month from now to be substantially higher.”)

9. “Drill here, drill now”

Momentum for more exploration and production in U.S. waters increased along with oil prices. This became a campaign theme for Republicans, who adopted the slogan “Drill here, drill now.” President Bush lifted a moratorium on offshore drilling. Democrats initially responded with calls for oil companies to be forced to drill on current leases before opening up new ones. However, Congress – facing constituents unhappy with high gas prices – ultimately followed suit and allowed the 25-year moratorium to expire. The response from then candidate Obama was that he wasn’t happy to see the moratorium expire, and that he favored “responsible” drilling as part of a broader energy package. My own proposal was to allow drilling and funnel the lease proceeds to alternative energy, mass transit, and other initiatives designed to reduce oil consumption. This proposal later received quite a lot of attention when Paris Hilton proposed the same thing.

10. Record profits by US energy companies

On the back of high oil prices, the integrated oil companies (those who produce both oil and refined products like gasoline and diesel) once again saw record profits. There was an interesting dichotomy, however, as downstream profits in the refining sector vanished as gasoline consumption fell. Pure refiners like Valero saw their profits crash.

That’s more or less what I think were the Top 10 stories of 2008. There were quite a few in the honorable mention category, such as T. Boone Pickens energy plan, the decision by OPEC to reverse direction and propose big production cuts, falling oil production in Russia and Mexico, and postponed investments in the wake of lower prices.

So, what did I miss? Which stories do you think should be ranked in a significantly different order?

In closing, Happy Holidays to all readers. I am now going offline to spend some good family time. Here’s hoping that you all have the same opportunity.

21 thoughts on “Top 10 Energy Stories of 2008”

  1. Excellent list. I would add that several major auto makers advanced very high mpg cars, all in the brief window that oil prices were high.
    GM Volt, Ford Fusion and more. And best holidays to all.

  2. My prediction is that reality is going to collide with enthusiasm, and while gains are likely to be made along several fronts, aggressive renewable energy targets will not be met.
    Gotta disagree with you, RR!

    This credit crisis is the best thing that could happen to biofuels, as it is going to be a knock-out for the pretenders, leaving only real contenders standing.

    Use our taxdollars for more subsidies to the politically connected? Not in this economy!

    Nothing like the free market to educate people about the shortcomings of ethanol (whether by corn, cellulose or pixie dust) as a fuel.

    There really is something to that line: It was the best of times, it was the worst of times…

  3. BTW, Benny,
    Let’s leave the Chevy Volt as a news story for the year it finally sees the light of day. Ditto for cellulosic (pant, breathless pant) ethanol.

    You know, assuming GM is around by the scheduled release date of late 2010…

  4. Have a good Christmas Robert, and a good New Year.

    Here in Scotland, I’d say one of the top stories, would be the almost non existance of any fall out from a (worker) strike on our only major oil refining complex.

    Have a good one, see you all in 2009.


  5. Oprimist:
    The GM Volt may in fact be a commercial dud. The point I was trying to get across was that even in such a limited window of higher oil prices — 2004-2008, less than four years — great commercial design advancements were made in very high mpg cars.
    Oil was cheap for 20 years before 2004, and is cheap again. Yet in that fleeting window of higher prices, look at the progress made!
    Remarkable! And happy holidays to you!

  6. There's that tingle up the leg again, Robert! The regular election of a US President is not a big energy story. Now, if he actually DOES the right things on energy (and gets them through that Democrat-controlled Congress) — that would be a top news story for a future year.

    A major story that belonged on your list was that 2008 will be remembered as the year that the Anthropogenic Global Warming scam finally peaked.

    Ten years of declining temperatures; real scientific debate that has inconveniently been growing rather than disappearing; bureaucratic non-progress in replacing the pointless Kyoto protocol; a changed economic environment in which higher taxes & more job-destroying government regulations (the real aim of the AGW crowd) have become a much tougher sell.

    2008 may or may not have been the year of Peak Oil, but the future will show it definitely was the year of Peak AGW.

  7. Kinu:
    I am a big lib, and I agree with you. I don’t understand the obsession with AGW.
    The oceans were 60 meters lower when brave natives crossed into North America 15,000 years ago. Now we waa-waa about two feet. And we may yet see an Ice Age.
    Happy holidays, Kinu. I enjoy your posts.

  8. Ditto on the global warming thing. I’m more worried about an ice age,which was the frightful scenario predicted in the 70’s. Human activity only contributes 5% of CO2. Something tells me the earth will adapt. Maybe trees will breathe easier…LOL.

  9. Nice list Robert. While the election of Obama is not really an energy story, the fact that energy independence was one of the top 2 or 3 issues during the campaign, was an energy story. Also the fact that Obama names a real scientist as secretary of energy is also a big story.

    On AGW, that story will play out over the next couple of decades. I don’t see many people budging on either side yet. But both sides keep saying that they are happy for the internet because everything that is being said on the other side is being archived. so in a decade or two, someone will look foolish.

    As for me, here in Minnesota, it has been brutally cold this winter, and I could use a little warming. I am going up north tomorrow and the big question is how thick will the lake ice be. Probably 16-20 inches thick. In a global warming world, that could be reduced to 14, Oh the humanity!

    Merry Christmas, Happy Holidays and an Energy Rich New Year to all

  10. Talked to my local electrical utility Energy Star representative today, informally.

    He indicated the CO2 emissions issue is THE driver of Energy Star and all other programs of that ilk.

    That indicates to me that argument/disagreement about AGW is moot. Or at least it is historical. The inertia is to manage emissions – yesterday !!

    But shucks, this is such a great country, y’ll go ahead and BEAT that dead horse !!!!!!!!!!!!!!!!!!!!!!!!!!


  11. Benny,you should’ve bought shares of DTO and leveraged a short position in oil. It’s gone from $20 to $160 since July. The leveraged long position fund DXO has dropped from $29 to $1.79 in the same period. Yowsa!

  12. Happy Holidays!!!

    No news is good news. Any year in which no one can think of headlines for the electricity generating industry is a very good year.

    It has been a good year since the number of days away from home on business this year was zero. Only went of the airport to fetch the kids.

    Lots of small stories. Proposals I worked on ten years ago are now starting up. Legacy environmental issues are being resolved. The slowing economy will allow time for new projects to get finished without rolling blackouts.

    The most interesting story was Constellation Energy being short of cash when the credit crunch arrived. Warren Buffet made a fire sale offer to stave off bankruptcy with a $4+b but the French in the form of EDF came up with a $4+b for 49.99% of Constellation Energy 5 old reactors.

  13. Maury-
    I went short oil, but too early, and got wiped out.
    Hindsight is 20/20.
    But there is always tomorrow and $10 oil!

  14. While I would like to share Optimist’s optimism about ethanol policy, the pessimist in me expects that the setbacks in cellulosic ethanol will only strengthen the hands of the corn-ethanol lobby.

    Here are my predictions for 2009:

    (1) Within days of taking office, the Obama Administration will strike a bail-out deal for the auto-industry, mandating increased flex-fuel capability as part of that deal. Both the Administration and GM will hail that decision as a victory for energy independence and efforts to reduce GHG emissions.

    (2) Shortly thereafter, the Administration will unveil a major plan for investment in infrastructure. Part of that plan will include massive loan guarantees for dedicated pipelines for carrying ethanol from the Midwest to the east coast.

    (3) Various bills will be put forward in Congress to address the industry’s “blending wall” of 10%. The eventual outcome will be new subsidies to help filling stations install pumps that can dispense any blend of ethanol and gasoline.

    So, in short, I don’t see “the free market” or anything else changing the minds of the people that count — the Cabinet and the 34 ag-belt Senators who are so enamoured of ethanol.

    I wish it weren’t so, and that rationality would prevail, but that’s what I expect.

  15. the pessimist in me expects that the setbacks in cellulosic ethanol will only strengthen the hands of the corn-ethanol lobby

    Now the discussion is moving beyond what were the biggest energy stories of the past year to predicting the biggest future energy stories.

    One issue to keep in mind is — what happens when the almighty Federal government runs out of money?

    Actually, it ran out of money some time ago, but has been able to stagger on by borrowing money from the Chinese and what Benny calls the Thug States. In a slumping global economy with low oil prices, things don’t look good for future US international borrowing.

    So what gets cut when the ruling clique find they can no longer write all the checks they used to? We will find out soon enough.

    For what little it is worth, my guess is that never-ending subsidies for so-called “renewable energy” is not going to be high on the Democrats’ lists of must-haves.

  16. “but has been able to stagger on by borrowing money from the Chinese and what Benny calls the Thug States.”

    The Federal government could borrow everything it needed from Americans if the rate of return was decent. When this liquidity crisis is over,rates will move up. Maybe way up. More of the budget will go to paying interest charges,and less will be available for everything else. But,at least Americans will finally have some incentive to save. 1% interest is a joke. Especially when the CPI was up 5.8% this year.

  17. Kinu may be right. As each day passes, people forget about conservation and alternative fuels.
    I hope beyond hope we start taxing gasoline, at least to the level so that roads and highways are self-financing (now they are subsidized by general taxes, bond money).
    But, the Dems lack courage and the Repubs think we can run a government by borrowing more and more.

  18. I would be interested to see what people think about the recent breakthrough by Daniel Nocera at MIT regarding energy storage.

    I think it’s hype, that it’s just electrolysis and therefore has nothing in particular to do with solar energy. You could run it off of nuclear power. His system creates hydrogen, which leaks through containers. Using the hydrogen in a fuel cell gets you back only 50% or less of the energy used to make the hydrogen. You’d get better efficiency with a battery. His electrolysis system still uses platinum, and will still be out of the price range of most homeowners. People like Mike Strizki may have hundreds of thousands of dollars to spend on a solar/hydrogen home and have the space to put ten 1000 gallon propane tanks to store all the hydrogen,
    but it’s not economically viable for most people, so I do not see it as a huge breakthrough.

    That said, I am happy that he is working on this and advancing the science. He has made one small step in the thousands that may eventually get us to something practical for the common folk.

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