Energy Alerts, April 8, 2015

Welcome to Kiplinger’s Energy Alerts — a digital heads-up on coming trends and breaking developments in the energy industry. The alerts are free through June 9. In this issue, we zero in on what’s shaping up as a momentous year for the U.S. oil market: Oil prices are down, U.S. crude production is up, and many Americans are ditching fuel sipping compact cars for pickup trucks and SUVs like it’s 1999, boosting gasoline demand. And we’re only in April. Here’s how I see the remainder of the year for U.S. and global oil markets plus my read of oil supply-and-demand trends over the longer term.

Outlook for the Rest of 2015


Oil production in the U.S. figures to remain robust, despite a small dip this spring or summer as oil firms drill fewer new wells in response to the big drop in crude prices. At more than 9 million barrels per day, crude output is nearing its all-time high, set in 1970. Factor in the 5 million barrels of biofuels, propane, butane and other liquid hydrocarbons the U.S. churns out each day, and daily petroleum output jumps to almost 15 million barrels — about three-quarters of total demand.

The U.S. will continue to be the number three producer of crude, after Russia and Saudi Arabia.


Given the surge in production, it’s no wonder U.S. dependence on imported oil and refined fuels is plummeting. Imports from the Organization of Petroleum Exporting Countries (OPEC), the international oil producers cartel, are down more than half since 2008. Nigeria, long a key supplier to the U.S. market, now sends virtually no crude at all to American shores.

Odds are that net imports of foreign petroleum — meaning total imports minus oil or refined products that the U.S. exports — will approach zero by the end of this decade. Plenty of oil and fuel will still flow in and out of the U.S. market, but dependence on foreign suppliers to make up the shortfall in domestic production will fade away.


Meanwhile, exports of U.S.-refined fuel will keep surging as American refiners take advantage of abundant crude and excess refining capacity to ship gasoline, diesel, propane and other products abroad. Bill Day, spokesman for Texas-based refining giant Valero, says the firm recently exported about 10% of its gasoline production and roughly a quarter of its diesel output. Most of those sales go to Mexico and other Latin American buyers, an “increasingly important” market, he says.

Strong foreign demand for refined fuel is especially good for U.S. refiners because of the long-standing ban on exporting most American crude oil. Sales of refined products face no such limit, so American refineries can buy U.S. crude at a discount to foreign benchmarks but still sell their refined products at regular market rates. Plus, as Valero’s Day notes, U.S. refineries use cheap American natural gas to power their plants — a big cost advantage compared with foreign rivals.

But note that exports of U.S. crude oil are quietly on the rise. Sales to Canada are generally exempt from the export ban, and Uncle Sam has also OK’d exports of condensate, a very light form of crude recently deemed eligible for export if it undergoes some simple chemical processing. Exports of condensate hit 80,000 barrels per day in January, up sharply from last year. At least one exporter, Enterprise Products Partners, aims to significantly ramp up its condensate exports this year. The company is seeing growing demand from Asian buyers.


Even as other countries buy more U.S.-made fuels, Americans are filling gasoline tanks more often, too. After trending down in the wake of the Great Recession, total U.S. petroleum demand is on the rise again. An economy generating more jobs spells more drivers who need to fuel up, and the recent tumble in gasoline prices is encouraging folks to drive more for pleasure as well. This summer figures to be the busiest travel season since before the recession, and gasoline sales could potentially exceed the peak set in August 2007, when drivers purchased more than 400 million gallons every day.

Looking Beyond 2015

Don’t expect this year’s big jump in fuel consumption to become the new normal. What we’re currently seeing is an unusual combination of faster economic growth and relatively cheap gasoline, which is spurring demand.

In the longer term, oil consumption is likely to resume the gradual decline that began in 2007, when total U.S. oil usage peaked at about 22 million barrels per day. Two big factors explain why.

First, Uncle Sam is determined to see the country burn less fuel over time. The government’s latest fuel economy rules require manufacturers to ramp up the mileage of their new vehicles, with a target of 54.5 miles per gallon for 2025 models. John O’Dell, green cars editor for, says that the 54.5 mpg figure reflects a complicated formula the government uses for figuring fleetwide fuel economy and that future vehicles will have to average about 40 mpg in real-world mileage tests to meet the 2025 goal. Still, that’s nearly double the average fuel economy of today’s new cars, he says.

So look for automakers to invest in a slew of fuel saving technologies: Thriftier gas engines; hybrid cars that can run on battery power for short distances; fuel cells that combine hydrogen and oxygen to generate electricity; and electric cars that plug into the electric grid. Edmunds’s O’Dell reckons that all these approaches are needed to keep up with ever-tightening mileage regulations.

Moreover, even as automakers race to save gas, younger Americans are turning away from driving altogether. The American Public Transportation Association reports that 2014 saw the highest ridership on subways, buses and other public transportation in 58 years. Transit officials in cities attracting millennial residents, such as Austin, Texas, and Denver, are seeing especially heavy growth in transit usage. Automakers hope to eventually win over these carless young consumers with tech-heavy small cars that fit better into urban landscapes. But they face an uphill battle to alter what looks like a generational shift away from car ownership.

Tech Alerts, April 1, 2015

Welcome to our second free trial issue of Kiplinger’s Tech Alerts, a digital heads-up on trends and breaking developments in the technology industry. Tech Alerts will come to you by e-mail every other week. This week’s issue focuses on how the sky’s the limit for business uses of commercial satellites. We’ll also take a look at the Apple Watch and other wearable tech as well as ways to share the airwaves and more.

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Energy Alerts, March 25, 2015

Welcome to our second free trial issue of Kiplinger’s Energy Alerts, a digital heads-up on coming trends and breaking developments in the energy industry. Energy Alerts will come to you by e-mail every other week. This week’s issue zeros in on how battery technology — so vital to the future of sustainable power distribution — is advancing and on which areas of battery research show the most promise. We also provide a road map for energy investors attempting to navigate the big tumble in oil prices.

Keep in mind that you have a standing invitation to e-mail me anytime with questions on any aspect of energy you’re interested in — no matter how large or small the issue — and I’ll run down the answer for you. The positive response to our inaugural issue was overwhelming. Thank you for the many comments, suggestions and insights. Please keep letting us know how we’re doing.

As noted in our previous issue, solar power is growing rapidly in the U.S. But given its intermittent nature, much of it will go to waste — unless utilities and solar customers have a cost-effective way to store the energy during sunny periods and tap into it at night.

Affordable energy storage is seen as a key to the future of electricity distribution that will let utilities meet heavy power demand while better harnessing wind, solar and other variable energy sources. Such a storage system is the pursuit of a wide array of researchers, tech firms and utilities.

Most of the energy industry is placing bets on better batteries to do the job. Though large-scale lithium-ion and other advanced batteries are still expensive, the costs are coming down enough that utilities are eyeing them as a way to synchronize increasing volumes of on-again, off-again wind and solar power with ever-changing demand for electricity.

The Energy Storage Association, which represents companies that make or design batteries, flywheels and other storage tech, sees 2015 as a breakout year for adding battery capacity to the electric grid. The ESA projects that 220 megawatts of energy storage capacity — most of it in the form of lithium-ion and other batteries — will come on line this year. That’s more than double the capacity added in 2013 and 2014 combined.

California is pushing hardest to ramp up grid-scale storage, with a mandate that utilities install more than a gigawatt of capacity by 2020. But utilities in Arizona, Texas, Hawaii and elsewhere are also sizing up batteries as part of their future energy mix.

Utilities want to meet spikes in power demand without having to build new power plants that will sit idle most of the year when demand is lower, says ESA Executive Director Matt Roberts. He pegs the cost of utility-scale batteries at about $1,500 per megawatt-hour, roughly the amount of power consumed by an average home in one month. While that’s not cheap, it’s competitive with backup, or “peaker” power plants, the traditional tool for boosting generation during surges in power demand. Plus batteries can potentially deliver more energy to the grid in less time than a power plant could.

Lithium-Ion and Beyond

Of all the new batteries hooking up to the grid this year, ESA expects 70% to be lithium-ion, the same type that’s powering cell phones, laptops and tablets. Although lithium isn’t an abundant material in the U.S., a growing number of manufacturers are betting that the cost of lithium-ion batteries can be driven down enough to make large versions attractive for utility-scale storage and other industrial applications.

Electric-car maker Tesla is working with Panasonic on a huge lithium-ion battery factory in Nevada that Tesla claims will single-handedly churn out more batteries in 2020 than the entire world produced in 2013. In the process, the company says it’ll cut the cost of batteries for its future electric cars by more than 30%. Some of those batteries also figure to find their way into rooftop solar power systems installed by SolarCity — Tesla cofounder Elon Musk just happens to be its chairman — and other solar firms.

The cost improvements in lithium-ion that Tesla is targeting should be attainable. Larger, more efficient manufacturing processes of the sort that Tesla, Chinese electric-vehicle maker BYD and other producers are planning promise to cut battery prices significantly.

Researchers hope even bigger gains can be realized by using new chemistries that either hold more energy than lithium-ion batteries or feature cheaper components. Nowhere is the quest for such game changing advances more intense than at the Joint Center for Energy Storage Research, a collaboration among the Department of Energy’s national laboratories, universities and private companies hoping to commercialize the next big thing in battery tech.

JCESR is rushing to do in a few years for advanced batteries what private industry spent decades doing for lithium-ion: assemble a huge body of scientific knowledge that will enable a wave of commercial products.

After modeling thousands of candidate materials via high-power computers, the initiative has identified about 30 promising electrolytes for further study, says JCESR Executive Director Jeff Chamberlain.

This sort of research — involving computer modeling to evaluate the advantages, disadvantages and costs of potential batteries from many different materials — is painstaking. But it’s “really exciting to us nerdy scientists,” Chamberlain says, because it helps them understand the underlying physics of advanced batteries and avoid pursuing ideas that won’t ultimately deliver the dramatic improvements in cost and performance that JCESR is seeking.

For instance, the research team initially thought that lithium-air batteries held great promise, but concluded that they pose some hefty engineering problems. So instead they’re concentrating more on magnesium-ion technology, with patents in the works. (For a deep dive into what the group has been up to, click here.)

Chamberlain says his group has some exciting news coming on flow batteries, which store chemical energy in fluid solutions that have the potential to pack a lot of power very efficiently. That research is confidential for now, but he expects a major announcement later this year.

Energy Investing

Because so many readers wrote in two weeks ago asking about investing in energy-focused master limited partnerships, or MLPs, I’m citing a recent piece by my colleague, Jeff Kosnett, who addressed this very topic in the March issue of his newsletter, Kiplinger’s Investing for Income. Commenting on which MLPs look like the best investments given the big fall in oil prices, Jeff had this to say:

The best segment continues to be midstream, and so we would put at least one-half, if not two-thirds, of any MLP portfolio there. Gainers since July include Energy Transfer Partners (ETP), Magellan Midstream Partners (MMP), Phillips 66 Partners (PSXP), Sunoco Logistics Partners (SXL) and TC Pipelines (TCP). Others, including … Plains All American Pipeline (PAA), nearly broke even. More important, midstreamers tend to increase distributions every three or six months, and they do that from operating revenue and not from fresh capital raised by selling stock or bonds.

“The midstream guys have enough cash around for the foreseeable future,” says John Cusick, an MLP analyst for Miller/Howard Investments. His test is that cash flow be at least 1.2 times distributions. That is, if an MLP pays $1, it should have at least $1.20 in cash flow. All six names above qualify. You can expect their distributions to grow 5% to 8% a year.

Tech Alerts, March 18, 2015

Welcome to the inaugural issue of Kiplinger’s Tech Alerts, a digital compilation of coming trends and breaking developments in the technology arena. Tech Alerts will come to you by e-mail every other week. This week’s issue focuses on developments growing out of the Federal Communications Commission’s recent network neutrality action, with quick takes on smart watches, commercial drones and other topics.

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