Pickens drops wind power from the Pickens Plan

Michael Giberson

I’m quoted in a brief Marketplace radio news story on the new Pickens plan, in which Boone Pickens has dropped the wind power push and now just promotes public policies to induce switching vehicles to natural gas.

Of course Pickens dropped wind power from his private investment plans about a year ago, when his plan to build the “world’s largest wind farm” fell apart.  Took him a little longer to realize that lower natural gas prices didn’t just make his investment plans uneconomic.

More on the changes to the Pickens Plan from MSNBC. Commentary from Andrew Schenkel the Mother Nature Network.

Chinese government having trouble getting fuel prices right

Michael Giberson

From the Financial Times beyondbric blog, some somewhat puzzling news from China about how the government’s decision to raise gasoline prices was leading to long lines at gasoline stations.

In Beijing on Tuesday, long lines began to form around gas stations across the city. It was one of the first tangible signs of the government’s decision to raise fuel prices, which went into effect Tuesday at midnight.

So people were lining up to pay a higher price? That doesn’t make much sense. The link in the quote was in the source post – it goes to a Chinese TV news report – and maybe it provides a little more insight on the link between price increases and gasoline lines (at least it might if you understand Chinese).

The rest of the FT beyondbric story conveys a more normal sort of relationship between government-managed pricing and market commodities:

The price hike is a belated bid by the government to bring fuel prices closer in line with global markets, as crude prices this year have risen. Officially, China adjusts fuel prices in step with the international price of crude. But analysts say that today’s increase is smaller than would have been dictated by global markets because of inflationary fears. An official from the National Reform and Development Commission, which governs prices, was careful to point out that the fuel price hike will have minimal impact on the CPI numbers.

The new prices will make life a bit easier for China’s refiners and distributors—who sometimes have to sell at a loss when prices get out of joint. But it’s unlikely to address another key issue that’s been plaguing Chinese drivers across the country: diesel shortage.

In Chongqing, truck drivers are lining up for three to four hours to fill their tanks with Diesel, according to coverage from state media CCTV. In central Henan province, the government has sternly ordered state-owned oil companies to provide diesel to gas stations, which local media compare to giving blood. The city of Chengdu has made special arrangement to secure diesel supplies, but private gas stations there are still not selling the fuel.

There are two reasons for the diesel drought. Demand for the fuel has soared in the last several months, as businesses and individuals use diesel-powered generators to supply themselves with electricity. Power cuts across the country have been widespread as part of the government push to reduce electricity consumption.

Since the retail price of diesel is set by the state, this sudden surge in demand wasn’t passed on to higher prices. Instead wholesalers, betting on future price hikes, started storing diesel instead of selling it. Meanwhile diesel’s wholesale price, which is less tightly controlled by the state, started to soar and soon exceeded the retail price—so many gas stations could only sell diesel at a loss.

Wednesday’s price hike will help alleviate the imbalance but is unlikely to fully resolve the problem. There is also a basic shortage of supply: China’s diesel imports have soared and the country has announced a ban on diesel exports next year, according to reports. Those truck drivers in Chongqing may have to wait in line a while longer.

Maybe those lines as a result of a price increase do make sense. Perhaps before the price hike retailers couldn’t get gasoline to sale at all, and now a least a little is flowing. Drivers are lining up to get what they can, while it is available, and perhaps before prices rise again.

And note some of the subtler consequences of trying to manage the economy in ways that are supposed to help the central government look good. In order to keep the CPI numbers from looking bad – not necessarily keeping actual inflation down, just keeping measured inflation down – the government is imposing the un-measured cost of waiting in lines for supplies or doing without.

In order to reduce measured electricity consumption the government cuts power, leading Chinese consumers to switch to diesel-powered generators which won’t be counted. Of course diesel generators likely produce more harmful emissions per kwh of electricity produced and some consumer may switch to other sources for light, cooking and heating. It isn’t clear whether net emissions rise or fall overall, but officially reported energy consumption will look a little lower.

The “power cuts across the country” link (also from the source) provides more background on this second point:

Beijing has set an ambitious target to reduce the intensity of energy use in China…

Now, after months of similar extreme power cuts, Beijing’s bureaucrats are able to breathe a sigh of relief: it looks like China is back on track to meet the goal of reducing energy use per unit of gross domestic product by 20 per cent from where it was five years ago.

That was the word from a top climate change official, Xie Zhenhua, who said China has seen a three per cent reduction in energy intensity during the first three quarters of 2010. […]

Wednesday’s announcement was the first concrete signal that the extreme measures adopted this autumn are paying off. In some counties, the planned power outages have cut into the balance sheets of local businesses and prompted local business owners to protest. Across the country, the rush to buy diesel generators to fuel factories and businesses through the power cuts has sparked a diesel shortage and sent generator prices up. […]

In the first six months of this year, China’s energy intensity actually increased by 0.09 per cent, reversing the trend of the previous four years and throwing energy officials into a panic.


Iran cuts fuel subsidies and other energy and economics links

Michael Giberson

A couple of interesting readings:

Oil flows in Ghana, is the resource curse soon to follow?

Michael Giberson

TAKORADI, Ghana — The impoverished West African nation of Ghana become the world’s newest oil producer Wednesday, pumping crude for the first time from an offshore field worth billions of dollars in the Gulf of Guinea.

President John Atta Mills turned the oil valves Wednesday during in an inaugural ceremony broadcast live from a storage vessel off Ghana’s Atlantic Ocean coast.

…  “After a long wait, the day has finally come,” Mills said. “This demands hard work for those of us in leadership positions to ensure that the oil becomes a blessing and not a curse.”

Already rich in gold and cocoa, Ghana is one of the most stable countries in Africa, but many of its 23 million people struggle to survive.

Analysts and aid groups warn the country has yet to pass crucial legislation to safeguard the oil windfall and avoid what is known in Africa as the “resource curse.” In places like Congo and Nigeria, oil or mineral wealth has fueled conflict instead of boosting desperately needed development.

Oil revenues are expected to bring in around a billion dollars annually for the next few years, and those figures are likely to rise.

From an Associated Press story via the Houston Chronicle.

Previous “resource curse” posts here:

Did they really say that? Gasoline market stress coming to eastern Washington, so officials offer advice

Michael Giberson

One consequence of a 14-week project to replace several locks on dams on the Columbia and Snake rivers is that gasoline transportation costs will rise in the area. Some gasoline that would have traveled up the river will have to move by train and truck instead, a more expensive process and one much more exposed to potential winter weather. Gasoline prices are likely to rise, so what should consumers do about it?

According to a news report, the state of Washington is advising:

Drive less.

In a document on the fuel supply outlook during the closure, the No. 1 way the fuel shortage will be dealt with is “through reduced demand due to higher prices.”

“We’re going to have to see how it works,” said Mark Anderson, an energy analyst with the state Department of Commerce. “There may be some rough times.”

State officials are warning there could be gas shortages in Eastern Washington during the closure — especially if bad weather hits. Drivers are warned to keep gas tanks full and consider ways to cut down on driving. Officials also are discouraging people from topping off their tanks, as it could cause longer lines at gas stations.

So let’s get this straight, drivers should keep gas tanks full but not top off their tank? The only way I can see to do that is to fill it up and then park it – I guess that is consistent with the “cut down on driving” suggestion.

The Tri-City Herald said, “Normally, 1.47 million gallons of fuel are shipped from Portland to the Port of Pasco every day for delivery around Eastern Washington,” and this it the fuel that will have to take alternate routes during the renovations.  River traffic is subject to annual interruptions for planned maintenance, but typically just for three weeks at a time.  (Fun research project idea: see if you can find evidence of price effects in Eastern Washington due to the annual maintenance breaks.)

More information on gasoline markets in Washington.

Gasoline price gouging addendum: According to the news article, the Washington Office of the Attorney General said, “High prices due to low supply and high demand is not price gouging. Unconscionable pricing that bears no connection to circumstances is price gouging. High prices won’t get us moving. Unconscionable prices will.” Reportedly “consumers receive some redress in 60 percent of the complaints filed” with the Attorney General’s consumer protection office. These claims surprised me because, (a) Washington doesn’t have a specific anti-price gouging law, and (b) states with price gouging laws can receive hundreds or even thousands of price complaints, but typically only a handful become grounds for an investigation and fewer still lead to some sort of settlement.

Apparently the legal authority is the state Consumer Protection Act, which among other things: “Unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful.” Awfully vague – I wonder whether the law has been enforced in price gouging circumstances.

Chinese wind power company seems to understand American political capitalism

Michael Giberson

American University’s Investigative Journalism Workshop has published reports detailing the extensive political connections in the United States developed by Chinese wind power company A-Power Energy in its effort to build a 600-MW wind farm in West Texas.  A-Power and their partners were seeking $450 million in section 1603 grants and U.S. Department of Energy loan guarantees to help fund the project. New York senator Charles Schumer objected to the idea that stimulus funds would flow to Chinese workers and sought to block the project’s access to the funds. A-Power chose to fight politics with politics, announcing a turbine factory in Nevada (home of the Senate Majority Leader Harry Reid, project being developed in conjunction with prominent Reid supporters in Las Vegas) and making friends with the United Steelworkers union which had initially opposed the project.

A key U.S. partner to A-Power on the project is U.S. Renewable Energy Group, described in the article as “a Dallas investment firm with strong ties to Washington and the Democratic Party.” On it’s website, US-REG describes itself as a developer of “renewable energy projects throughout the nation,” but the only project specifically mentioned anywhere on it’s website is the proposed project with A-Power (here is a summary touting the benefits of the proposed project). Reading the “About the Team” materials on the website suggests a group of well-connected lawyers and investors with little direct experience in developing renewable energy projects.

In this particular story, a key company is Chinese and the well-connected movers and shakers are Democratic, but there is nothing especially “Chinese” or “Democratic” about the practice of political capitalism revealed here.

Earlier reports from the Investigative Journalism Workshop detailed that about 88 percent of the section 1603 grant money went to non-U.S. based companies, including companies from Spain, Germany, Japan, and Portugal.  Note that the location of the corporate headquarters likely has little to do with where the money gets spent or who ends up better off because of the subsidy.  Another report indicated that $1.3 billion in stimulus funds went to wind power projects built before the stimulus bill was passed.

Added: HT to the Dallas Morning News Texas Energy and Environment blog.

Also, via Seeking Alpha, recent financial filings by A-Power suggest that the west Texas project will not get built. If the project does not receive Section 1603 grants and the DOE loan guarantee by December 31, 2010,  A-Power’s partners have the right to dissolve the partnership.  They report, “In our view, it is not likely that Spinning Star [the project’s name] will be able to arrange the requisite construction financing by December 31,2010….”

Texas transmission route to avoid crossing scenic canyon

Michael Giberson

Last week the Texas PUC approved routes for the northwesternmost link in the CREZ transmission expansion, choosing one of the longest of several possible transmission routes in order to avoid crossing parts of Palo Duro canyon.  The canyon is the nation’s second longest and includes a state park.  None of the routes would have crossed the state park, but some proposed lines may have been visible from locations within the state park.  Property owners in the north end of the canyon campaigned against routes that would have crossed their land. The longer route is estimated to cost $34 million more than the cheapest route, with downstate electric power consumers paying the bill.

Of course even if transmission owners relied on economic incentives to gain consent of landowners, rather than backstopping the regulatory route selection process with implicit threat of eminent domain, it seems likely that landowners in the north canyon would have refused. But the process might have been much less controversial and the final route may have been cheaper than the one selected.

MORE: The Amarillo Globe-News story in the first link above includes this map of the proposed routes. A related story appeared in the Wall Street Journal last week.

The Lighthouse formation in Palo Duro Canyon State Park, Texas

The Lighthouse formation in Palo Duro Canyon State Park, Texas (Links to Texas State Park website).