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Americans may need to sacrifice for gas
BY JOHN WILEN AND JOHN PORRETTO
The Associated Press

   NEW YORK — Jim Ammons grumbles to himself every time he fills up his Ford Expedition, but he says gas prices would have to almost quadruple to $10 a gallon before he’d ditch his SUV.
   Still, paying $55 to fill his 20 gallon tank isn’t easy for the information specialist.
   “This right here is catastrophic for a lot of families,” Ammons, 54, said this week at a Houston Chevron station that was charging $2.65 a gallon for regular unleaded. “A lot of them have to choose: Do I buy food, do I send my kids to school or do I fi ll up my tank.”
   That choice may soon get a lot more difficult. The steep rise in oil prices to $90 a barrel over the past month means American consumers are almost certain to pay more for gasoline, heating oil, airline tickets and even food and goods that have to be transported great distances, experts say.
   Some analysts are now predicting oil could go as high as $120 a barrel, but others argue that underlying supply and demand fundamentals do not support such a spike and that a drop in prices is more likely.
   What is clear is that oil has become a magnet for “hot money” from hedge funds and other momentum investors betting that the trend for higher prices still has a way to run. The dollar’s decline, which makes dollar-denominated oil futures a bargain to overseas investors, also has played a role in the recent runup.
   Absent an astounding rise in prices, few economists expect high energy costs alone to push the economy into a recession, as previous oil price shocks did in the 1970s and early 1980s. That’s because the economy has become more energy efficient, and incomes have grown faster than energy costs. On a percentage basis, the country spends half the amount on energy today than it spent in 1980.
   Gasoline prices now average $2.76 a gallon across the country for unleaded regular, according to the Energy Information Administration. While that’s down almost half a dollar from their May peak, pump prices are still 53 cents higher than a year ago.
   Gas prices usually fall sharply after Labor Day — they dropped 62 cents last year between the end of August and mid-October, for instance. But this year, prices have actually risen slightly since summer’s end. In part, that’s because oil futures jumped 30 percent since late August, topping $90 a barrel for the first time ever on Thursday.
   “Consumers will now see higher prices at the pump in the coming months and weeks,” said John Kilduff, vice president of risk management at MF Global UK Ltd.
   There are signs high fuel prices are already having an impact. The EIA says demand for gas fell 0.5 percent over the last four weeks from a year ago, and has been lower since Labor Day. That reverses a trend in recent years of steadily rising demand. During some weeks this summer, demand rose more than 1 percent over the previous year.
   The EIA also expects heating oil costs to jump 22 percent this winter. Demand may slip a little, but there’s only so much homeowners dependent on that fuel source can do to cut back, especially if it turns out to be an unusually cold winter. The result may be less spending on other goods and services, which could hurt economic growth.
   Higher jet fuel costs are already restraining airline earnings. For instance, Goldman Sachs analyst Robert Barry recently cut his fourth quarter earnings estimates for Delta Air Lines Inc. from 29 cents to 6 cents due to rising fuel costs. Spot jet fuel prices at New York Harbor rose to $2.42 a gallon this week, up from $1.80 a gallon a year ago, according to the EIA.
   Diesel prices are averaging about $3.04 a gallon, 54 cents higher than a year ago, and the American Trucking Association estimates the industry’s total bill will jump $5 billion this year to $108 billion.
   Trucking companies such as Yellow Transportation and Roadway Express, units of YRC Worldwide Inc., and package delivery firms such as United Parcel Service Inc. are able to pass on at least a portion of those higher costs to customers through fuel surcharges. But that’s not an option for independent operators like Thomas DelBello, whose tab for each fill up of his dump truck has soared to $400.
   DelBello says it’s difficult for him to pass on the higher cost because many of the people he’s driving for already have contracts — fuel prices included — with their own customers.
   “It’s hard to get any of it back,” said DelBello, who lives 15 miles south of Houston. “These days, it’s the cost of doing business.”

DAVID DUPREY/THE ASSOCIATED PRESS
Bob Krueger shows a vintage gas price sign that he keeps at his full-service gas station Thursday. Krueger, 67, has run the Erie County garage for 45 years and remembers when gas was 14 cents a gallon plus tax.

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CAPITAL REGION
Home heating oil users in for a shock
Double-digit price hike from ’06 cited
BY JASON SUBIK Gazette Reporter

   The average home heating oil price in the Capital Region hit $2.88 per gallon this week, up 31 cents, or about 13 percent, from last year, according to the New York State Energy Research and Development Authority.
   Local home heating oil prices exceed the average in every other state, according to the Energy Information Agency, but are not the highest in New York state — New York City and the lower Hudson Valley region average over $3 a gallon.
   The EIA estimates prices will continue to rise to an average of $2.95 throughout New York state next month. According to the EIA’s Winter Fuel Outlook report, home heating oil consumption throughout the Northeast, about 32 percent of the U.S. home heating oil market, should rise about 5 percent over last year if projections of a winter 4 percent cooler than the last prove true.
   NYSERDA spokeswoman Colleen Ryan said her agency from July through September has seen a 130-household increase over last year in the number of energy audits completed under the Assisted Home Performance with ENERGY STAR Program.
   “Even though it’s warmer out, some people want to be ahead of the game for winter time,” Ryan said.
   Households at 80 percent of the state’s median income are eligible for up to 60 percent of the cost of an energy efficiency project, such as insulation, space and water heating system upgrades or replacement windows, up to a maximum subsidy of $6,000 per single-family home. Buildings with three- to four-family dwellings may be eligible for up to $12,000.
   According to the U.S. Census Bureau, median annual income for a single person in New York in 2007 is $42,896; for twoperson families it’s $51,994; for families with three people it is $62,815; and for families of four, the median is $74,501.
   Some home heating oil users near natural gas lines may also be seeking to switch over to the less volatile heating source.
   “A lot of people are inquiring about converting to natural gas and/or propane. They are shying away from oil,” Adams Heating & Cooling Co. Schenectady Service Manager David DeCrescente said. “The average price to go from oil to gas is about $3,000. The way the prices are for oil today the average customer will probably save 15 percent [annually making the switch].”
   Oil futures jumped to a new record close of $90.46 a barrel Thursday on news that OPEC production increases aren’t coming as fast as expected and that the cartel won’t announce new output quotas when it meets next month.
   Some experts have speculated that the world may be in the midst of an oil futures bubble, which could provide an incentive for companies to put more oil into storage inventories, driving up short-term prices, betting that it will be more profitable to sell oil in the future than today. Hany Shawky, a University at Albany professor of finance and director of its Center for Institutional Investment Management, disagrees. He said oil future prices remain firmly tied to fundamentals.
   “Oil prices are really not a bubble. Strictly speaking, they are a function of supply and demand and how heated the world markets and global economy are,” he said.
   On Wednesday, crude prices jumped sharply after the Energy Information Administration reported that oil inventories fell by 5.3 million barrels last week, much more than analysts expected. That report reversed a three-day downward price trend and put energy traders back in a bullish mood, analysts said.
   Shawky said global supply of oil remains so tight that risks such as oil production disruption from Middle East violence continue to affect oil futures prices.
   Light, sweet crude for December delivery rose $3.36 to settle at $90.46 a barrel on the New York Mercantile Exchange Thursday after rising as high as $90.60 earlier, a trading record.
   According to the EIA, the price of crude oil accounts for about 42 percent of the fi nal cost of home heating oil while the cost of refining it accounts for 12 percent and marketing and distribution make up 46 percent.
   Although the EIA anticipates a cooler winter that last year, temperatures are still expected to be 2 percent higher than the 30-year average.
   Shawky said if the anticipated demand levels for home heating oil do not meet expectations, the price will come down. He said another less desirable way for oil prices to drop would be a U.S. and then worldwide recession.  

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Experts offer ideas to cut heating bill On the Money
BY EILEEN ALT POWELL The Associated Press

NEW YORK — Heating costs are rising again this year, but there are steps families can take to save money and still keep warm.
“The trend for the last seven years in the price of fuel has been upward,” said Katreri Callahan, president of the nonprofit Alliance to Save Energy in Washington, D.C.
“So the less fuel you use — and the more efficiently you use it — the lower your bills.”
Consumers don’t necessarily have to invest huge sums of money winterizing their homes, she points out.
At no cost, for example, homeowners can take advantage of the heat from the sun by opening drapes and blinds during the day and closing them at night. Or, for a modest expense, they can make sure that filters on their furnaces are cleaned or changed at the start of the winter season — and every month until spring.
   Invest the time to winterize now, and it will pay off almost immediately, Callahan said. Sealing leaks and increasing insulation in the attic and exterior walls alone can cut heating bills by 20 percent, she said.
   Sharp increases this year in crude oil prices — which spiked above $90 earlier this month — have contributed to rising prices for heating oil, gas, propane and electricity.
   The Energy Information Administration, the research and forecasting arm of the Department of Energy, said in its recent winter fuel outlook the average American household can expect to pay $977 for heating fuel this year, an increase of nearly 10 percent from last year’s $889 heating bill.
   Families who heat with natural gas will see costs rise 10 percent to $891, the EIA estimated. The increase for electricity will be 4 percent to $855, and for propane, 16 percent to $1,570, it said.
   But the families who will take the biggest hit — mainly in the Northeast and mid-Atlantic states — will be those who use heating oil, the EIA said. Their bills are projected to rise 22 percent to $1,785.
   Some heating oil companies in the Northeast have reported a rush of consumers asking to lock in prices ahead of the season; other consumers have sought out collectives like PIRG Fuel Buyers, which negotiate bulk rates for fuel and discounts on service contracts. Still other families are signing up with alternative suppliers — sometimes called third-party suppliers — in deregulated markets.
   Jeffrey Mayer, president and chief executive of MXenergy in Stamford, Conn., said his company uses hedging strategies to lock in prices for customers using natural gas and electricity in 14 states.
   So while utilities are forced to pass through costs, his company can offer contracts with set rates for up to three years.
   “Ford Motor Co. and other industrial buyers have been able to do this for years,” he said. “My thinking was the people like my father, who lives outside Philadelphia, should have the same kind of price protection.”
   In one New York market, the local utility is selling natural gas for $12.08 per 1,000 cubic feet; MXenergy’s price on a 36-month contract is $11.87 per 1,000 cubic feet.
   Mayer described it as similar to taking a fixed-rate mortgage instead of an adjustablerate and argued that it’s easier for consumers to budget for their fuel because they can avoid the price shock that can occur at the height of the season.
   Even consumers who shop for better prices need to consider conservation measures so they don’t waste what they buy. Starting this week, there’s a new tool to get them started.
   Energy Star, a joint program of the Environmental Protection Agency and the Department of Energy that promotes energyefficient products and practices, is launching a Web-based Home Advisor that will allow consumers to get customized recommendations for improving home energy use.
   Consumers who visit the site at http://www. energystar.gov/homeadvisor are asked for their zip code, the kind of heating fuel they use and the type of water heater they have. With the click of a button, they’ll get tips such as caulk windows to eliminate air leaks, increase insulation in the attic, consider purchasing a high-efficiency water heat and shop for programmable thermostats.
   Jonathan Passe, communications coordinator for EnergyStar residential programs, said the new site was designed to give consumers a place to come for ideas of how a typical home in their area would benefit from energy-efficient products.
   “We’ll tell you, for example, what recommended insulation levels would be,” he said. “Or, if you’re looking to replace windows, we’ll tell you the best specifications for your area.”
   Many of the tips work whether it’s hot or cold, Passe noted. “Sealing air leaks and adding insulation are among the most costeffective things people can do,” he said. “It can lower your bills, whether you’re heating in winter or running your air conditioner in the summer.”

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Oil cost spikes again, settling at nearly $97
BY JOHN WILEN The Associated Press

   NEW YORK — Oil futures jumped to a new record above $97 a barrel Tuesday after bombings in Afghanistan and an attack on a Yemeni oil pipeline compounded the supply concerns that have driven crude prices higher in recent weeks.
   Those concerns were also fed by a government prediction on Tuesday that domestic oil inventories will fall further this year while consumption rises.
   At the pump, meanwhile, gas prices continued to rise, following oil’s 39 percent price rally since August. The national average price of a gallon of gas jumped 2 cents overnight to $3.024 a gallon, according to AAA and the Oil Price Information Service.
   Separately, the federal Energy Information Administration reported that diesel fuel prices reached a national average of $3.303 a gallon, a new record.
   Light, sweet crude for December delivery rose $2.72 to settle at a record $96.70 a barrel on the New York Mercantile Exchange Tuesday after earlier rising as high as $97.10, a new trading record.
   Oil’s seemingly relentless climb raises the question of how high energy prices will go. If crude does keep going up, it might be some time until consumers see relief at the pump. Some analysts predict that prices could rise as high as $3.50 to $4 a gallon next summer.
   The Energy Information Administration is predicting that gas prices will remain above $2.90 a gallon for the rest of the year and will set a new record national average of $3.235 a gallon by May. In May 2007, prices peaked at $3.227 a gallon as refiners, faced with a series of unexpected outages, struggled to produce enough gas to meet demand.
   Meanwhile, estimates of where oil is headed from here range from $50 a barrel to $120. Some analysts believe supplies will get tighter as the year wears on, supporting prices. Others argue that prices have been driven artificially higher by speculative investing.
   The EIA expects crude oil prices to rise from an average of $71.36 a barrel this year to $79.92 a barrel next year.
   On Tuesday, oil was already up before news of the blasts in northern Afghanistan that killed 28 people and the attack in Yemen. Severe weather forecasts for the North Sea, expectations that domestic crude supplies fell last week and the weak dollar all contributed to the latest move upward.
   While Afghanistan doesn’t produce much oil, traders watch for the possibility that any escalation in the conflict there between U.S. armed forces and Islamic militants could spill over into other countries, disrupting oil supplies out of the Middle East.
   John Kilduff, vice president of risk management at MF Global UK Ltd., noted that the attack in Yemen “has disrupted a pipeline that carries 155,000 barrels a day of crude.”
   Meanwhile, investors believe crude supplies are declining in the U.S. Analysts surveyed by Dow Jones Newswires predict, on average, that crude oil inventories fell by 1.6 million barrels last week. The EIA will issue its weekly inventory report today. Oil futures’ rise above $90 a barrel has been fueled in part by two weeks of unexpected declines in inventories.
   On Tuesday, the EIA predicted that oil consumption will rise in the fourth quarter and next year despite higher prices and that inventories will fall.
   “Strong demand, limited surplus capacity, falling inventories and geopolitical concerns continue to weigh on the market,” the EIA said in its monthly Short-Term Energy Outlook.
   The weak dollar, which fell to a new low against the euro Tuesday, is also lifting oil prices. Oil futures offer a hedge against a weak dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the greenback is falling.
   Oil prices settled 66 percent higher Tuesday than on Jan. 3, the first trading day of the year. But Tuesday’s trading record of $97.10 a barrel is up 95 percent from this year’s trading low of $49.90, set Jan. 18.
   Crude prices are within the range of inflation-adjusted highs set in early 1980. Depending on the how the adjustment is calculated, $38 a barrel then would be worth $96 to $103 or more today.  

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South Africa has a way to make oil from coal
Thursday, August 17, 2006
By Patrick Barta, The Wall Street Journal
SECUNDA, South Africa -- Every day, conveyor belts haul about 120,000 metric tons of coal into an industrial complex here two hours east of Johannesburg.

The facility -- resembling a nuclear power plant, with concrete silos looming over nearby potato farms -- superheats the coal to more than 2,000 degrees Fahrenheit. It adds steam and oxygen, cranks up the pressure, and pushes the coal through a series of chemical reactions.

Then it spits out something extraordinary: 160,000 barrels of oil a day.

For decades, scientists have known how to convert coal into a liquid that can be refined into gasoline or diesel fuel. But everyone thought the process was too expensive to be practical.

The lone exception was South Africa, a one-time pariah state that had huge reserves of coal and, thanks to anti-apartheid sanctions, limited access to foreign oil. Sasol Ltd., a partly state-owned company, built several coal-to-liquids plants, including the ones at Secunda, and became the world's leading purveyor of coal-to-liquids technology.

Now, oil prices are above $70 a barrel, and Sasol has emerged as the key player at the center of the world's latest alternative-energy boom.

China is building a coal-to-oil plant costing several billion dollars in Inner Mongolia and may add as many as 27 facilities -- including some with Sasol's help -- over the next several years, according to a recent tally by Credit Suisse.

In the U.S., the Defense Department is studying coal-to-oil technology as a way to reduce the American military's dependence on Middle Eastern crude oil. And the National Coal Council, an industry association, is pushing for government incentives to help generate some 2.6 million barrels of liquid fuel a day from coal by 2025. That would satisfy some 10 percent of America's expected oil demand that year. The plan would require 475 million tons of coal a year, which represents more than 40 percent of current annual U.S. production. Industry officials believe America's coal reserves are big enough to allow for the extra production.

Coal-to-liquids "is not going to replace oil," says Lean Strauss, a Sasol executive who directs the company's overseas energy business. "But it's an important substitute. It is one of the solutions to energy security."

In June, two senators from coal-producing states, Barack Obama of Illinois and Jim Bunning of Kentucky, introduced a bill to offer loan guarantees and tax incentives for U.S. coal-to-liquid plants.

Sasol has found a particularly receptive audience in Montana's Democratic governor, Brian Schweitzer, who says he carries a lump of coal and a vial of liquefied coal with him at all times. He is lobbying coal companies and others to build coal-to-liquid plants across his state, which has some of the biggest coal reserves in the U.S.

Current estimates indicate the world has just 41 years of known oil reserves and 65 years of natural-gas supplies. It has enough coal reserves to last an estimated 155 years, with some of the largest reserves in the two biggest oil-consuming countries, the U.S. and China.

It's far from clear, however, that the world would be better off -- economically or environmentally -- by burning more coal to fuel cars and trucks.

One problem is that coal-to-oil projects are extremely expensive. A single plant capable of producing about 80,000 barrels of oil equivalent a day -- less than 0.5 percent of America's daily oil diet -- would cost an estimated $6 billion or more to build.

Energy analysts reckon that some coal-to-liquids projects can offer an acceptable return on investment when oil is priced as low as $30 or $35 a barrel, though such ventures might require government tax incentives to reduce operating costs. It seems likely that oil prices will stay above that level for a while, but the longer-term outlook is anyone's guess. An earlier flurry of interest in coal-to-oil facilities in the U.S. during the Carter administration in the late 1970s died after oil prices collapsed.

Coal-to-oil projects also pose serious environmental questions. When the South African facility superheats coal and turns it into a gas, one of the main waste products is carbon dioxide, thought to be a significant cause of global warming.

The Natural Resources Defense Council, a U.S.-based environmental advocacy group, estimates that the production and use of gasoline, diesel fuel, jet fuel and other fuels from crude oil release about 27.5 pounds of carbon dioxide per gallon. The production and use of a gallon of liquid fuel originating in coal emit about 49.5 pounds of carbon dioxide, they estimate. Even some boosters of the coal-to-oil plants describe them as carbon-dioxide factories that produce energy on the side.

"Before deciding whether to invest scores -- perhaps hundreds -- of billions of dollars in a new industry like coal-to-liquids, we need a much more serious assessment of whether this is an industry that should proceed at all," said David Hawkins, director of the Climate Center at the Natural Resources Defense Council, at a recent U.S. Senate hearing.

Coal-to-oil is one of several promising but potentially polluting technologies that are receiving new attention amid high oil prices. Energy companies are trying to unlock natural gas trapped in shale and other difficult rock formations. They're also tapping oil-soaked sands in Canada and so-called heavy oils in politically challenging places such as Venezuela. Environmentalists fear these new sources will outshine conservation as the way to address the world's growing thirst for energy.

In South Africa, environmental groups say Sasol's facilities have emitted huge volumes of carbon dioxide and pollutants, including sulfur dioxide. They say these have caused a host of respiratory problems in nearby communities. Sasol says its emissions of these pollutants are small compared to emissions by other companies' coal-burning electricity plants in the region.

Sasol officials acknowledge their facilities emit greenhouse gases and that building more coal-to-liquids facilities around the world "could have potentially significant implications, in the long run, for our commitment to reducing carbon intensity," according to a recent company report on its social and environmental programs.

Sasol says it plans to reduce its greenhouse-gas emissions per ton of product by 10 percent by 2015. Sasol and many other coal-to-oil proponents say that future coal-to-liquids plants can be built with newer technologies that trap carbon dioxide and store it, sharply reducing their emissions.

To many South Africans, Sasol is a huge success story. The company's daily production now meets about 30 percent of South Africa's transport-fuel needs. The country's 50-rand bank note even features a picture of one of Sasol's plants.

Sasol's share price has more than tripled over the past three years. Analysts estimate it earned about $2 billion in the year ended June 30, about 35 percent higher than the year before -- such a sharp rise that South African authorities are contemplating a "windfall tax" on the company.

Coal-to-oil technology dates back to the 1920s, when two German chemists, Franz Fischer and Hans Tropsch, developed a process to convert coal into a gas and then use it to make synthetic fuels. Coal-to-oil technology helped fuel the Nazi war machine, which lacked access to sufficient crude oil. International oil companies also experimented with the process but put it aside because oil was cheaper.

South Africa took a different view. The country lacked oil, but had enormous deposits of coal, much of which had limited market value because of its poor quality. In 1950, the government set up Sasol as a state-owned company and authorized funding for its first project, a coal-to-liquids facility called Sasolburg in the South African countryside.

When oil prices soared in the 1970s, South African officials decided to up the ante. They lent Sasol $6 billion to build two new facilities at Secunda -- each 10 times as large as Sasolburg. The government also privatized the company, listing it on the Johannesburg Stock Exchange in 1979. (The government maintains a 23.5 percent stake).

By the time the facilities were completed in the early 1980s, international oil prices were collapsing. The project was nonetheless a success for the white-dominated apartheid government because international sanctions were restricting South Africa's ability to buy foreign oil. The plants managed to stay profitable by continually boosting efficiency and expanding their end products to include plastics, fertilizers and explosives.

Besides the government loans, Sasol at various times received cash payments from the government when oil prices fell below a certain level. It eventually paid back the loans and stopped receiving subsidies for its coal-to-oil business by 2000.

Today, Secunda is a buzzing industrial hub with 16,000 employees, miles of interlocking pipes and cables, and eight colossal silos. The silos, each big enough to contain a football field, cool steam involved in the conversion process. Fuel trucks wait along the edge of the facility to fill up with gasoline. Nearby mines produce more than 40 million metric tons of coal a year -- as much as all of Illinois.

Outside the plant gates, Secunda has a boomtown feel. It has some 35,000 people, a BMW dealership and a multistory casino hotel called Graceland designed to evoke the "grand old age of Colonial America."

A growing focus for Sasol is marketing its technology overseas. The company first tried to do so in the 1990s, after apartheid ended, but executives found doors slammed in their faces. Oil was trading for less than $25 a barrel at the time. "We sat in corridors waiting for meetings that never happened because they didn't even know who Sasol was," recalls Pat Davies, Sasol's chief executive.

Sasol made its first inroads in countries such as Qatar that have big stockpiles of hard-to-transport natural gas. These countries were interested in Sasol's technology for turning natural gas into liquid fuel.

As oil prices began to perk up, Sasol drew interest on the coal front from China, with its big coal reserves and energy needs. In marketing materials produced for Chinese government officials and investors, Sasol offers a simple message: By 2015, 70 percent of China's oil imports will come from the Middle East. Yet the country has coal reserves equivalent to more than half the oil in the Middle East.

By 2004, Chinese energy planners began meeting with Sasol executives in Beijing to discuss the coal-to-oil process. That was followed by a series of meetings with policy makers and Chinese companies, capped by a gathering in Cape Town in June attended by visiting Chinese Premier Wen Jiabao.

Coal-generated pollution is emerging as a major environmental crisis in China. Yet Chinese officials are apparently willing to accept more coal use if it means improving the country's energy security, especially if local companies can design facilities to use relatively clean-burning varieties of coal.

Shenhua Group, China's largest coal producer, has started work on China's first commercial coal-to-oil facility, designed eventually to produce as many as 200,000 barrels of oil equivalent a day. Although that plant uses a different process from Sasol's at Secunda, Shenhua officials are in negotiations with Sasol to jointly build at least one additional 80,000-barrel-a-day plant using the South African company's technique.

While Sasol would charge a fee for licensing its technology, its main interest is to share ownership in the facilities once they're built because it wants a share of the long-term profits. In China, Sasol is asking for a 50 percent equity stake in the projects. A Shenhua official says negotiations are going smoothly and the company hopes to begin construction soon.

In Montana, at least two companies, including the world's largest private-sector coal company, Peabody Energy Corp. of St. Louis, have said they are looking at potential coal-to-oil sites. Montana's Gov. Schweitzer says any excess carbon dioxide from a facility could be given to oil companies to be injected back into the ground to enhance recovery from old wells.

Bringing Sasol on board is critical, says Gov. Schweitzer. He says Wall Street banks want the South Africans to play a role because Sasol is the only company with a track record in the business. To woo Sasol executives, he says, he took them on a flight over Montana coal country last year.

"These are the guys everyone wants to take to the prom," Gov. Schweitzer says.

Sasol officials say they're interested in Montana and other potential sites in the U.S., provided they can find a suitable partner and receive tax or other incentives.

Coal-to-oil "is coming to the United States," Gov. Schweitzer proclaims. When it does, he says, other countries "will be scrambling to protect their oil supplies -- and we'll be energy independent."


First published on August 17, 2006 at 12:00 am
Shai Oster in Beijing contributed to this article.

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Public seems tired of fretting over gas prices
BY DAN CATERINICCHIA The Associated Press

   WASHINGTON — When gasoline prices first hit $3 a gallon in 2005, irate lawmakers quickly assembled top oil executives for a public grilling.
   Pump prices are again above $3, yet the outcry from Congress is barely a whimper by comparison — even after this week’s warning from Federal Reserve Chairman Ben Bernanke that oil near $100 a barrel is a serious economic threat.
   The change in tone since Nov. 9, 2005 — when Sen. Barbara Boxer, D-Calif., castigated oil executives for reaping multimillion-dollar bonuses while “working people struggle” — reflects an altered landscape in terms of energy economics and politics, analysts said:
   The American public is more accustomed to high prices, despite the financial pinch.
   Oil industry profits are retreating from year-ago levels as the soaring cost of crude crimps refining revenue.
   The outrage many Democrats expressed back then over high energy prices has been tempered by the fact that their party now controls Congress, making fingerpointing more difficult.
   Plus, lawmakers have their hands full with a worsening housing crisis, a four-and-a-half-year-old war in Iraq and spending bills that have yet to be completed.
   Geoffrey Styles, managing director of Virginia-based energy consulting firm GSW Strategy Group LLC, ascribes the relatively tame reaction in Washington these days to “price fatigue.”
   “If [gas] hits $3.50 a gallon, then I think you’ll see ... that hue and cry of the past,” Styles said.
For the time being, only one hearing is planned on crude oil prices, with industry and energy market experts likely to testify on recent record prices.
Meanwhile, high energy prices, fueled in part by rapid economic growth in Asia, show little sign of abating. Oil has risen more than 27 percent since Labor Day, trading at $96 a barrel on Friday, while gasoline prices are up 10 percent, averaging $3.08 a gallon nationwide, according to AAA and the Oil Price Information Service.
   But unlike the Senate hearing two years ago that focused on record profits, oil companies are not being blamed as much by Congress this time. Exxon Mobil Corp., Chevron Corp. and others recently posted declines in quarterly earnings due to weak refining margins, the difference between what refiners pay for oil and what they’re paid for the products they make from it.
   John Felmy, chief economist of the American Petroleum Institute, said even after Hurricane Katrina ignited fuel prices back in 2005, there was still a “real lack of understanding” about how global oil markets operate, fueling undeserved suspicion and anger toward the major oil companies his trade group represents.
   Today, Felmy said, lawmakers and consumers have a better grasp of how the price of crude and gasoline are linked.
   Because the public recognizes that rising prices are not directly controlled by Congress or oil companies and therefore there’s no “obvious political fix,” there’s less pressure on lawmakers to hold hearings, said Douglas Holtz-Eakin, a senior fellow at the Peterson Institute for International Economics.
   Another factor in the currently muted response to $3 gasoline is that Democrats, who had blamed the policies of a GOP-led Congress for helping to fuel record oil-industry profits, now control the House and Senate.
   “It’s easier to throw stones when you’re not in charge,” said Evan Ringquist, a professor at Indiana University’s School of Public and Environmental Affairs.
   Boxer’s office did not return calls for comment.
   Andy Weissman, publisher of the weekly Energy Business Watch, said the current focus in Congress on housing market woes and the subprime mortgage meltdown are understandable, but both parties need to refocus on energy policy.
   Weissman advocates a “moon challenge effort” to develop more energy-efficient cars, expand access to offshore drilling and dramatically increase funding for alternative fuels. Instead, the House and Senate are miles apart on the passage of a comprehensive energy bill, partly because of a disagreement over renewable fuel standards.
   Still, the mood on Capitol Hill about soaring energy prices could change, especially if oil crosses the psychologically important threshold of $100 a barrel.

DENNIS COOK/THE ASSOCIATED PRESS
Lee Raymond, then the CEO and chairman of Exxon Mobil Corporation, discusses energy pricing and profits on Capitol Hill before a joint hearing of the Senate Commerce and Energy and Natural Resources Committee in this Nov. 9, 2005, file photo.

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NEW YORK STATE
Report: Energy costs increase
Deregulation to blame, says group
BY SARA FOSS Gazette Reporter

   Deregulating New York’s energy industry was supposed to lower the cost of electricity for the state’s consumers.
   But a new report by the Washington state-based advocacy group Power in the Public Interest shows that instead, the opposite has happened: During the past seven years, electricity price increases in New York have been larger than price increases in regulated states, according to the report, released earlier this fall.
   “There’s no demonstrated benefit to deregulation, and there’s strong evidence that prices have gone up as a result,” said Marilyn Showalter, executive director of Power in the Public Interest.
   The report shows that electricity prices in the regulated states rose more than 27 percent between 2000 and 2007, from 6 cents per kilowatt hour to 7.7 cents per kilowatt hour. In New York, prices rose 44 percent, jumping from 10.4 cents per kilowatt hour in 2000 to 14.5 cents per kilowatt hour in 2007.
   Overall, the gap between electricity prices in deregulated and regulated states has widened in the past seven years; the difference is now more than 4 cents per kilowatt hour, compared to 2 cents per kilowatt hour in 2000. New York is 6.8 cents higher than the average regulated state. The report estimates that New Yorkers paid $22 billion for their electricity for the 12 months ending in June 2007; the same amount of electricity, at the regulated states’ average rate, would have cost $11.6 billion.
   “That is not to say that deregula- tion is responsible for the whole gap or that the gap can be closed,” the report says. “The gap does, however, reveal the significant economic disadvantage suffered by customers in New York and the imperative for New York to pursue the most effective form of economic regulation of electricity.”
   Ken Klapp, a spokesman for the New York Independent System Operator, which operates the state’s wholesale electricity markets, said Showalter’s report is not accurate.
   “For everything she says, we have a report that says the opposite,” he said. “She’s from the state of Washington, and she’s saying how bad things are in New York.”
   There are a number of reports, Klapp said, showing that competitive wholesale electricity markets “offer great improvements over the regulated monopoly schemes of the past.”
   A March 2006 New York State Public Service Commission staff report on New York’s competitive energy market says that wholesale competition has led to “significant efficiencies.”
   The inflation-adjusted electric price for a typical residential retail customer in New York dropped by an average of 16 percent between 1996 and 2004, while most commercial and industrial customers have also seen decreases in their inflation-adjusted energy bills, according to the report. Wholesale power costs, adjusted for fuel price increases, stayed flat from 2000 to 2005.
   New York began deregulating its energy industry in the late 1990s, under former Gov. George Pataki, and most of the state utilities sold their power plants to independent companies.
   Today there are more than 60 energy service companies, or ESCOs, competing for business in New York, compared with just four before deregulation began.
   According to Showalter, what’s happened in New York isn’t unique. Other states that have deregulated their energy markets — a list that includes Connecticut, Massachusetts and Texas — show similar trends, she said.
   “The further down the road of deregulation that a state or utility has gone … the higher the prices seem to be,” Showalter said.
   One problem, Showalter said, is the design of New York’s wholesale energy market.
   By design, the most expensive needed resource, often a natural gas plant, sets the price for all needed resources, regardless of their underlying cost.
   So if the price of natural gas increases, or if an even more expensive renewable resource becomes the marginal resource, prices for all resources increase as a result.
   In regulated, cost-based systems, a higher-cost resource will not significantly affect the amount consumers pay for a lower cost resource.
   According to the Power in the Public Interest Report, New York’s incremental price increase in electricity since 2000 ranked seventh in the nation. Of the top 10 states, all except Hawaii are deregulated.
   The 2006 Public Service Commission report described New York’s wholesale energy market as “among the most advanced in the nation,” and found that the restructured system has sent proper price signals, spurring new electricity generation in areas where it is needed most.
   The report notes, “Assessing the impact of competition on wholesale energy prices is difficult for a number of reasons. Competition is still relatively new and data is still limited; assumptions must be made about what wholesale prices would have been had the regulated monopoly regime been maintained; regulated prices typically refl ected historical costs not marginal costs; there have been significant changes in fuel prices, energy demand, technology and environmental constraints; and natural gas prices have increased significantly.”
   An ISO report found that higher natural gas prices are a major reason for the electricity price increases in New York, where more than half the state’s generators are fueled by natural gas and oil.
   A letter signed by nine former Federal Energy Regulatory Commission chairs and regulators cautions against proposals to re-regulate the energy industry.
   The letter states, “The recent price increases are not the result of competition. Rather, the causes are higher fuel prices coupled with the removal of price caps that have kept rates artificially low while fuel prices soared.”
   Showalter would like to see New York return to a regulated energy system.
   Unlike other states, New York’s energy market was deregulated by the Public Service Commission, rather than the state Legislature. “It does not take a law to re-regulate,” she said.
   Virginia and Montana have reregulated, and Ohio is in the process of doing so. Some states are returning money to residents; a $1 billion rebate for Illinois residents and businesses was signed into law last week.
   “Nobody’s talking about it in New York, but [re-regulation] is a hot topic,” said Gerald Norlander, executive director of the Public Utility Law Project of New York, based in Albany. “[States] are seeing that deregulation hasn’t worked, and they’re trying to figure out a way back.”