drought

Despite some recent rain and snow, California continues to experience a historic drought that will further reduce the state’s hydroelectric output and again increase demand for natural gas for power generation. But the drought is only part of the story. California needs to replace the megawatts once provided by the now-shuttered San Onofre nuclear station, and specifically needs flexible gas-fired capacity to back up the intermittent production from the state’s new solar facilities and wind farms. The resulting gas shortages have led to generators being exposed to massive swings in gas prices this winter and facing higher prices this summer. Today we examine the growing connection between gas use and rain, snow, sun and wind in the Golden State.

US nitrogen based fertilizer prices are currently at record levels as a result of high demand from farmers. Farm demand for fertilizers is driven by crop prices. The Midwest drought this year has pushed corn prices through the roof, creating strong demand for fertilizer to improve crop yields. Nitrogen fertilizers are derived from ammonia – largely produced using natural gas. The current cost to produce ammonia from natural gas is about $98/ton. With farmers in Iowa paying over $800/ton for fertilizer this month producer margins are extremely attractive. One company is pushing a new “mobile” technology to make fertilizer from surplus natural gas in the Bakken.  Today we look at fertilizer market fundamentals.

A couple of weeks back in “A Market of Contradictions: Ethanol Mandates, Motor Gasoline and the Blend Wall” we looked at how US refiners are on the hook to blend more and more ethanol into a diminishing pool of gasoline (the blend wall) under Renewable Fuel Standard (RFS) legislation. Ethanol producers are losing 35 cnts/gal after the hottest July ever fried the corn harvest. Sinking ethanol production may not cover refiner’s needs. In response, refiners are turning to an arcane workaround called Renewable Identification Numbers (RINS). Today we'll peel back the red tape to see what is really going on.