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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

Category: Energy
December 1, 2011 at 9:46 AM

A decade later, Enron seems so quaint

Friday marks the 10th anniversary of Enron’s chapter 11 bankruptcy filing. Americans learned that this lionized giant, which seemed to represent the future of energy and corporate success, was in fact a bundle of frauds and hustles.

Led by the politically connected Ken Lay and Jeff Skilling, Enron was honored as “America’s Most Innovative Company” for six consecutive years by Fortune magazine. There was no there there. In the place of actual productive work was a bunch of complex frauds and gambling in energy markets that led to blackouts in California. In the end, 22,000 employees lost their jobs and shareholders — the stock was heavily pushed to investors by Wall Street — were wiped out. So were the workers, who put most of their 401(k) savings in Enron shares. They’re still picking up the pieces of their lives.

Enron’s sins sound familiar: Using deregulation to create swindles, a lapdog board of directors and the co-conspiracy in the whole con by one of the world’s most respected accounting firms, Arthur Andersen, and Citigroup’s Sandy Weill. As the house of cards collapsed, the entire poker game fell down for similar frauds at WorldCom, HealthSouth and Tyco.

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Comments | More in Business legal issues, Business scandals, Energy

November 14, 2011 at 9:40 AM

The pipeline, Canada and the energy future

The United States’ decision to delay the Keystone Pipeline, which would have brought Canadian oil to U.S. refineries, is making us few friends in the north. The Globe and Mail reported on how Canada’s energy industry is now in an urgent hunt to get its product to Asia. And Prime Minister Stephen Harper says the delay shows why Canada needs to diversity its trade beyond the U.S.

President Obama and Harper met privately during the weekend’s APEC summit in Hawaii:

Strains in the Canada-U.S. relationship and efforts to mend fences were at the top of the agenda as Mr. Harper and Mr. Obama met. They talked about a pending Canada-U.S. trade and security pact as well as the consequences of the State Department’s decision to put off until 2013 approval of the $7-billion Keystone KL pipeline that would carry oil sands crude to refineries in Texas.

Mr. Harper played down that and other setbacks, saying politics is temporarily clouding what’s best for the two economies. “This is simply the political season in the United States, and decisions are being made for domestic political reasons,” he told reporters.

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Comments | More in Canadian economy, Energy, Environment

October 17, 2011 at 10:10 AM

Gas giant: Kinder Morgan keeps its star rising

The big deals that were supposed to materialize this year with so much cash sitting in corporate treasuries have mostly proven to be mirages. Finally, for the fourth quarter, we have Kinder Morgan’s $21.1 billion acquisition of El Paso Corp. It would make Kinder Morgan the largest operator of natural gas pipelines in the nation — with a combined 66,702 miles of lines — and the fourth-largest energy company. Unlike the aftermath of many such an announcement, both companies’ shares are up today on the news.

The business is more complicated than it sounds. For example, pipeline owners charge a fee to transport gas to utilities, and also carry more than just gas. But the sweet spot is the growing demand for natural gas pipelines as energy companies undertake horizontal fracturing to release gas from shale deposits. In addition to the huge network the deal creates, the ability to move the gas found from “fracking” is expected to be highly profitable. Kinder Morgan also operates the only oil sands pipeline serving Washington state via Vancouver, B.C., and a biofuels pipeline in Oregon to terminals on the Columbia River.

Despite the promises of a “100-year supply” of natural gas at current consumption levels, this deal is actually betting on a higher-cost energy future.

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October 3, 2011 at 10:00 AM

The real Solyndra problem

As you know, the California solar energy company Solyndra received a $525 million loan from the U.S. Department of Energy, made some bad bets about the direction of raw materials prices and technology, forcing it to file for bankruptcy protection. This has produced a House investigation, with Solyndra executives taking the Fifth. If they were investment bankers, this would be another day at the office, but never mind that.

To the critics that say the Obama administration’s effort to seed a renewable energy sector with $22 billion in loan guarantees, former Reagan administration trade and commerce official Clyde Prestowitz says:

These are precisely the wrong conclusions to be drawn from the episode. As a former director of new product development at Scott Paper Company, I can tell you that any corporation or venture capitalist would be happy if as many as one in ten investments in new products and ventures paid off. The Solyndra loan guarantee of $535 million represents only about 2 percent of the Energy Department’s $40 billion portfolio of loan guarantees whose recipients mostly seem to be doing pretty well. Indeed, the number of jobs in the U.S. solar industry has doubled to 100,000 since 2003.

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Comments | More in Energy, Great reset, Infrastructure, Oil prices, Sustainability, Transportation

July 15, 2011 at 10:20 AM

Looking beyond downtown Seattle, ‘free’ parking isn’t really free

Downtown Seattle has the dubious distinction of having the sixth costliest garage parking among cities in the United States, according to reporting by the Seattle Times’ Susan Gilmore. It’s a competitive issue to be taken seriously, especially if it hurts downtown businesses. On the other hand, garages charge what the market will bear and Seattle has a dense downtown with plenty of attractions and assets. (And one doesn’t have to own a car here).

But even “free” out in the suburbs isn’t really free. The externalities, such as environmental damage and climate-altering emissions, of big surface parking lots, wide streets, extensive car use, etc. aren’t priced in to conventional studies or public policies. Much of this is an artifact of a moment in history when energy was very cheap and debt low. Not for nothing are many suburbs suffering worse from the recession and its aftermath than center cities.

Beyond that, “free” parking, is heavily subsidized, although these costs are largely hidden from drivers. Donald Shoup, professor of urban planning at UCLA, analyzes the costs and consequences of this in his book, The High Cost of Free Parking. Tyler Cohen has written about it for the New York Times.

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Comments | More in Downtown and urban issues, Energy, Oil prices, Sustainability

July 13, 2011 at 8:30 AM

Modest but promising: Trying to get our arms around the ‘green economy’

What, exactly, is “the green economy”? The Brookings Institution takes a swipe at defining it and ranking metro areas in green-job creation since 2003 in a new report. And for all Seattle’s aspirations, we come off so-so: 13th in “clean jobs” created (31,340) out of the 100 largest metros, but near our metro population size ranking overall.

Those jobs represent 1.8 percent of all employment in the region to rank it 46th. Seattle ranked 69th among metros in the export value of those clean jobs. Overall jobs numbers pretty much track population size, thus New York, LA and Chicago are the top three. Portland ranks 16th.

Admittedly, this is an attempt to pin down a murky segment, one prone to “green wash” (industry propaganda) and ambiguity. As Brookings measures it, this “clean economy” economy employs 2.7 million nationally. The fields include wastewater, mass transit, “solar photovoltaic, wind, fuel cell, smart grid, biofuel, and battery industries.” Many of these are being born. And looking back to 2003 means dealing with the fallout of the Great Recession and a weak jobs decade even before that.

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June 27, 2011 at 10:30 AM

What Washington state can learn from Texas (not what you think)

Texas’ economy is doing better than most places. According to the president of the Dallas Fed, the state has accounted for 37 percent of all net new jobs created since the recovery began. Not surprisingly, the editorial page of the Wall Street Journal stated this was because of its “free market and business-friendly climate.” This has become a meme.

The reality is more complicated. Texas remains a petroleum superstate even 40 years after the continental United States entered peak, as well as the entry point for much imported oil and a powerhouse of refining and chemicals. It’s an urbanized state with three of the nation’s largest cities, two of which, Dallas and Houston, have numerous corporate headquarters. Austin is a high-tech mecca and Houston is one of the world’s top medical centers. Texas has benefited most among the states from NAFTA and trade with Mexico.

Government plays a big role, too. The state’s powerful congressional delegation sends home the money, whether dominated by Democrats or Republicans. Houston’s status as a major city was in no small part because of the decades of federal funding steered its way by every Texas leader from LBJ to the Bushes (e.g., the Houston Ship Channel, federal grants for research, the headquarters of NASA). San Antonio’s economy enjoys a stable foundation of big military installations. The state’s universities, especially UT-Austin and Texas A&M, receive huge federal support, as well as consistent state backing even in bad times. The state used tax increases to take UT-Austin from a football mill to a world-class university. Dallas has built one of the nation’s most popular light-rail systems thanks in part to Uncle Sam. Texas’ oil and agriculture sectors enjoy big tax breaks and subsidies.

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Comments | More in Energy, Natural resources, State fiscal conditions, Tax policy

June 10, 2011 at 10:30 AM

Weinergate break: While you were out, America, it’s the economy, stupid

The Dow is now below 12,000 with the longest decline since 2002. Maybe that will refocus us on things that matter, instead of Anthony Weiner’s unmentionables. Quickly, before the next, “Hey, America, look over here!” distraction, here’s a rundown of some things you might have missed while Weinergate … carefully choosing word for a family newspaper … *removed* the oxygen from the room:

  • As if you didn’t already sense it, the Employee Benefits Research Institute reports that many Americans will have to work into their 70s and 80s because lack of retirement savings. If we can find jobs, that is.
  • The Bush/Obama tax cuts turned 10. The Center on Budget and Policy Priorities has a helpful set of charts on what they did and did not achieve.
  • Be sure to read the fascinating New York Times story on the success of the German economy. The policies behind it defy stereotypes of conservative or liberal.
  • Our friends at OPEC ‘fessed up that world demand is surpassing supplies, making higher prices likely in the second half. Unless the economy slows so much that prices fall. Just remember, peak oil is a hoax.
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    Comments | More in Banking, Energy, Global economy, Jobs/Unemployment, Oil prices, Outlook, Stock market, Tax policy

    May 12, 2011 at 10:05 AM

    Better to spin a speculator melodrama than face reality of oil prices

    ExxonMobil CEO Rex Tillerson told the Senate Finance Committee that based on supply and demand “fundamentals,” the price of a barrel of oil should be around $60 to $70 a barrel. How should Tillerson know this? The large domestic oil companies represent a sliver of world production and reserves. ExxonMobil is very good at spending money to support climate-change “deniers.” Understanding the fundamentals of supply and demand, apparently not so much.

    But Tillerson and other CEOs are acting their part in the play. Righteous lawmakers search out the culprits for rising gasoline prices. Seventeen senators, including Washington’s Maria Cantwell and Patty Murray, signed a letter to regulators blaming speculators for the phenomenon. It reads in part, “While there has been little change in the world’s oil supply and demand balance since 2008, oil prices have jumped around from $147 per barrel, to $31, to $86, to around $104 today.” It was around $97 a barrel this morning, but you get the idea.

    The price rise can’t possibly have anything to do with strongly rising demand in the developing world, including China, which is leading the world economic recovery even if its being felt tepidly at home. And the ceiling hit in world production in the mid-2000s, with many of the biggest fields in decline and major oil producing countries, including Saudi Arabia, holding back more oil for domestic use? That couldn’t have much of a role, either, could it? “Little change” despite the collapse in demand caused by the Great Recession?

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    Comments | More in Energy, Oil prices, Politics and the economy

    April 29, 2011 at 9:52 AM

    Tanked: The razor edge of oil prices in our future

    Urbanist James Howard Kunstler recently offered a succinct explanation of rising oil prices in a world where demand is increasing while production and new discoveries have irretrievably plateaued:

    You will recall, perhaps, that hoary old concept, the “bumpy plateau” of the peak oil story. This was the idea that the actual tippy-top “peak” of peak oil, studied at close scale, would actually take the form of a raggedy line representing the interplay between supply, demand, and most importantly the frantic psychological response of humans operating in markets. It was clear that economies would stagger under the burden of high oil prices, and economic activity would contract, and people would use less oil and the price would go down. When prices were real low again, people would resume buying more oil (and other stuff) and economic activity would mount and oil prices would go up again. We knew this would happen for a couple-few cycles, and that then things would get… more interesting.

    This is not to say speculators are not partly to blame. Kunstler goes on, “The oil speculators are normal characters in a stressed market doing what needs to be done on the margins of ‘price discovery.’ The trouble arises when price discovery occurs in turbulent times and places, for instance, when people in a part of the world called the Middle East & North Africa (MENA, for short), start rioting against their governments, which has been the case persistently for a couple of months now – a region that contains about half the world’s oil reserves.” He rightly laments that while President Obama has gotten worked up about this, “Funny, he didn’t show any interest the past two-plus years in people who make money swindling taxpayers via booby-trapped Collateralized Debt Obligations and Credit Default Swaps.”

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    Comments | More in Energy, Oil prices

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