Oil at Ninety

An important item is covered here that lets us catch up on the present oil market.  Oil has recovered slowly back through to the $90 dollar mark as the global economy continues to recover back to pre 2008 levels of activity.  During this recovery, OPEC has been able to ship a million barrels per day over their so called quotas.  This all means that they are restraining supply to allow this price level to be reached while covering any shortfalls.

I suspect they have the capacity to keep the price in this particular range.  This is important.  Any higher and contraction begins to impose itself in the developed markets which is not desirable to anyone.

More important the investment to replace declining reserves is now in full swing because the industry must replace cheap declining reserves with new expensive reserves in the face of an expanding global economy.  Unsurprisingly the oil industry is spending everywhere they can.

Locking the price at $90 assures us that the development of North American shale oil reserves and restoration of depleted conventional reserves using the new petro fracking method is profitable and will turn into a massive land rush that will actually make North America completely independent of global oil.

Major alternatives are also emerging and I have no doubt that we will see the complete and rather abrupt end of the oil age quite soon.  Up until that is actually happening we have to keep the economy turning over and oil does just that.  You will be amazed over how fast the final transition will actually be.

All things indicate that peak conventional oil has passed and the present scramble should plausibly replace contracting reserves.

But keep in mind, this contraction is fast and happening across the spectrum of all our present production where any and all new production is expensive.  That is why oil is at $90 and why the alternative options are now holding up economically.

OPEC Caught Lying...

By Nick Hodge | Tuesday, December 28th, 2010

Now that the Peak has passed, all sorts of interesting tidbits are emerging.

Take the December 13th BusinessWeek article that declared OPEC is cheating the most since 2004...

Apparently, the oil cartel pumped 26.78 million barrels per day (mmbd) this year. Yet they have a production limit of only 24.845 mmbd, set at the end of 2008 in response to the recession.

So your friendly neighborhood fuel gang has been breaking its output limit by 1.934 million barrels — everyday, all year long.

With crude at its highest price in two years, overproduction allows OPEC members to boost profits without formally changing output targets.

An extra 1.934 mmbd at $80 works out to a nice “informal” $56.47 billion boost.

OPEC's been lying... That's nothing new.

What's important here is to note the willingness to extract as much as they can as prices rise.

Analysts, start your engines

If the price of oil creeps high enough, OPEC will officially raise its target to cash in.

$100 seems to be the obvious trigger to make that happen, and the consensus is that it will happen this year.

Oil's at $91.43 as I write this — up 30% from the year's low.

Goldman says it'll “average $100 in 2010 and $110 in 2012.” JPMorgan says we'll see $120 by the end of 2012.

Adding to the pricing fire, U.S. stockpiles declined by 19 million barrels this month thanks to intense cold and holiday travel. That's the biggest monthly decrease since December 2006.

I'm sure you've noticed gas station marquee numbers are back on the march.

Prices at the pump have officially broken $3.00 for the first time since October 2008. And they aren't expected to ease anytime soon.

John Hofmeister (former President of Shell, current Head of Citizens for Affordable Energy) is touring TV land this week with a new prediction:

We'll be paying $5.00 per gallon in less than two years, and sometime between 2018 and 2020 there will be another 1970s-style energy shortage requiring rationing.

And this guy didn't just jump on the bandwagon; he's been saying for years that “the last days of affordable gas are behind us.”

He's been attacking our national energy policy since the turn of the century,saying business as usual would lead us to an “energy abyss”.

And like an ever-increasing cadre of oil execs, he admits conventional oil production is in decline, and is convinced we must turn to unconventional sources to fill the gap — and avoid gas station rationing.

There's still time to put this trend to work for your portfolio. Oil at $200 per barrel implies a 122% increase from today's prices.

Buying an oil or gasoline fund like United States Gasoline (NYSE: UGA) or ProShares Ultra Crude Oil (NYSE: UCO) or top unconventional oil plays will ensure rising oil prices translate into personal profits...

Those stocks and funds are already marching in step:

It explains the future of drilling for hard-to-get oil, and the one company that will make shareholders rich as it unlocks billions of barrels worth of unconventional reserves.

Call it like you see it,

Bayer Squirms on Colony Collapse Disorder

I agree with Tom Philpott.  This is not a rebuttal at all.  It is actually an admission that no such rebuttal is forthcoming nor will be forthcoming.

The product has already been banned in key markets in Europe and you would surely expect to see Bayer on their best game.  Instead we have a weak ‘but your agency approved it’ comment.

The present level of institutional integrity is so undermined in terms of public confidence that such defenses no longer work, if they ever did.

We have a problem Bayer, and the size of the market is not big enough for you to bet the whole company trying to defend it.  We all know that the EPA testing standards are routinely skated around and that is plausibly permissible when there is no creditable pathway to more serious harm.

Here the pathway is obvious and measurable. That the bee threshold is way lower than originally hoped for is disappointing.  A field proof using the entire US corn crop was a bit over the top, and it has decimated the US bee industry.  From now on all losses are accumulating to Bayer’s account in the inevitable class action suit.  I suspect someone is trying to make it to retirement before the proverbial C### hits the fan.

The agro chemical industry is big enough to do this right.  It takes years to introduce a new product for good reason.  Large multi year field tests are needed and I see that detailed biological studies are needed in surrounding wilds and fields in order to assess impact.

That may still have missed colony collapse disorder but it would pick up a lot of effects that are happening under the radar.

Update: Bayer responds to criticism of its potentially bee-killing pesticide

BY Tom Philpott

20 DEC 2010 8:56 AM

http://www.grist.org/article/food-2010-12-20-bayer-responds-to-criticism

I recently wrote about a study, funded by the German chemical giant Bayer, purporting to show that Bayer's blockbuster pesticide clothianidin doesn't harm honeybees when applied as a treatment to seeds.

The EPA had required the study before it would register clothianidin. Years before it finally got the study in 2007, the EPA granted the neonicotinoid pesticide "partial registration," and farmers promptly began to apply it to millions of acres of farmland across the country. Meanwhile, a mysterious phenomenon called "colony collapse disorder" arose -- across the nation, beekeepers were finding it increasingly impossible to keep their hives alive.

To make a long story short, the EPA eventually accepted Bayer's study and granted clothianidin full registration in early 2010. But as I reported earlier, a leaked document (PDF) from November shows that two EPA scientists had reviewed that Bayer study and found it wanting. The study had "deficiencies," they wrote, that rendered it unacceptable.

The study was clearly flawed -- it appeared to let test and control bees range widely and forage on both clothianidin-treated and non-treated fields. "When I looked at the study," Penn State entomologist James Frazier told me in a phone interview, "I immediately thought it was invalid."

Well, Bayer has now responded to critiques of the study on its website. Lamenting the "unauthorized release" of the recent EPA memo, the agrichemical giant declared:

The study referenced in the document is important research, conducted by independent experts and published in a major peer-reviewed scientific journal. The long-term field study conducted in accordance with Good Laboratory Practices (GLP) by independent experts using clothianidin-treated seed showed that there were no effects on bee mortality, weight gain, worker longevity, brood development, honey yield and over-winter survival. The EPA reviewed and approved the study protocol prior to its initiation and it was peer-reviewed and published in the Journal of Economic Entomology*. Upon reviewing the results of the long-term trial, the Agency noted the study as "scientifically sound and satisfies the guideline requirements for a field toxicity test with honey bees.

"Independent experts," huh? Not really -- Bayer paid for that study.

But here's the important thing about that response: It contains no substantial defense of the methodology, and no attempt to explain its obvious flaws. The response, essentially, is that the EPA initially approved the study, therefore it is valid. Of course, in that "unauthorized release," EPA scientists explicitly withdrew approval citing "deficiencies"

-- and Bayer has no comment on those concerns.

For me, Bayer's hollow response actually raises the level of alarm about what clothianidin is doing to our honeybees rather than mutes it.

As I reported before, EPA continues to stand behind Bayer despite its own scientists' concerns. If you want to let the agency's administrator, Lisa Jackson, know what you think about that decision, check out Pesticide Action Network's petition.

Satellite Ground Water Measurement

What has happened is that they have winkled out a protocol that gives us reliable ground water data that can be zeroed with available ground data.  This folks will be welcome information everywhere and perhaps someone will work to create a layer linked directly to google earth for all land surfaces on Earth.

This returns me to my concept of water shed management programs that establish a cooperative system for optimizing the biological productivity of the watershed.  This is a natural tool that easily supports such a program.

In the meantime, we now know it can be done.

Satellite Data Provide A New Way To Monitor Groundwater In Agricultural Regions

by Staff Writers

Stanford CA (SPX) Dec 14, 2010

In farmland of the San Luis Valley, a sea of low-quality InSAR data, indicated by blue, is punctuated by spots of high-quality data, indicated by yellow and orange. By overlaying a Google Earth image of the same location on the InSAR data, Reeves determined that the high-quality data occur in the areas between center-pivot irrigation circles. Credit: InSAR images courtesy of Jessica Reeves.

http://www.seeddaily.com/reports/Satellite_Data_Provide_A_New_Way_To_Monitor_Groundwater_In_Agricultural_Regions_999.html

When you dive into that salad full of lettuce grown in the American West, there's a good chance you are enjoying the product of irrigation from an underground water source. These hidden groundwater systems are precious resources that need careful management, but regulatory groups have a hard time monitoring them, owing to a lack of accurate data.

Now, scientists at Stanford have found a way to cheaply and effectively monitor aquifer levels in agricultural regions using data from satellites that are already in orbit mapping the shape of Earth's surface with millimeter precision.

The amount of water in a groundwater system typically grows and shrinks seasonally. Rainfall and melted snow seep down into the system in the cooler months, and farmers pull water out to irrigate their crops in the warmer, drier months.

In agricultural regions, groundwater regulators have to monitor aquifer levels carefully to avoid drought. They make do with direct measurements from wells drilled into the aquifers, but wells are generally few and far between compared to the vast size of most groundwater systems.

"Groundwater regulators are working with very little data and they are trying to manage these huge water systems based on that," said Jessica Reeves, a geophysics doctoral student. But now, Reeves has shown how to get more data into the hands of regulators, with satellite-based studies of the ground above an aquifer.

Reeves presented her results on Monday, Dec. 13, at the American Geophysical Union annual meeting in San Francisco.

As the amount of water in an aquifer goes up and down, specialized satellites can detect the movements of the land above the water system and hydrologists can use that information to infer how much water lies below.

Previously, accurate elevation data could only be acquired on barren lands such as deserts. Plants - especially growing crops, whose heights change almost daily - create "noise" in data collected over time, reducing their quality.

Now, a team of scientists led by Reeves has found a way around this "growing" problem.

The study began as a collaboration between Reeves' faculty advisers, Rosemary Knight, a geophysicist who studies groundwater systems, and Howard Zebker, a geophysicist and electrical engineer who uses satellite-based remote sensing techniques to study the Earth's surface.

Knight and Zebker hoped that the combination of their expertise, and the efforts of their graduate student, would lead to new ways of using satellite data for groundwater management.

Reeves analyzed a decade's worth of surface elevation data collected by satellites over the San Luis Valley in Colorado. Although the valley is rich with growing crops, Reeves and her advisers hoped that recent advances in data-processing techniques would allow her to gain an understanding of the aquifer that lay below.

As part of her analysis, Reeves produced maps of satellite measurements in the valley and saw a regular pattern of brightly colored high-quality data in a sea of dark, low-quality data. After overlaying the maps with a Google Earth image of the farmland, the team realized that the points of high-quality data were in the dry, plant-free gaps between circles of lush crops on the farms.

In the San Luis Valley, the majority of irrigation is done by center-pivot irrigation systems. Like a hand on a clock, a line of sprinklers powered by a motor moves around, producing the familiar circles seen by airline passengers.

The circles don't overlap, leaving small patches of arid ground that don't receive any water and so don't have any plants growing on them.

Reeves confirmed that these unvegetated data points were trustworthy by comparing the satellite data to data collected from wells in the area - exactly the kind of proof that would be important to hydrologists studying aquifers.

The satellites use interferometric synthetic aperture radar, known as InSAR. It is a radar technique that measures the shape of the surface of Earth and can be used to track shape changes over time. Earth scientists often use InSAR to measure how much the ground has shifted after an earthquake.

While continuously orbiting, a satellite sends an electromagnetic wave down to the surface. The wave then bounces back up and is detected by the satellite. The properties of the wave tell scientists how far the wave traveled before it was reflected back. This distance is directly related to the position of the ground.

After the satellite completes a circle around the globe, it returns to the same location to send down another radar wave and take another measurement. Measurements are taken every 35 days and data collection can go on for years.

Compared to drilling wells for monitoring groundwater aquifers, using InSAR data would be much cheaper and provide many more data points within a given area.

Traditional methods rely on wells that were not built with scientific data sampling in mind and their results can be inconsistent. Moreover, the number of wells drilled into any particular aquifer is much too small to be able to cover the entire groundwater system.

Hydrologists and regulatory bodies looking for more data to better understand their groundwater system could one day set policies requiring farmers to leave a patch of land clear for InSAR data collection. Furthermore, the technique could be used in agricultural regions anywhere in the world, even those that lack modern infrastructure such as wells.

"I think it really has potential to change the way we collect data to manage our groundwater," said Reeves.

Red Haired Giants

What was missing when I posted on Goliath in Lake Erie country was hard evidence.  Here we not only have the direct evidence, but also creditable context.

We learn that a tribe of super tall human beings, known as giants, lived in the Americas at least up to recent times.  As I observed, the Erie example happened to be of the key trade route for Lake superior copper on its way to Bronze Age Europe and the Levant and the Philistines.

That we now know them to be red haired and white is important.  This suggests that their ancestral homeland was somewhere in the Baltic and that the copper trade brought them to the Americas.

The collapse of the copper trade in 1159 BCE cut them off and left them as well as other Europeans vulnerable to local tribal warfare.  However, this remnant appears to have survived until quite recently.

I hope someone can get DNA from the remains and determine if anything is particularly unique.

Nevada's mysterious cave of the red-haired giants

http://www.helium.com/items/1814848-nevadas-mysterious-cave-of-the-red-haired-giants

by Terrence Aym

Many Native American tribes from the Northeast and Southwest still relate the legends of the red-haired giants and how their ancestors fought terrible, protracted wars against the giants when they first encountered them in North America almost 15,000 years ago.

Others, like the Aztecs and Mayans recorded their encounters with a race of giants to the north when they ventured out on exploratory expeditions.

Who were these red-haired giants that history books have ignored? Their burial sites and remains have been discovered on almost every continent.

In the United States they have been unearthed in Virginia and New York state, Michigan, Illinois and Tennessee, Arizona and Nevada.

And it's the state of Nevada that the story of the native Paiute's wars against the giant red-haired men transformed from a local myth to a scientific reality during 1924 when the Lovelock Caves were excavated.

At one time the Lovelock Cave was known as Horseshoe cave because of its U-shaped interior. The cavern—located about 20 miles south of modern day Lovelock, Nevada, is approximately 40-feet deep and 60-feet wide.

It's a very old cave that pre-dates humans on this continent. In prehistoric times it lay underneath a giant inland lake called Lahontan that covered much of western Nevada. Geologists have determined the cavern was formed by the lake's currents and wave action.

The legend

The Paiutes, a Native-American tribe indigenous to parts of Nevada, Utah and Arizona, told early white settlers about their ancestors' battles with a ferocious race of white, red-haired giants. According to the Paiutes, the giants were already living in the area.

The Paiutes named the giants "Si-Te-Cah" that literally means “tule-eaters.” The tule is a fibrous water plant the giants wove into rafts to escape the Paiutes continuous attacks. They used the rafts to navigate across what remained of Lake Lahontan. 

According to the Paiutes, the red-haired giants stood as tall as 12-feet and were a vicious, unapproachable people that killed and ate captured Paiutes as food.

The Paiutes told the early settlers that after many years of warfare, all the tribes in the area finally joined together to rid themselves of the giants.

One day as they chased down the few remaining red-haired enemy, the fleeing giants took refuge in a cave. The tribal warriors demanded their enemy come out and fight, but the giants steadfastly refused to leave their sanctuary.

Frustrated at not defeating their enemy with honor, the tribal chiefs had warriors fill the entrance to the cavern with brush and then set it on fire in a bid to force the giants out of the cave.

The few that did emerge were instantly slain with volleys of arrows. The giants that remained inside the cavern were asphyxiated.

Later, an earthquake rocked the region and the cave entrance collapsed leaving only enough room for bats to enter it and make it their home.

The excavation 

Thousands of years later the cave was rediscovered and found to be loaded with bat guano almost 6-feet deep. Decaying bat guano becomes saltpeter, the chief ingredient of gunpowder, and was very valuable. 

Therefore, in 1911 a company was created specifically to mine the guano. As the mining operation progressed, skeletons and fossils were found. 

The guano was mined for almost 13 years before archaeologists were notified about the findings. Unfortunately, by then many of the artifacts had been accidentally destroyed or simply discarded.

Nevertheless, what the scientific researchers did recover was staggering: over 10,000 artifacts were unearthed including the mummified remains of two red-haired giants—one, a female 6.5-feet tall, the other male, over 8-feet tall. 

Many of the artifacts (but not the giants) can be viewed at the small natural history museum located in Winnemucca, Nevada.

Confirmation of the myth

As the excavation of the cave progressed, the archaeologists came to the inescapable conclusion that the Paiutes myth was no myth; it was true.

What led them to this realization was the discovery of many broken arrows that had been shot into the cave and a dark layer of burned material under sections of the overlaying guano.

Among the thousands of artifacts recovered from this site of an unknown people is what some scientists are convinced is a calendar: a donut-shaped stone with exactly 365 notches carved along its outside rim and 52 corresponding notches along the inside.

But that was not to be the final chapter of red-haired giants in Nevada. 

In February and June of 1931, two very large skeletons were found in the Humboldt dry lake bed near Lovelock, Nevada.

One of the skeletons measured 8.5-feet tall and was later described as having been wrapped in a gum-covered fabric similar to Egyptian mummies. The other was nearly 10-feet long. [Nevada Review-Miner newspaper, June 19, 1931.]

Petro Fracking Booms NAFTA Oil Resources

Why this is really interesting is that it is not just petroleum byproducts, but liquefied propane.  That is something that we know will happily come back up the well in the gas portion of the product stream.

So we get past the hype, we have an initially capital rich methodology (you must first buy a lot of expensive propane and everyone cringes when you shove all that good money back in the ground) .  The good news is that you get it all back along with production products.  The question is about how soon.

The initial projects will be the best of course.

However vast reserves of conventional oil exist that can not be lifted because their natural gas drive is insufficient to lever the oil out of its pores.  As much exists as has ever been produced.  Some of this is as little as a thousand feet down.  Putting in a horizontal well along the base of the productive formation is well within our capabilities and petro fracking methods.   This would allow propane to penetrate the pores and as pressure is released, the oil will be pushed out.  The key is to go slowly so that little is left behind.  This obviously makes propane recovery a delayed process.

The fact is that it is been vigorously adopted because it surely works a lot better than expectations.

It means that every old field can be dusted off and reengineered.  The problem fields will be wet formations and those that have been treated to water flood.  Even heavy oils should respond well because the viscosity would be nicely lowered with dissolved propane.

I sat through most of the Hicks pitch and it lasts an hour.  The gist is in this item here.  If we can use this method to get just the oil we know about, then we are good for centuries.

“U.S. Oil Reserves Just Doubled … The Future of Fracking”

By StockGumshoe ⋅ December 22, 2010 ⋅ Share

http://stockgumshoe.com/2010/12/u-s-oil-reserves-just-doubled-the-future-of-fracking.html

This is the latest teaser ad from Brian Hicks for his $20 Trillion Report, which teases us about a new idea in fracking technology that will release more oil and gas with lower environmental costs … all you have to do to learn about his favorite small cap oil stock is to subscribe to his report for $99 … or, if you prefer, just read on and I’ll dig through the clues and tell you who this little company must be.

This is one of those irritating video ads, one that doesn’t even spit back a lovely transcript when you try to click out of it as some do — so my quoting will be limited, but I’ll share the gist of the tease.

Hicks says this is …

“Used at 236 drill sites and counting…

“One company holds the key to 1.525 trillion barrels of oil and 900% profits for early investors!”

The technology is reportedly “quickly taking over drilling sites all over the US and Canada.”

And they tell us that some of the biggest drillers in the world use this company’s technology, they give us a list, most of whom I’ve heard of:

“Apache, Corridor Resources, Devon, Caltex, Husky Energy, Murphy Oil, Nexen, Paramount Resources, Trilogy”

We’re also told that this particular stock just went public in August, and it’s already up 67%. They’re already capturing market share and he says they’re not “pie in the sky”

We get some numbers, too — and unlike so many small cap teases, they’re actually profitable. They had revenue of $26 million in the last quarter ($55.7 million , versus $9.6 million a year ago. Market cap of $247 million.

As you can imagine, Hicks is convinced that the company is undervalued and unknown (why else would you pay him to learn about them), and has generated zero Wall Street interest.

Hicks has been around for quite a while and teased many stocks for us — he takes credit for being an early analyst to recommend Northern Oil & Gas (NOG), which had a huge run with the growth of the Bakken (I don’t know if he was first, but I can confirm that he was teasing it in ads almost three years ago when it was in the single digits, it’s closing in on $30 now). He compares the two in terms of valuation, which is obviously a bit off because NOG is an oil company and this is a drilling/service company, but apparently this teaser stock trades for far lower PE and Price/Sales numbers than NOG.

There’s even a quote from the CEO, which I can only assume was inserted to make your friendly neighborhood Stock Gumshoe’s sleuthifying a bit easier — here’s what he reportedly said about the last quarter:

“I am very pleased with these results, which demonstrate the increasing adoption of our technology…”

And

“we … more than doubled EBITDA to $5.3 million from $2.4 million in the third quarter of 2009″

So who is this little company? First a couple more details:

He tells us what the technology is — he calls it “Petro-frack Technology” and says that it “uses petroleum to produce more petroleum.”

This is a new technology that apparently enables the fracking “stuff” to be recovered much more fully than older technologies, and which is supposedly much friendlier to the environment than hydraulic fracturing. He includes the video, now gone viral, of the man whose water supply became flammable because of, I presume, the fracking going on in the Marcellus Shale (I haven’t researched the video details, but I’ve seen it a number of times). Having the water flowing into your sink catch on fire is an image that sticks with you, for sure.

So the argument is that although hydro fracking has given us a dramatic increase in natural gas reserves and helped to drive the price down over the last couple years, it is also facing some environmental pushback and it uses a lot of water and folks everywhere are now asking about what kind of chemicals are in the fracking fluid being used to release the natural gas trapped a half mile beneath their towns. And this new petro-fracking technology is, apparently, better because the stuff that’s injected into the hole to fracture the shale formation and release the gas, is also recovered when the gas is extracted. Now, the hydro-fracking complaints I’ve seen are mostly about shale gas, whereas this ad teases shale oil (like what’s being produced in the Bakken), but the technology is similar — and with prices so low, no one is writing a winning teaser about doubling gas reserves. Doubling oil reserves, however, is still sexy enough to get the subscription dollars flowing — and they do go into the gas part of the fracking business in the meat of the teaser video, once they’ve got our attention.

Petro frack technology apparently covers a much larger area underground as well, which helps — and we’re told that the best part is that it holds open the fractured area for longer to drill more efficiently, and uses a petroleum-based liquid that mixes with the gas or oil and is recovered.

So finally can we get at the name? Who is this company that’s at the center of a “new oil profit storm” and which he thinks will bring us 300% gains in the short term, and up to 900% in the long term?

Seven bucks a share, 11 major clients … Toss all that info into the mighty, mighty Thinkolator, along with a couple tankers full of fracking fluid to dislodge the frozen synapses, and we learn that this must be:

GasFrac Energy Services (GFS in Canada, GSFVF on the pink sheets)

This is an oil service company that has indeed invented and produced the equipment for “fracking” that uses a petroleum product as a base instead of water — they add chemicals to Liquefied Propane Gas (LPG) and inject that into the well, which apparently covers a larger area, means no water is needed, does less geological damage, and has smaller environmental impact because the LPG is naturally present in these formations anyway, and mixes with the oil, gas or natural gas liquids and is extracted when they’re pumped out of the well.

I had never heard of the company before, but from their investor relations presentations it seems like a no brainer (that being, of course, the point of an investor relations presentation). The shares aren’t at $7 anymore, thanks in part, I’m sure, to Mr. Hicks — but they’re not that far away, just under $9 at the moment — and the market cap has climbed a bit due both to price improvement and another big equity financing at the end of November (they raised almost $100 million more for their capital program at $8.45/share), it’s now a bit over $400 million. The company went public on the Canadian Venture exchange at $5 in August, after which it remained pretty ignored until their news flow and revenue growth started to get attention back in October. They also had a private placement this summer in part to fund their capital investment program, which is bringing more equipment on line so they can market their services in new oil and gas fields and to more clients, it sounds like they were pretty maxed out with existing equipment even though this is an extremely new technology and small company (the company is only five years old, and they commissioned their first set of equipment just three years ago).

Things do look pretty good for GasFrac as far as I can tell, assuming that they are able to drive wide acceptance for their new technology (which may not be easy, even if it logically sounds better — you can see their last quarterly report, which does match the teaser clues precisely, right here. I have no idea what the difference in cost might be, change comes slow for many industries, and I imagine there are also lots of other folks coming up with and developing new fracking technologies to compete with hydro-fracking and with this newer petro-fracking). But that’s not to say their dramatic success is guaranteed — they are still largely reliant on the natural gas industry, and a big test with a US client for a natural gas field recently apparently went well, but with natural gas prices so low the client decided not to go forward with it for economic reasons. They’re trying to build up the business in natural gas liquids (which are in higher demand than gas) and in oil production so that the mix becomes roughly evenly divided between natural gas, natural gas liquids, and oil, but as of earlier this year they were still about half natural gas (which was an improvement over previous years).

I’ve only quickly checked out their (dated) investor presentation [pdf file]and their recent press releases to get a basic understanding, but it sounds like the keys for the company will probably be the continued level of deep and unconventional fracking demand in Canada, where they already have an established presence and some customer acceptance, and the driving of acceptance by US operators next year, which I assume will start by trying to target a couple specific fields so they can bring in equipment that doesn’t have to move around that much. They have been profitable in most of the past several quarters, but not overwhelmingly so — they’re still building up economies of scale, and have significant need to spend money on capital investment, geographic expansion, and client acquisition.

If you’re curious about the underlying technology and idea, they also have a pretty good section of their website that explains it — and yes, also matches the images and data from the teaser quite perfectly.

So … color me curious, though I have no idea how quickly their actual per-share profitability will ramp up — the business is seasonal and changing fast with the rapid growth from new equipment and a big jump from what were pretty weak numbers in 2009, and there has also been a lot of dilution this year to fund capital investment, so the per-share numbers might not look dramatic in terms of income for at least a little while, even as overall net income and EBITDA seem likely to continue growing if you believe management’s optimistic prognosis for the future. You can’t really peg a useful current PE on these shares right now, we can conclude that they’re profitable and in a capital-intensive growth phase, and not yet ready to be valued based on per-share earnings (the trailing PE would be at least 150). Your bet on GasFrac is essentially a bet that unconventional oil and gas drilling will continue to grow in the US and Canada (meaning, oil and gas prices don’t collapse), that GasFrac’s proprietary technology will continue to gain acceptance and drive higher revenue, and that management will steer this growth well over the next year or two — line that up with heavy fixed and equipment costs, and one can probably see a path to higher profit margins and meaningful per-share profitability in the future.

Does that sound likely? Sound like a technology you want to jump on, or do you think there’s a problem that I (and GasFrac and Hicks) haven’t mentioned? If you get a chance to dig into GasFrac a bit on your own, let us know what you think with a comment below.

Oh, and if you’ve ever subscribed to the $20 Trillion Report, please click here to let us know what you thought — we’ve received only two reviews on this one, and both are quite dated at this point. Thanks!

Biological Hydrogen Production

I suspect that there is more to this story than meets the eye.  However, in the meantime we have confirmation of hydrogen production.  The really good news is that this gives us a natural way to produce gaseous hydrogen at modest cost and that is surely good news.

The next question is whether this is a cost effective way to convert solar energy directly into hydrogen.  If that were to work out, the advantage is huge.  Close to utilization the advantages of hydrogen are high.  It only becomes a problem if we decide to ship it.

Even converting hydrogen into electricity is a pretty efficient process in the right circumstances.

This may all stall in the details, but at least we now have the option to play with.

Hydrogen Production Comes Naturally to Ocean Microbe

http://www.scientificamerican.com/article.cfm?id=hydrogen-production-comes-natu&WT.mc_id=SA_DD_20101215

Cyanobacterium gives off hydrogen as by-product of day-to-day processes.

December 14, 2010

By Katharine Sanderson

A seemingly unremarkable ocean microbe turns out to be a multitasker -- it can not only photosynthesize, but can also produce large amounts of hydrogen, opening up a potential way to make the gas cheaply for fuel.

The single-celled cyanobacteriumCyanothece 51142 can make hydrogen in air, Himadri Pakrasi of Washington University in St Louis, Missouri, and his colleagues report in Nature Communications1. Until now, the only organisms known to make hydrogen could only produce it in an oxygen-free environment -- making it a potentially expensive process to scale-up.

Cyanothece 51142 was discovered in 1993, off the coast of Texas, by Louis Sherman of Purdue University in West Lafayette, Indiana, a co-author on the study. Pakrasi later discovered that the bacterium has a two-stage daily cycle. During the day it undergoes photosynthesis, using sunlight and carbon dioxide to make oxygen and branching chains of glucose molecules called glycogen. When the Sun goes down, the microbe's nitrogenase enzyme kicks into action, using the energy stored in the glycogen to fix nitrogen from the air into ammonia. Hydrogen is formed as a by-product.

The two mechanisms are different in that photosynthesis is an aerobic process -- one that requires oxygen -- whereas nitrogen fixation, and, consequently, hydrogen production, can take place only anaerobically, because contact with oxygen destroys the nitrogenase enzyme. But Cyanothece 51142 manages to fix nitrogen even in the presence of atmospheric oxygen by burning cellular oxygen to produce energy. Because no photosynthesis is taking place, the bacterium uses up its cellular oxygen so that the nitrogenase enzyme is effectively in a largely oxygen-free environment.

Rhythmic reactions

Cyanothece 51142 has a natural circadian rhythm that allows it to be 'trained' to produce even more hydrogen.

After a single 12-hour-day and 12-hour-night cycle, Pakrasi and his team kept the lights on for a further 48 hours straight. During this time, the microbes continued with their 'night-time' nitrogen fixation and hydrogen production in the period that would normally have been dark, but made more fuel for the process by photosynthesizing. The researchers found that under these conditions the microbes adjusted their photosynthetic capacity to maximize nitrogen fixation.

The amount of hydrogen produced in this way -- 150 micro moles per milligram of chlorophyll per hour -- is the most ever recorded in natural cyanobacteria under normal atmosperic conditions, says Pakrasi. If the bacteria behaved in the same way in a litre of culture medium as they did in the 25 millilitres of medium used in the experiment, they would make just over 900 ml of hydrogen in 48 hours -- the time taken for the experiment.

Natural high

"This is the most effective system published so far for hydrogen production," says Oliver Lenz at Humboldt University in Berlin, who works on the enzyme hydrogenase. In his work, Lenz has grafted hydrogenase directly onto photosystem I, a protein unit needed for photosynthesis. Naturally occurring bacteria can't compete with such systems, with hydrogen production rates in Lenz's system achieving greater volumes -- 3,000 micro mols of hydrogen per milligram of chlorophyll per hour, Lenz says -- but the system remains untested in a natural setting, and that's the advantage of Pakrasi's discovery. "I never expected such high rates for a natural organism," Lenz adds. Synthetic approaches such as Lenz's suffer from being short lived, Pakrasi says, often running out of steam within hours, whereas the cyanobacteria "just keep going for days".

Organisms other than cyanobacteria, such as the alga Chlamydomonas reinhardtii, also produce hydrogen at similar rates, says Olaf Kruse of Bielefeld University in Germany, who works with the species. But these other microbes need strict anaerobic conditions to work. Kruse is keen to see Pakrasi scale up his experiments to check thatCyanothece 51142 works as well when cultured in larger volumes. Pakrasi says that his team is about to begin this work, and has already moved from 25 ml of culture to 200 ml with similar results.

At the moment, Cyanothece 51142 has small amounts of a hydrogenase that eats up some of the hydrogen as it is produced. To make Cyanothece 51142 work better, Lenz suggests genetically modifying the bacterium to contain a more efficient hydrogenase enzyme, so less hydrogen is lost.

The work shows what an unmodified cyanobacterium is capable of, says Pakrasi. There are at least 10 other strains of Cyanothece, and Pakrasi expects these to work in a similar way. "One can -- and we have -- enhance the rate by making genetic modifications to the system," he says.