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Pastimes : The California Energy Crisis - Information & Forum -- Ignore unavailable to you. Want to Upgrade?

To: Raymond Duray who wrote (546)	6/15/2001 2:01:17 PM
From: Hawkmoon	Read Replies (1) \| Respond to of 1715

OPEC calculated that about $6 of that price was due to speculators in the futures markets. Just as is the case with electricity prices. Someone goes out there an locks up the contract, hoping to sell it at a higher price later on. They accept the potential opportunity cost of being able to sell at the high, but secure a profitable price for their product and create stability in their cash flow and operating revenues. But on the other hand, they also absorb the risk of that bubble bursting (as it did with natural gas), and losing a hell of a lot of money. But from the sell-side, producers are able to sell forward their production, and in many cases finally find the capital necessary to exploit previously unprofitable reserves, thus meeting physical needs for that particular commodity. And it is a casino... just like the stock market. But when you have qualified traders who understand financial risk management, both the producers and ultimate end buyers can do well towards meeting their respective needs. The speculators can manipulate as much as they want. What's important is that producers have a means to provide stability in the price they receive for their production, and users have the means to hedge against their future energy liabilities through long term contracts. Once both parties have these contracts locked, who cares what they speculators do. Take some of the Aluminum companies as of late. They locked in their long-term power contracts years ago at a fixed price that gave them stability over their operational costs. But late last year, power prices were surging to such an extent, and there was such a shortage because of low hydro-power production, many of these plants closed up shop, laid off their people, and sold their power contracts for more money than they would have made producing aluminum. And the same thing happened with some fertilizer producers with regard to natural gas. Btw, many of the funds that were going to "alternative fuels" research, are now going toward developing clean coal technology, rightly or wrongly. We have a huge supply of coal and I guess it only makes sense to make use of it if it can be done cleanly. And alternative fuels that you're referring to are areas like hydrogen and fuel cells. But while widely touted as "the" solution, no one wants to explain where all of that hydrogen is going to come from. You can make all you want from water if you have cheap electricity... but then again, that's what fuel cells are supposed to do, make electricity, right? All fuel cells are is the reverse of hydrolysis, where water is split into it's components by sending electricity through it. So personally, while I'm a big fan of the potential of hydrogen, I have no illusions about how soon it will meet the needs of our economy. Thus, I can see redirecting money to where it can be better spent on energy sources that can be brought online sooner than some of these alternatives. Btw, if you will note, the EPA canceled Gov. Davis's request to go back to using MTBE, despite its potential to pollute ground water, and is making them stick with ethanol formulations. You can't get any more "alternative" than such a renewable resources as ethanol, can ya? It's good for farmers, makes great silage for cattle, and at current prices, is now competitive with other fuels. Hawk