2012 July 13

The Master Resource Report  2012-07-13

Gasoline and the price of corn

The AAA posts an interesting table on its web page that looks at the prices of gasoline, diesel and E85 (ethanol gasoline blend) each week. This week in light of the steeply climbing price of corn there are huge implications for the price of biofuel based E85. When adjusted for the lower energy content of ethanol in the E85 the price of the fuel climbs above even conventional premium gasoline.

The current weather situation in North America illustrates the unique weather related risks that accompany biofuels that do not apply to traditional fossil fuels. Adding in the linkage and implications for food supplies and prices makes a strong case that biofuels will not supplant fossil fuels as currently configured.

More on the upside down world of coal and natural gas in Europe

Reuters reported that “European coal prices would have to rise by $50 a tonne, or more than 50 percent, to make gas-fired power plants as profitable as coal power generation.” That would require a price of $145/t.

Despite what many thought last week’s  “… deal between Gazprom and E.ON doesn’t address the uncompetitiveness of gas for power generation and leaves gas as a fuel of ‘no-choice’ for Europe.”

Clearly U.S. coal exports to Europe won’t be ending anytime soon.

Surprise Surprise…!!

The Wall Street Journal had this not so surprising news today on the nation’s number two natural gas producer. “An independent research firm called into question the size of Chesapeake Energy Corp.’s proved reserves of oil and natural gas, an important metric institutional investors use to value energy producers, in a report published this week.”

This probably won’t be the last natural gas producers to have its reserves brought into doubt with natural gas selling under $3.

Note: Clients and Advisors of Ravenna Capital Management do not hold positions short or long in Chesapeake Energy Corp. at this time.