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Wholesale prices unchanged in August as drop in energy prices offsets costlier food

Companies paid the same amount for wholesale goods last month as a drop in energy prices offset higher food costs.

Excluding the volatile food and energy categories, core wholesale prices edged up 0.1 percent, the smallest increase in three months. The figures indicate that inflation pressures are easing.

The leveling off is good for cash-strapped consumers, Daco said, because it puts less pressure on businesses to raise their prices. That could increase consumers’ purchasing power.

The Producer Price Index, which measures price changes before they reach the consumer, was unchanged in August, the Labor Department said Wednesday, after a 0.2 percent rise in July.

In the past 12 months, the index has increased 6.5 percent, mostly due to higher gas and food costs. That’s the smallest 12-month rise since March, though much bigger than the annual changes late last year.

Core prices rose 2.5 percent in the past 12 months, the same pace as July.

“It does seem as though wholesale prices have plateaued,” said Gregory Daco, U.S. economist at IHS Global Insight. They are likely to remain at roughly the same level or inch down in future months, he said.

Food prices rose 1.1 percent in August, the largest increase since February. Egg prices jumped nearly 11 percent, the most since April, while processed chicken prices increased 3.7 percent, the most in five years. That likely reflects the higher cost of corn and other grains that are used for animal feed.

Processed fruits and vegetables rose 2 percent, the most since February 1990.

The core index was pushed up by a jump in tire prices, which rose 1.4 percent, the most in four months.

Wholesale gasoline prices, meanwhile, fell 1 percent in August, and home heating oil dropped 1.2 percent.

Sharp increases in the prices of oil, food and other commodities pushed up most measures of inflation earlier this year. But now that many commodities are becoming less expensive, inflation pressures are fading.

That’s taken some of the pressure off the Federal Reserve to keep inflation in check by raising interest rates. Instead, the central bank can keep the short-term rate it controls at nearly zero, in an effort to support economic growth.

Oil prices have fallen in recent months as fears have grown that the economy might shrink. That’s contributed to lower gas costs. Gas prices averaged $3.63 a gallon nationwide Wednesday, according to AAA. That’s down a peak of nearly $4 in May, though still almost a dollar more expensive than a year ago.

Food prices, however, may keep rising. The U.S. Department of Agriculture said Monday that an unusually hot summer damaged much of the nation’s corn crop. That could drive up food prices broadly because corn is used in everything from animal feed to cereal to soft drinks.

Corn fell about 23 cents to $7.23 a bushel Tuesday. That’s down from its peak of $7.99 in June, but nearly twice the price paid in the summer of 2010.

Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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More technical work needed to define SA’s shale gas framework

The exploitation of shale gas in South Africa could be a "game changer" for the gas sector, a senior Department of Energy (DoE) official said on Tuesday. But he also appealed for patience to allow a Department of Mineral Resources (DMR) task team to finalise its investigation into the issue of hydraulic fracturing, or fracking, and its appropriateness to the South African setting.

A moratorium has been imposed on the issuance of exploration licences for unconventional gas in the arid Karoo region and in mid-August Mineral Resources Minister Susan Shabangu extended the moratorium by a further six months to allow for further policy and technical reviews.

Speaking at the fourth natural gas conference in Johannesburg, deputy director-general responsible for hydrocarbons and energy planning Tseliso Maqubela said the DoE was still to finalise the advice it would be offering the DMR on the possible regulatory framework for shale gas exploration and development. This involved researching international best practice in this regard, as process that was being conducted at an "accelerated pace".

But the issues were "complex" and the DMR had, thus, also established a technical working group, which had also not yet completed its review of the technical threats and opportunities associated with fracking.

South Africa was not alone in conducting investigations into the industry and even in the US, where there is extensive exploitation of unconventional gas reserves, new questions were also being asked of the industry.

Late last month, the Securities and Exchange Commission (SEC), which is better know for its probes into issues such as the US mortgage crisis, started requesting detailed information about fracking processes and the chemicals deployed. The Wall Street Journal reported that the SEC would seek to ensure that investors were being told about the potential risks a company involved in fracking might face. Separately, the US’s Environmental Protection Agency was also collecting information about the possible environmental risks associated with such operations.

"So a lot of work is needed to develop South Africa's approach to this complex subject and, therefore, I can only appeal for patience," Maqubela said, adding that the framework would seek to balance the need for environmental responsibility and sustainability with the need for energy security.

But reading from an address prepared for delivery by Energy Minister Dipuo Peters at the event hosted by the South African Pipeline Gas Association, Maqubela indicated that the DoE was eager for exploration to proceed in order to confirm South Africa’s unconventional gas resource base.

The US Department of Energy had estimated previously that South Africa’s shale gas resource could be as large as 485-trillion cubic feet, or the fifth largest in the world. These estimates were sufficient to attract interest form large energy companies, including Shell and Sasol, but are remain far from certain.

Nevertheless, should commercially available reserves be unearthed through exploration, it could go some way to bolstering the role of gas within the domestic energy mix – gas currently accounts for less than 3% of that mix.

There was, however, significant opposition to shale gas exploration in the Karoo, which had found practical expression through the formation of the Treasure the Karoo Action Group (TKAG). The TKAG argues that the current moratorium should be sustained until it is conclusively proved that fracking is the only and best option to sustainably supply South Africa’s energy needs and to create employment.

“We note the concerns related to shale gas and we trust that the interdepartmental task team . . . will provide us with a way forward,” Maqubela said.

National Energy Regulator of South Africa (Nersa) regulatory member Ethel Teljeur, who is responsible for piped gas regulation, said the current dearth of gas resources in South Africa remained the biggest constraint to investment and to growing the role of gas in the domestic energy mix.

She said that Nersa’s brief included providing support for the orderly development of the gas industry through awarding licences and setting tariffs. It had no direct role in the development of the upstream sectors, which was the jurisdiction of the Petroleum Agency South Africa.

Nevertheless, Nersa was monitoring developments surrounding shale gas, as it could provide an important new source of indigenous supply and was possibly the “future of gas in South Africa”.

The recently published Integrated Resource Plan for electricity, which covers the period 2010 to 2030, but which will be updated several times during that period, envisaged gas comprising about 15% of the energy mix by 2030. Some 7 330 MW of this capacity could arise in the form of open-cycle gas turbines and 2 370 MW in the form of combined cycled gas turbines (CCGT).

It was also envisaged that the proposed the Avon and Dedisa peaking power projects, which could be developed by the Suez-Inkanyezi consortium, led by GDF Suez, in KwaZulu-Natal and the Eastern Cape might be eventually converted to gas from diesel should the primary energy become available.

Eskom delivery unit executive Kannan Lakmeeharan noted that decisions would need to be made during the current year on the sources of gas for the CCGT projects. This was not owing to long construction lead times for the plant themselves, but because they could hinge on the development of liquefied natural gas infrastructure, which would time to build.

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Council boasts 2012 outlook

Consol Energy Inc., an Appalachian coal and natural-gas producer, boosted its outlook for 2012 coal shipments after reporting profit rose 16 percent on higher demand.

Net income climbed to $77.4 million, or 34 cents a share, from $66.7 million, or 29 cents, a year earlier, Pittsburgh- based Consol said today. The company was forecast to earn 72 cents, according to the mean of 10 analyst estimates compiled by Bloomberg. Sales rose 23 percent to $1.59 billion.

Consol, led by J. Brett Harvey, boosted its production forecast by 1 million tons to between 60.5 million and 62.5 million tons to capitalize on export demand for both thermal and metallurgical varieties of the fuel.

"Inventories are getting tight in the U.S., there's export demand," said Meredith Bandy, an analyst at BMO Capital Markets in Denver. "You have positive news in growing products, a better product."

Consol rose $1.10, or 2.1 percent, to $54.01 at 1:48 p.m. in New York Stock Exchange composite trading. The shares have gained 40 percent in the past year.

The company recorded a $115.5 million writedown to shutter its Mine 84 operation near Washington, Pennsylvania. Absent the expense, on an adjusted basis, net income was $174 million, or 76 cents a share.

"That's a one-time occurrence," said Jeremy Sussman, an analyst at Brean Murray Carret & Co. in New York. "Consol is growing their metallurgical coal both for the high quality and lower quality and that's a good thing."

Coal Reserves

The company decided not to sell its Amonate reserve, which contains about 240 million tons of metallurgical coal, in southern West Virginia amid growing global demand. Consol had explored selling the reserves in November.

"To accommodate future growth, we are expanding our terminal, we are developing the BMX Mine in the Pittsburgh seam, and we are restarting our Amonate Mining complex," Harvey said in the statement. "All three of these coal projects are driven by increased worldwide coal demand."

Consol, which owns an export terminal in Baltimore, plans to ship 2.3 million tons of coal to Europe this year.

It lifted 2011 production guidance this month after selling 15.4 million tons of the fuel, surpassing the previous estimate of as little as 14.75 million. Benchmark prices for coking coal, used to make steel, surged 65 percent to a record $330 a ton from a year earlier amid global supply disruptions.

Rising Costs

Consol said its cost per ton will rise $1 for both the third and fourth quarters.

"Costs are going up, but so is pricing," Bandy said. "Demand is good. Consol has low-cost mines, so it doesn't crush them like it may someone else."

Consol received $207.05 a ton for its low-volatility metallurgical coal, used by steelmakers, up 37 percent from a year earlier, it said. Low-volatility coal has fewer impurities than the higher-volatility and can withstand higher levels of heat during the process of forging steel.

Utilities in Consol's region have seen inventories dwindle as much as 13 million tons or eight to 10 days less than a year ago, company executives said on a conference call with analysts and investors today.

Consol bought Dominion Resources Inc.'s gas exploration and production business last year for $3.48 billion and spent an additional $963 million to buy the 16.7 percent of CNX Gas Corp. that it didn't already own.

The gas division produced 37.5 billion cubic feet of the fuel, up 18 percent from a year earlier, it said in the July 14 statement. It plans to produce between 150 billion cubic feet and 160 billion cubic feet this year.

Consol drills in the Marcellus and Utica shale deposits where the gas is locked in non-porous rock that made the reserves inaccessible until new drilling technologies were developed in the 1990s.

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GOP fails to turn off light bulb standards

 House Republicans on Tuesday failed to stop the enactment of new energy-saving standards for light bulbs they portrayed as yet another example of big government interfering in people’s lives.

The GOP bill to overturn the standards set to go into effect next year fell short of the two-thirds majority needed for passage. The vote was 233-193.

For many Republicans, those newfangled curly fluorescent light bulbs were the last straw, pushed by an overreaching government that’s forcing people to buy health insurance, prodding them to get more fuel-efficient cars and sticking its nose into too many places.

Their legislation would have kept the marketplace clear for the cheap, energy-wasting bulbs that have changed little since Thomas Edison invented them in 1879.

For most Democrats, it’s an exasperating debate that, just like the old incandescent bulbs being crowded out of the market, produces more heat than light.

The standards in question do not specifically ban the old bulbs but require a higher level of efficiency than the classics can produce, essentially nudging them off store shelves over the next few years.

The standards have not been particularly contentious before now. They were crafted in 2007 with Republican participation and signed into law by President George W. Bush. People seem to like the new choices and the energy savings they bring, polling finds.

But now they have become a symbol of a much larger divide in Washington over the size and reach of government itself. The new bulbs suggest to some conservatives that big government is running amok.

“Now the government wants to tell consumers what type of light bulb they use to read, cook, watch television or light their garage,” said Rep. Michael Burgess, R-Texas.

Tennessee Rep. Marsha Blackburn, a Republican from Brentwood who has pressed to undo the law, said through an aide that she intends to come back with another effort.

It could include keeping money out of the appropriations bill that would fund enforcement of the law or bringing the bill back, but this time going through the committee system.

That would only require a simple majority of the House, rather than two-thirds the bill needed Tuesday.

She called the law “a Big Washington big idea that backfired.”

Republicans said people who now buy a bulb for 30 or 40 cents shouldn’t be forced to pay $6 for a fluorescent bulb or more for LED lighting.

The energy-efficient bulbs last years longer than old incandescent bulbs, which convert about 90 percent of the energy they consume as electricity into heat, and only 10 percent into light.

The Obama administration, which opposes Barton’s bill, says the lighting standards that are being phased in will save nearly $6 billion in 2015 alone. The Energy Department says upgrading 15 inefficient incandescent bulbs in a home could save a homeowner $50 a year. Lighting accounts for about 10 percent of home electricity use.

Incandescent bulbs are not disappearing. Today’s energy-saving choices include incandescent lighting that is more efficient, and more expensive to buy, than the old standbys.

Under existing rules, new bulbs will have to be 25 percent to 30 percent more efficient than traditional incandescent models. As of Jan. 1, 2012, inefficient 100-watt bulbs will no longer be available at most stores. Also on the way out are traditional 75-watt bulbs in 2013 and 40-watt and 60-watt versions in 2014.

The National Resources Defense Council said that when the law is fully implemented in 2020, energy costs will be cut by 7 percent, or about $85 a household, every year. It said the more efficient bulbs will eliminate the need for 33 large power plants.

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Renewable energy tops nuclear power in the US

Plunging prices and booming investments are beginning to reshape the energy market, according to a couple of reports that were released this week. A report produced on behalf of Bloomberg says that investments in renewable energy have gone up by roughly a third over the last year, to $211 billion. Led by China's renewable push, the world is now on a trajectory that will see its investments in renewable electricity surpass those in fossil fuels within a year or two. As a result of these investments, the US is now producing more renewable energy than nuclear power.

First, renewable investments. Bloomberg's New Energy Finance group has collaborated with the UN Environment Programme and the Frankfurt School of Finance and Management to produce a global overview of funding for renewable power. This includes the obvious—financing for the construction of utility-scale projects and home installations—and some non-obvious funding, like merger and acquisition activity.

Any way you look at things, the numbers make it clear just how significant renewables have become. Excluding hydropower, renewables made up about 35 percent of the power capacity added worldwide last year, and produced over five percent of the total power. Investments directed toward this new capacity (excluding things like mergers) hit $187 billion, and are closing in fast on the spending on fossil fuel power plants, cutting the gap in spending to $31 billion, down from $74 billion. At that pace, we'll be investing more in renewables either this year or next.

Renewables made up 35 percent of the power capacity added worldwide last year.

Part of the reason is cost. Although wind turbines are very mature technology now, their cost per MW still fell by 18 percent over the last two years; photovoltaics have dropped a staggering 60 percent in that time. "Further improvements in the levelised cost of energy for solar, wind and other technologies lie ahead, posing a bigger and bigger threat to the dominance of fossil-fuel generation sources in the next few years," according to the report's authors.

That will be a major transition, but another one took place already this past year: more financing went to utility-scale projects in the developing economies than in the industrialized ones. That change is driven by China, where investments were up by about 30 percent, reaching $49 billion.

The US, despite seeing a jump of 60 percent, still trailed far behind, with only about $25 billion in these investments. That would be enough to put the US in second place, at least until small-scale distributed solar is considered. Rooftop and similar capacity boomed in Germany after several years of government-driven investment in larger projects. Small-scale solar now constitutes the majority of Germany's investment, and is sufficient to push it into second place globally. A similar trend was apparent in other European countries, including Italy, France, and the Czech Republic. These installations are also enough to push solar energy much closer to wind power when it comes to total investments.

Renewables are also becoming a major factor outside of the BrIC countries (Brazil, India, China). Latin American investments tripled to clear $6 billion, and other Asian nations saw 30 percent growth to $4 billion. But the big story is Africa, led by Egypt and Kenya, where investments were up nearly five-fold, reaching $3.6 billion. "Solar telecommunications towers," the report argues, "are becoming the technology of choice, not a poor substitute for diesel or other fossil-fuel power options."

These trends have driven a major milestone in the US. The US Energy Information Agency performs a monthly review of the national energy economy, and its most recent report (for June) held a bit of a surprise: renewable energy has passed nuclear for the first three months this year. Electricity generated by nuclear plants has held steady at about 8,400 quadrillion BTUs for the last several years, while renewables have experienced strong growth, reaching just over 8,000 Quads last year.

This figure includes biomass, which has seen significant growth over the last decade, as has wind. So far, solar is barely registering, but several major utility-scale projects are in the works, both photovoltaic and concentrated solar, so that may change before too long.

Developed economies still have a substantial lead when it comes to R&D investments, which are helping to drive the costs of solar (and other technologies) downwards. Government policies in these nations have also fostered increased production, which is pushing the costs down even further. But the rapid growth of renewables outside these economies show that globalization has ensured that the benefits are spreading rapidly to other countries, where renewables are enabling off-the-grid operation of key infrastructure.

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Oil will hit $150 in U.S. despite IEA: Guild

Physical U.S. crude oil will average $150 a barrel this year due to the unrest in North Africa and the Middle East, despite the emergency oil stock release coordinated by International Energy Agency’s (IEA), a U.S. fund manager said.

Monty Guild, the chief executive of Guild Investment Management, said the IEA’s move did not change oil’s fundamentals.

“Our opinion continues to be oil prices will reach $150 barrels this year due to the fighting near Saudi Arabia,” Guild told Reuters in a telephone interview.

He was referring to escalating violence in countries such as Syria and Yemen. These countries are very small producers but the market has been concerned about the spillover of the unrest to Saudi Arabia, the world’s top oil exporter.
North African producer Libya’s oil supply has been disrupted since February because of its continuing civil war.

Last month, the IEA, advisor for 28 industrialised nations on energy policy, announced that member countries would release 60 million barrels of crude oil and refined oil products to cover the lost oil supply from Libya and to pull down high prices.

But international U.S. crude oil and ICE Brent crude futures have risen to the levels above where they were before the IEA announcement, after the sharp fall in the initial reaction to it.

“It has changed nothing. It is purely political,” Guild said.

His oil price forecast refers to the average price to buy physical crude oil in the United States. Physical crude oil prices are $12-$15 per barrel higher than U.S. crude oil futures depending on grades of oil and the geographical locations, he said.

U.S. crude futures were trading $96.93 a barrel by 1546 GMT on Wednesday.

Guild also said Saudi Arabia has surplus capacity to boost output volume when supply is tight but the quality of Saudi oil might limit its reach in the market.

“Their oil is sour and very heavy that is very expensive to refine. Therefore the prices they are offering are not good prices,” he said. “Prices are not attractive because cost of transporting and refining the oil they are producing are so high, so they are not offering any bargain.”

Guild Investment Management, based in Los Angeles, California, has about $150 million of assess under managements for selected clients. Its portfolio includes equities, foreign currencies, gold and some precious metals mostly through exchange traded funds (ETFs).

The fund currently has an approximate 25 percent allocation to the global oil and energy sector. It has expanded its equity portfolio again to agriculture and related stocks, such as fertilizer, and Asian emerging markets such as India and Malaysia, after exiting these assets in March to focus on energy and commodities.

Its current holdings include Brigham Exploration Co., Deethree Exploration LTD, Teucrium Corn Fund, SPDR Gold Trust, ETFS Gold Trust and others.

Gold and agricultural commodities will continue to rise, Guild said, as many countries, such as China and Russia, will increase their holding in gold in their national portfolio.

Food prices will be supported due to expected growth in demand from India and China, he said.

He also has a view that U.S. Federal Reserve’s second round of quantitative easing, or QE2, did little to boost actual economy. The programme ended in June.

“To many observers it appears that all QE2 did was run up asset prices of gold, oil, stocks, and some other commodities,” he said.

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