What I’ve Learned on My Trip to D.C.

by | published July 30th, 2013

It is 4:30 a.m. as I write this from the nation’s capital. I’ve been in D.C. for the past few days to attend a series of meetings on a major development in the energy markets that is about to become breaking news.

Meetings like this are crucial since they provide me with early notice about decisive changes in the sector that are critical as an investor.

But that’s not the only upside. With these ongoing discussions, I have also significantly improved my access to some of the most important energy figures on the planet.

When the details are finalized, I promise to fill you in.

But it’s another matter entirely that has my attention at the moment…

That’s because it looks like the children inside the Beltway are about to start acting up again. This time their tantrums will impact energy prices well beyond the U.S.

There is also another problem. We are rapidly sliding into another fiscal crisis because we actually never extricated ourselves from the last one.

Instead we delayed. And now it’s about to hit us square in the face. <<>>

In fact, in decades of working with these people, I have never witnessed the professional staffers who keep this ship afloat as pessimistic as they are today.

It’s easy to see why. With a 12% approval rating, Congress is its lowest point in history.

Of course, the partisan bickering has always been there. Yet, what distinguishes it today from years past is the complete lack of vision.

Each vote that comes to the floor is now regarded as a test of ideological purity. Each decision, even those that traditionally are considered procedural and of low impact, are now cast as crises votes.

The system is at loggerheads and the wheels of the democracy are grinding to a halt. That means a number of issues are about to come to a head.

And several of these will have pricing impacts in energy.

The View from Washington D.C.

As you might have guessed, our meetings so far have covered a wide range of issues. They include the primary concerns of those interested in investing in – and making money from – oil and gas.

Today, I will comment on two of these concerns but rest assured we will be visiting the others later.

Each has both a domestic and an international market cost. But each will also provide their fair share of opportunities as well.

The problem is the dysfunctional condition of Congress makes the situation even more tenuous.

First, having failed miserably in designing a Farm Bill (something the legislative art of “you scratch my back, I scratch yours” used to accomplish with ease), Congress is now going cause a related onslaught in gasoline.

This one is certain to raise prices for gasoline but not refinery profits. Statutes already mandate that 10% of auto fuel be ethanol, but that figure is now increasing to 15%.

Forget for a moment that many car engines cannot take the 15% mixture, or that the energy output from ethanol averages only 84% of what you get from gasoline, or the dislocation created for other uses of corn in the economy (and a broad rise in other prices). The problem I want to focus on is the impact on price at the pump.

Mandating a set amount of ethanol guarantees an increase in pass through prices when the cost of that ethanol is accelerating. And that is a direct result of one of the worst droughts in recent memory.

Corn crops may be improving, but it will take a while for that to reverberate throughout the market. And even then, the mandated rise in ethanol use for fuel will offset it.

Refineries pass that added cost along to consumers, increasing the retail price, but are not profiting from it. From an investment standpoint, that is a double whammy if there ever was one.

Meanwhile, the situation is not any better on the production side either.

Ethanol is already becoming a less profitable use for corn. Unfortunately, the mandates also require corn producers to continue to produce. Only in a place like Washington would any of this make sense.

That leaves us with the likelihood that gasoline prices are headed higher in the near-term-not lower.

Time to Talk About the Keystone Pipeline–Again

The second development is that the Keystone XL crude oil pipeline from Canada is back on the front burner again. And now the White House is beginning to question how much new employment the project would create.

Since the pipeline crosses an international border, the U.S. Department of State needs to sign off. The means approval of the pipeline is now in the hands of the Obama administration– not the legislature.

In the meantime, the domestic sections of the project are already underway. These are primarily designed to relieve the pressure at the main Cushing, OK pipeline interchange by moving crude south to the Gulf Coast refineries.

Nonetheless, Congress could actually do the right thing in the short-term by facilitating the movement of Canadian oil to the U.S. by another means.

As I wrote last week, we are about to experience a major increase in Canadian crude shipments via railroad. That can be accomplished quicker and much less expensively than building a multi-year, multi-billion dollar (and politically contentious) pipeline project.

To expedite the rail process, Congress should enact enabling legislation for terminals, transfer points, and interstate track usage. Unfortunately, there has been no movement on any of these fronts either.

The initial stages are nonetheless underway with the private sector carrying the mail for the time being. As I discussed last week, I’ll soon have much more to say about these development are going to open up profits for retail investors as well.

Meanwhile, we’ll just need to continue developing these investment opportunities without expecting much help from Congress.

In just two days, the national legislature will close down for 52 of the next 61 days. Congress is now set to take the entire month of August off before coming back for a grueling nine sessions in September. That’s it folks.

Who would have thought that we would see the day when the clowns controlled the entire circus?

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  1. Bob
    July 30th, 2013 at 17:04 | #1

    Hi Kent:

    Did you see any movement in DC regarding the long-stalled natural gas/auto-truck legislation?

  2. Amy
    July 31st, 2013 at 02:25 | #2

    Obama has never been warm and fuzzy about the Xl Keystone. His recent speech to put a negative spin on employment numbers was a prelude to a negative outcome to building the pipeline. Canadian has only one customer for it’s oil.It is never a good business sense to have one big customer.It is high time they get their act together to transport oil and LNG via the West coast for export to Asia. The Obama administration has not been acting as a equal partner to Canada/US trade relationship from the day he took office.Let him deal with his friends in the middle East instead for energy needs.

  3. andy
    July 31st, 2013 at 12:30 | #3

    The reason Ovomit will not approve the Keystone XL is b/c he needs gasoline prices to go up which will then cause consumers to consider purchasing vehicles that use cogeneration hybrids which such as the Chevy Volt – well, the Chevy Volt is made by GMC which was bailed out by Ovomit – so, the fabricated extortion conducted disallowing the Keystone XL pipeline to go through, which would decrease gasoline prices, is being held up on environmental concerns when the same type of pipelines already exist and are conduited in the ogallala aquifer area which is the enviromentalists trump card which works for Ovomit so he is not wrong in bailing out GMC b/c chevy volts would have certainly resulted in allowing the GMC accountants to cook the books to show that the TARP monies were justified and the Volt has brought the declining American auto industry back to health and they would praise Ovomit for the monies he provided – Well, during the time that GMC was claiming harship, they were building one of the largest auto manufacturing plants in central west China while they were operating GMC North America on your tax dollars – if the volt conspiracy does not succeed, Ovomit will have to eat his words per providing GMC (Detroit) the bailout b/c there is nothing “earth shattering” in GMC North American operation that will allow them to post the earnings and profits they will soon reap when the Chinese GMC plant is opened and they start selling cars there – another deception by the elite fabricated by Ovomit who wants to join the elite regardless of the collusion,consipracy , larceny of public dollars and litany associated with this malevolence – there you have it – how is that hope and change working for you sucker – Oh yeah, Detroit is bankrupt and Ovomit was swindled by the elite of GMC per redistribution of wealth to Detroit from the TARP monies so he could cover for his politically allied brethren in Detroit as the only difference between Chicago and Detroit is the name – well, the GMC elite simply have offices in Detroit and live in Bloomfield Hills and despise the wretch that Detroit represents – I can’t believe a scumbag like Ovomit actually was duped in his own treacherous game

  4. Andres
    July 31st, 2013 at 14:36 | #4

    The problem with corn production will have an indirect effect, since the type of ethanol mandated by the newer regs requires that made from sugar cane. Most of that ethanol comes from Brazil, and our corn derived ethanol gets shipped to Brazil in return. The end result will be many more tanker ships passing each other in the Atlantic (money to be made there), until, one day two of them collide. Then, there’ll be an outcry to end this “energy wasting” process. Another example of the idiocy that comes from DC on a regular basis.

  5. Marie
    August 1st, 2013 at 16:19 | #5

    No one to blame but the idiots that put all those clowns in office. Why can’t we have economic analysts,energy analysts,insurance analyst,industrial analysts and health analysts in Congress instead of lawyers? We need intelligent people to make decisions for our country now and the future, not people with nothing to offer than the knowledge of the law which by the way they don’t even want to follow. Our Constitution is the law of the land but they trash it, so what is the use of having lawyers. I tell you, we need folks that follow our Constitution and offer more smarts than empty rhetorics and partisanship.

  6. August 1st, 2013 at 21:46 | #6

    The Warren/Obama Oil Train is the problem with the Keystone. Warren Buffet gets an extra$10 a barrel of oil more than his first estimate by his own accountants and he makes the tanker oil cars also and is an Obama yes man not an American. TWO HILTERS AND CHINA LOVES IT. White House Sleep Over to pay Warrens TAXES AND HIS SECRETARY’S TO. Both are very sick and have hurt many and will keep doing it. GREED!!!!!!!!!!!!!!!!!

  7. chemosavvi
    August 1st, 2013 at 21:50 | #7

    There is no such thing as different “forms” of ethanol. When distilled ethanol still contains 4.5% water. It has to be dried to give 100% ethanol (200 proof, absolute). Only this purity of ethanol will blend with gasoline to give a homogeneous liquid in your tank. So it cannot matter what the source of the sugar or starch that is fermented by the yeast. Ethanol is sill ethanol.
    Now about ships going from one country to another, think Goldman Sax. If they can devise a way to move aluminum ingots from one wharehouse to another to make a profit, then they can make a profitable game out of moving tankers of anything for a profit.

  8. Grace Lively
    August 8th, 2013 at 15:42 | #8

    Kent: Had to wait at a railroad crossing last week in Worthington, Ohio while a long line of oil tankers moved south. Thought it must have been from Canada. Think the pipeline may already have been “sidetracked”. Forget Congress. Heard today on Limbaugh’s program large percentage of Americans think “the American dream” is gone. This is a sad state for our country! But thanks for your insightful discourse.

  9. WalterR.
    August 8th, 2013 at 17:19 | #9

    It’s time to change our relations with Cuba. Build a ethanol plant in Cuba and lay in a pipeline to Florida. Cheap ethanol.

  10. Dave
    August 15th, 2013 at 15:47 | #10

    The whole argument about the pipeline seems to center on the “crud in the crude.” Can’t the US and Canada Build a pre-refinery up there where the dirty crude is being brought out of the ground? The keystone pipeline would be a wonder then to bring a cleaner oil to the lower states where it wouuld get its final refining.

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