As an update to the Recipe Box, I have been testing out new recipes lately.

Testing recipes means that I am trying out things that I have never attempted to bake before…the risk is high and the reward unknown.  You could end up with a masterpiece or you could end up with the creature from the black lagoon.

For example, I tried a new pound cake recipe that had sweetened condensed milk in it as a secret ingredient; the result was a sunken in disaster contained in my bundt pan.  The secret is out – that ingredient didn’t work! I tried a blonde brownie recipe that ended up more akin to blonde brownie soup for some reason.  It just would not bake up in the middle.  Then I went back to basics and baked a simple cherry pie to make sure that all was right in the world and that I could still bake.  If there is certainty in life in anything for me, it is with pie – sometimes you have to break out a trusted recipe after too much unknown.

When you put the pan in the oven when you are testing a recipe, the future is very uncertain.

This is a lot like the future of coal in Wyoming…

Coal in Wyoming is a lot like flour in your cake. It is, or traditionally has been, the backbone. Take Kemmerer, Wyoming, for example – its future is now uncertain due to its historical reliance on coal. Coal has been a significant factor in Kemmerer’s health and viability historically. A recent article in the Casper Star Tribune entitled, Indebted Coal Firm that Operates Kemmerer Mine Finds New Financing, Still Faces Uncertainty, highlights these issues for coal-reliant communities in Wyoming, like Kemmerer.

The future of coal in Wyoming is obviously unknown due to a number of factors, including market conditions, federal regulation and politics.  In fact, the impact of state politics on the future of coal was discussed in a recent Casper Star Tribune article entitled, Wyoming’s Governor Has Walked a Moderate Path on Coal, Now Candidates are Lining Up to take the Reins.

The other big factor that has an impact on the future of coal is a basic one – financial pressures. A great discussion of the money factor and its impact on coal can be found in the Casper Star Tribune article entitled, Wyoming Coal Newcomer Argues that it Failed to Make Debt Payments Because the Bank Ceased Communications.

What will happen to Wyoming coal?

Your guess is as good as mine, but the one thing we do know is that change is certainly afoot. We discussed the Wyoming Integrated Test Center in our last post, which can be found here.  Big and new things are on the horizon for coal – however, it is the same as when we are testing recipes…we have to just wait and see how it will turn out.

For the first time during my holiday baking, I added gingerbread men to the baking list. I can’t emphasize how nervous I was to add gingerbread to my already long list of holiday baking items. We have all bitten in to a rock hard gingerbread cookie and been amazingly disappointed. It is a lot of pressure to bake the perfect cookie from a new recipe you have never tried before. Gingerbread can be especially difficult to perfect – like oil prices, the dough can be a little temperamental.

I did my recipe homework and emotionally prepared myself just in case my gingerbread cookies did not turn out. I found the perfect gingerbread man cookie cutter. I found a well-regarded recipe by Sweet Sugarbelle, which can be found here. When I realized I had all of the ingredients in my pantry already, I got started!

At the last minute, I realized I did not have enough molasses…as you might guess, the molasses provides the crucial flavor and dark coloring for the gingerbread cookies.

Baking, like the oil and gas industry, keeps one on her toes.

I halted where I was so far in the recipe and walked over to my neighborhood market to buy more molasses, only to realize, très disaster, they did not have it in stock. Just like the oil industry has done since the downturn, I had to improvise and figure it out in the heat of the moment. Although the stakes were clearly lower for me, as all I had in the game were cookies…

I thought on my feet – put a little of this and that in to substitute and went on with the plan. Grit is important. One must always follow through with the plan! Needless to say, it paid off and I baked the softest and best tasting gingerbread men I have ever had!

You may be wondering what this has in common with oil prices. Actually, it has a lot to do with it. As I write this blog, WTI Crude is sitting at $63.46 per barrel and Brent Crude is at $69.20 per barrel, according to Bloomberg Energy. This is “the highest closing levels in more than three years,” according to CNBC article entitled, Oil Prices Are Close to Levels Not Since the Thanksgiving 2014 Bloodbath.

Oil prices have led us on an emotional rollercoaster.  Luckily, it seems that we are headed in a good direction.

A little resilience goes a long way – in baking and with oil prices.

We are in the heart of an early peach season in Colorado. In fact, according to the Denver Post article entitled, “Palisade Peaches Ripen Early Because of Colorado’s Heat Wave,” peach season began a little early this year. Peaches are everywhere right now and my kitchen is stocked up!

You see, many things in life come down to one simple concept: supply. When life gives you peaches, make peach pie.

Several folks have asked me why I haven’t been adding to the “Recipe Box” portion of the blog recently – the truth is, I have not been baking much. My heart has just not been in it lately, which is unusual for me.

That all changed when Palisade Peaches flooded our farmers markets and grocery stores early. I was like a kid in a candy store when I saw the beautiful fruit filling the stands; needless to say, I am up to my ears in peaches in my kitchen. I may even start canning some peach jelly!

Colorado Public Radio refers to Palisade Peaches as “the Western Slope’s premiere fruit crop,” and I must say that I agree. According to Colorado Public Radio, “[w]hile most of Colorado is too hostile for fruit production, Palisade’s microclimate and natural air drainage allows peaches and other stone fruits to flourish.”

Sometimes things come together perfectly and you get wonderfully juicy and sweet peaches. Sometimes things come together and the energy industry starts adapting to the price environment and creates technological efficiencies that help them operate profitably during rough times, despite high OPEC crude oil supplies.

According to Bloomberg’s article today entitled, Oil Creeps Toward $50 as Investors Focus on U.S. Supply Data, “[d]ata from the Energy Information Administration showing a decline in U.S. inventories and a rise in fuel demand helped prop up prices for a second day. Nationwide crude inventories slid by 1.53 million barrels last week, while gasoline supplies fell for a seventh week, the data showed.”

That’s right – domestic crude inventories are decreasing slightly.  They are not decreasing as much as folks thought they would, but supply is declining.

According to an article in Oil and Gas Investor entitled, EIA: US Crude, Gasoline, Diesel Stockpiles Fall, “[c]rude inventories fell by 1.5 million barrels (bbl) in the week to July 28, compared with analysts’ expectations for a decrease of 3 million bbl.” It also reported “U.S. crude imports rose last week by 537,000 bbl/d.”

Even the New York Times weighed in on oil supply today in its article entitled, Oil Rises as Tighter U.S. Market Outweighs OPEC Supply, which stated, “[t]here are signs that the oil industry has adapted to an era of low prices and can produce and operate at levels that would previously have been uneconomic” and that many analysts are saying that “[a]mple supply is likely to keep a lid on prices.”

The takeaway: in peach pies and the oil markets, supply is a determining factor.

Chocolate CakeLately, I have realized that many things in life have unspoken, secret ingredients. Often, we do not even realize the role that these secret ingredients play, when in reality, they really make or break the whole deal. These secret ingredients can fly under the radar, but are absolutely crucial components.

Take my go to chocolate cake for example – a few months back, I baked it with chocolate that I had brought back from Paris, and when I opened my pantry this weekend I realized I had just enough chocolate left to make one more special chocolate cake. They say that baking takes on how you are feeling, so I often put my heart and soul into my baking, mixing love and kindness in with my ingredients – adding in my special chocolate from my first adventure in France came naturally and added depth of experience to the chocolate flavor (in my humble opinion).

However, the secret ingredient in my chocolate cake is not Parisian chocolate or love and kindness…more on that below.

What about the price of oil?

Similarly, there are many unspoken or overlooked ingredients that affect the price of oil. In fact, opinions differ on what the most important underlying factor affecting the price of oil actually is. To some extent, it can be said to be in the eye of the beholder.

Some say the rig count is an important factor affecting the price of oil, as it has historically been considered to be an indicator of production – see our previous post entitled, “Things We Rely on as a Litmus Test: The Rig Count and Hummingbird Cake.” Others say international relationships and the global economy are the unseen ingredient affecting the price of oil, while some say infrastructure and drilling efficiencies are the unspoken key, and still others say the value of the dollar is the hidden factor.

In recent months, the spotlight has been on the supply component, as OPEC production cuts were aimed at reducing the market’s oversupply issues. Many may think that the supply component is hardly a “secret” ingredient affecting the price of oil, but I disagree. Until the OPEC production cuts, many were not as focused on the critical importance of the supply factor.

According to Oil & Gas 360 article entitled, “Oil Hits One-Month High: Markets Account for North Sea Outage, OPEC Compliance,” “OPEC’s higher than expected compliance with production cuts is also helping keep prices afloat. The group’s decision to cut production helped raise crude oil prices from 12-year lows of $27 per barrel in February of 2016.”

Is supply really that crucial to oil prices?

We will likely see the answer to that question if the OPEC production cut deal is not extended.   As discussed in an article featured on entitled, “OPEC Deal Extension Looks Shaky as Shale Hedges Production,” originally, the OPEC production cuts deal was to last only six months – at this point, it has been in place for just over five months, “but there was always the possibility of an extension.”

So what is the secret ingredient in my chocolate cake recipe?

Like the secret to getting me out of bed in the morning, coffee is the secret ingredient. Strong, high quality, black coffee.

When strong, black coffee is mixed with melted chocolate and brought to a boil, the coffee brings out the complexity in the flavors of the chocolate. Without the coffee, the chocolate tastes simple and unremarkable in the cake, but with the addition of strong coffee, the chocolate becomes complex, elegant and deep and turns a cake into a showstopper.

Sometimes, it is the secret ingredients that are the crucial components.

Potica and Patience

As we have previously discussed, OPEC has announced that it will reduce production outputs and oil prices are reflecting the deal. Oil prices are on rise – as I write this, Bloomberg Energy is reporting that WTI Crude Oil is up 2.11% to $50.82 per barrel and Brent Crude Oil is up 1.66% to $53.88 per barrel. Everyone is speaking in hushed tones, worried about jinxing their high hopes that the oil and gas industry may be bouncing back and rebalancing as a result of OPEC’s planned production cuts.

There is a lot of speculation right now surrounding what could happen with prices and whether both OPEC and non-OPEC producing countries will actually abide by the deal to cut production.

However, like my great-grandma’s (I called her Gigi, but her real name was Margaret) recipe for Potica (pronounced PO-teet-za – see footnote below), some things in life require patience. Following in the baking footsteps of my Gigi and my grandma, Carolee, this weekend in preparation for the holidays I baked my very first Potica and learned this lesson in patience first-hand.

I have watched my Grandma bake Potica my whole life, but I never really understood why she always fretted about whether it turned out or not. A lot rides on each year’s Potica – my family eats loaves and loaves of the stuff, gobbling it up almost daily for the entire month of December. My Grandma gives the “pretty” loaves away all over town, not to mention the family tradition of living up to Gigi’s legacy. My entire family is so proud when my grandma bakes Potica. The stakes are high with Potica.

Similarly, folks are fretting and speculating about how the OPEC deal is going to turn out.

Oil & Gas 360 published an article entitled, “OPEC Compliance Might Cause Global Crude Deficit in 2H 2017” stating “demand could outstrip supply in the back-half of next year, but only if OPEC and non-OPEC producers follow through on cuts.” The article discusses in detail whether production cuts will actually happen or if the agreement was just a bunch of hullabaloo.

Reuters reported similar concerns in an article entitled, “Only Five non-OPEC Producers So Far Attending Talks to Widen Output Cut.”

The Wall Street Journal article today entitled, “OPEC Deal Raises Hopes But Not Valuations for Troubled Oil Producers: Despite oil price rally, investors could still see their stakes disappear in Chapter 11 proceedings,” provides that the production cuts will be too little too late.

Forbes published an article entitled, “Why OPEC’s Announced Cuts Are a Really Big Deal,” discussing how although some countries may not meet their reduced quotas, the announcement represents a strategic shift for OPEC and an attempt to “prop up crude oil prices.”

Rather than fretting, speculating and worrying and feeling the pressure when the stakes are high, sometimes we have to just have the patience to see how it shakes out.

Like waiting for your dough to raise for Potica, there are times when you have to just wait and see if it is going to work, and this OPEC deal is one of those times.

*Potica is a European, traditionally Slovenian, bread/cake that has a walnut filling that is spiced with cinnamon.

Pumpkin Bread

This time of year, canned pumpkin seems to line my pantry shelves and people start bringing me zucchini from their gardens to use in my baking. For this reason, nearly everything I bake in the fall contains pumpkin or zucchini – there is something about the leaves changing that makes me long for the smell of warm spices. I even spike my coffee in the mornings with cinnamon and nutmeg. Luckily, a friend’s husband who was recently in Qatar brought her back a bunch of wonderful cinnamon and she has been kind enough to share her cinnamon stash with me…

This all comes from the urge to use what we have. We have fields full of bright orange pumpkins and gardens full of large snake-like zucchini this time of year. While I have been known to bake my pies out of fresh sugar pumpkins, I always seem to have canned pumpkin on hand in the fall to use in my baking. One thing I really love about baking is that it allows me to creatively use what I have.

Speaking of using what you have, the U.S. Energy Information Administration (“EIA”) released an interesting publication on the same topic today. A full copy of the post can be found here. The main topic is coal and how low-cost coal in the Rocky Mountain region has supported coal-fired electricity generation in the area.

The Rocky Mountain region has historically used what it has.

Coal has traditionally been a dominant source of electricity generation in the Rockies due to the resource’s abundance in that location. In fact, the EIA reports that “in the eight Mountain states, coal-fired power generation made up almost 50% of the region’s total generation in 2015, compared to the national average of 33%. A decade ago, coal’s share in Mountain states was even higher, at 63%.”

The EIA publication discusses the following: “In 2015, Montana, Wyoming, Utah, Colorado, and New Mexico accounted for 79% of the region’s coal-fired electricity generation. The other states in the region—Arizona, Idaho, and Nevada—lack abundant coal resources. Instead, hydropower dominates electricity generation in Idaho, while natural gas plays a bigger role in Arizona and Nevada.”

Along the same lines, renewable energy generation and generating capacity has also been increasing. The EIA reports that, “[w]ind generation increases were mostly in Colorado and Wyoming, while solar generation growth was mostly in Arizona and Nevada.”

Talk about using what you have!

Pumpkin patch

Flourless Chocolate Cake

An important white paper was released yesterday by E&W Strategies LLC that alleges that “[t]he establishment of the Renewable Fuel Standard (“RFS”), which was enacted for valid public policy reasons, provided the unintended framework for a new and persistent area of fraud.”

Sounds like there were not enough cooks in RFS kitchen

A full copy of the report entitled, “White Paper Addressing Fraud in the Renewable Fuels Market and Regulatory Approaches to Reducing this Risk in the Future,” can be found here.  The report is further discussed in an Oil and Gas Journal (“OGJ”) article entitled, “RINs program within RFS created opportunities for fraud, report says.”

The author of the report, which was commissioned by Valero Energy Corp., is E&W Strategies President, Doug Parker, who was a special agent in the Environmental Protection Agency’s (“EPA”) nationwide Criminal Investigation Division for 24 years, according to the OGJ and as discussed detail in the report.

According to the report, which was the result of a review centered on compliance within the RFS and the analysis of vulnerabilities of the RFS to criminal conduct, “[s]tructural vulnerabilities in the regulations, limited agency oversight, and a lack of market transparency within the RFS made this program a ripe target for massive fraud and illicit gain.”

The Renewable Identification Numbers (“RIN”) market was intended to create and promote an efficient trading market that encourages the use of renewable fuels through a system of tradeable compliance credits in connection with RFS goals; but like any form of “currency” system, it requires strict oversight or it will be ripe for deception.

However, as discussed in the OGJ article, not only did the EPA lack the resources to properly oversee the RIN market, but the report mentions that “the RFS is not a traditional regulatory program in that it is market based, and the EPA, unlike agencies such as the Securities and Exchange Commission (“SEC”) does not maintain significant staff expertise in the oversight of financial markets.”

  • As a result, the report calls the RFS program “a program susceptible to large scale fraud.”

Exactly how large is “large scale fraud?” The report provides that “[f]rom 2010 to the present, with moderate overall increases in renewable fuels integration, the RINs market has increased from less than $1 billion to in the range of $15 billion today – creating an exceptional new market opportunity for those seeking illegal profits.”

The lack of oversight of the RFS and RIN market discussed in the report is surprising, but deception caused by lack of oversight is not.  Left unchecked, understaffed and up to our own devices, there is no telling what is really going on in the kitchen.

Much like when I am alone in my kitchen, the “flourless” chocolate cake recipe that I found a few years ago and am often asked to share, actually requires a few tablespoons of flour – without the oversight of someone with a gluten allergy or the supervision of someone who is on a very strict diet, I generally consider that my recipe is in fact not “flourless” as unimportant.

But “flourless” chocolate cake and the significant fraud going on in the RFS program are two VERY different things…

  • The key difference is that I generally warn people eating my “flourless” chocolate cake that there is a *little* bit of flour inside, and people eating a piece of chocolate cake know that they are not eating a rich and decadent slice of cake to be more healthy. No one gets hurt.  Not to mention that including a only few tablespoons of flour in a cake is generally not regarded as criminal conduct (in most circumstances).
  • The RFS is a different story…as the report aptly points out, the public has been largely unaware of the extent of the “large scale fraud” that had been occurring, taxpayers and consumers are getting hurt, criminal conduct is thriving and the policy principles that the program seeks to advance – energy security and greenhouse gas reduction – are substantially undermined.

The good news is that there are solutions for the RFS fraud problems proposed in the report – oversight and transparency are the critical recommended ingredients.

We need more cooks in the RFS kitchen