Keeping a close tab on the rapidly changing energy market

Published on March 12, 2008
Sal Gilbertie, Senior Vice President, Energy & Renewable Fuel Derivatives, FIMAT, told attendees that biofuels are not going away.

Sal Gilbertie, Senior Vice President, Energy & Renewable Fuel Derivatives, FIMAT, told attendees that biofuels are not going away.

Traders, risk managers, securities analysts, investors, consultants, and lawyers convened at The University of Houston Global Energy Management Institute’s 6th Annual Energy Trading and Marketing Conference March 11 for the latest projections and news related to energy markets – especially those connected to new environmental markets.

Sal Gilbertie, senior vice president of Energy & Renewable Fuel Derivatives at Fimat USA, offered insight into super hot ethanol trading.

“Markets are evolving so quickly, it’s stunning.” Gilbertie said, projecting an oversupply of the biofuel by the end of 2008 as a result of heightened interest and money being poured into its production. Gilbertie, predicting continued volatility, noted that while a few companies are exploring sources other than corn for ethanol (sugar beets and other plants), corn’s dominance in the U.S. ethanol market is forging an indelible link between energy and agriculture.

“Any decrease in the corn supply, decreased planting, bad weather, whatever, could be unbelievably devastating to the ethanol industry,” Gilbertie said. “We need to understand that energy and agriculture are inextricably interrelated and that link is not going away.”

Davis Thames, senior vice president of Cheniere Energy and president of Cheniere Marketing, Inc., said that the outlook for gas production along the Gulf Coast and in Canada is fairly bleak, and LNG will be needed to meet U.S. domestic demand. However, the U.S. will benefit from “an increasingly flexible LNG supply,” due to terminals that import natural gas from international suppliers. Thames said demand for LNG is expected to jump from 26 BCF (billion cubic feet) a day to 36 BCF in 2010. LNG is a necessary component in running facilities that manufacture ethanol or rely on other alternative energy sources. “You can’t do it all with wind power and solar,” he said. The increasing flexibility of U.S. terminals should help accommodate fluctuating demands for natural gas, without the volatility and huge price swings that have also been characteristic, Thames said.

Richard Sandor, CEO of the Chicago Climate Exchange and a professor at the Kellogg School of Management at Northwestern University in the Chicago area, told those at the conference that commodities markets will be used both to solve environmental problems and create new wealth in the 21st century, with air and water becoming among the most precious commodities in the world.

Other speakers included Gerald Balboa, senior vice president and head of Power Trading & Marketing for BP Energy Company, George Baker, partner of William & Jensen PLLC, Dr. Don Ellithorpe, vice president of structuring for Merrill Lynch Commodities, Inc. and Victor Flatt, A.L.O’Quinn Chair in Environmental Law at the UH Law School.

Flatt announced a plan to team the GEMI program at Bauer with the UH Law School for an innovative new course in carbon trading scheduled to debut in spring of ’09. The class has been conceived as energy companies anticipate tougher emission reduction regulations and a need for traders, lawyers and other business people with expertise in the emerging field.

The conference was organized by Dr. Praveen Kumar, Texas Bank of Commerce/Tenneco Professor and Finance Chair and executive director of UH-GEMI, and Dr. Craig Pirrong, UH-GEMI energy markets director and Bauer College finance professor.

By Julie Bonnin

About the University of Houston

The University of Houston, Texas’ premier metropolitan research and teaching institution, is home to more than 40 research centers and institutes and sponsors more than 300 partnerships with corporate, civic and governmental entities. UH, the most diverse research university in the country, stands at the forefront of education, research and service with more than 35,000 students.

About the Bauer College of Business

The C.T. Bauer College of Business has been in operation for more than 60 years at the University of Houston main campus. Through its five academic departments, the college offers a full-range of undergraduate, masters and doctoral degrees in business. The Bauer College is fully accredited by the AACSB International – the Association to Advance Collegiate Schools of Business. In August 2000, Houston business leader and philanthropist Charles T. (Ted) Bauer endowed the College of Business with a $40 million gift. In recognition of his generosity, the college was renamed the C.T. Bauer College of Business.

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