A SOBER LOOK AT U.S. NATURAL GAS
By Walter Kurtz, SoberLook.com
Looking back at a two year old post on natural gas called “Natural gas prices below zero?“, it feels as though we are back to the same price dynamics. Price for the “nearby” Henry Hub contract hit new lows today at $3.317/mmBtu.
What is driving this price collapse? As before it is the usual suspects: limited storage, strong production (particularly in US shale), increasing reserves, and warm weather. Let’s take a quick look at the first three.
1. Storage: The chart below compares current storage usage versus the historical range based on where we in the seasonal cycle (inventory drops off in the winter and increases the rest of the year). Just as in 2010 and 2009 we are at the top of the range and may go even higher if the weather in the NE & Midwest stays warm.
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| Source (EIA) |
2. Production continues at rates significantly above historical levels.
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| Source: EIA |
This growth is driven by a rapid increase in shale gas production. According to EIA, the US shale production increased 14-fold since 2000 and is now 22% of total US production.
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| Source: EIA |
3. And estimated reserves in the US continue to increase.
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| Source: EIA |
It is almost as though the US is becoming the Saudi Arabia of natural gas but with limited export capabilities. No real support for natural gas prices is expected to come until 2013. According to a Goldman report this support will come from moderation in production growth and environmental restrictions that will force conversion from coal burning to natural gas.
Goldman: 2013 shaping up as a transition year to a more balanced market We expect 2013 to be a transition year, with the market’s reliance on priceinduced responses (e.g. need for coal-to-gas substitution) diminishing as US shale gas production growth moderates, economic growth improves and looming increased environmental restrictions – notably, CSAPR Phase 2 and Maximum Achievable Control Technology (MACT) – further boost gas-fired generation at the expense of coal. On net, we expect less priceinduced coal-to-gas switching will be needed than in 2012, allowing prices to move higher, and are introducing a 2013 NYMEX natural gas price forecast of $4.25/mmBtu
Until then if the weather stays warm, there is no telling how low natural prices could drop.
There’s a real opportunity here to cut down our reliance on the electric grid. The Utilities should be encouraging Combined Heat & Power(co-gen) where residential buildings, industry, etc can cut down on their electric power consumption from public utilities. More natural Gas vehicles and Power Cells are another idea worth considering.
Natural Gas will continue to come under environmental pressure… Environmental groups are up in arms over the man exemptions granted to the Natural Gas Industries… including exemption from the clean water act and the clean air act. The supply chain to frack a well and dehydrate the gas as well as distribute natural gas is currently extremely bad for the environment. An interesting statistic: more CO2 is released in the Dallas Fort Worth area each day from the Natural Gas supply chain than all the cars/trucks operating there.
Natural Gas is also not “dense” and it’s btu value per CSF is much lower than a liquid or solid. Distribution outside of the North American grid is most likely not feasible.
We currently see major advancements in environmental coal consumption, the most dense form of global energy… With India and China continuing to need expanding electrical output and large coal reserves I would put my money on coal.
Excellent point! http://www.bloomberg.com/news/2011-12-08/gas-fracking-chemicals-detected-in-wyoming-aquifer-epa-says.html
We visited beautiful WY this past summer. Is is a pity this is going on.
Do you still think CO2 is a problem? Please get the facts. CO is a problem, CO2 never will be. Anthropogenic global warming a hoax.
One of our two cars in Argentina runs on natural gas, very clean burning (the car also runs on gasoline). Argentina has the world’s most complete network of vehicular natural gas stations. However, since autonomy is under 200 miles, you do need to rely on gasoline when you get too far from civilization, e.g., Neuquen, Chubut, etc.
Another good point the article raises is that it confirms middle east turmoil is behind $100+ oil. Otherwise oil would be trading around $80 (just parroting something I heard an “expert” say in Bloomberg. Being skeptical about anything so called experts say is a good contrarian strategy).
More like $60-70 dollars a barrel. Speculation runs it up, which is why we need to do everything we can to keep the market supplied. CNG should be used more in this country, it’s really not worth it to export. However, if we eliminated all usage of oil that’s not absoulutely necessary I think we could get the oil price way down. Most cars, houses and electric plants can run on it. Or we could build nukes then we wouldn’t even need to use it for electicity.
MARC
Natural gas and oil from shales offer the incredible opportunity to approach energy self sufficiency for the U.S. If only the environmental nut cases could realize that renewables, etc., will not be adequate for a growing economy and that natural gas is available in quantities to be a lower carbon bridge fuel to something better in the future. Of course, we could always continue with coal——. Further, conversion of large trucks and all intracity transport to natural gas should take place asap.
Already being done, Jerry. The trucking industry has had it with these high fuel prices, and most customers refuse to pay for it. So you’ll see CNG tractors doing state to state deliveries with most truck stops providing CNG refueling. It costs about a million for a pump that can transfer in a reasonable time, that has to be at every filling station. Most trucks have big fuel tanks, 300 gallons a lot of the time. So they’ll just fill up at the truck stops. I have a international 20 foot which can run on CNG, if I can pull it off I’ll convert it to CNG. Just has to be a filling station in my area since I usually don’t go that far. I’d welcome it not only for the cost but you never need to change the oil. And I won’t have to hear complaints that I shut it off in a dock since it’s much cleaner, the forklifts run on it.
MARC
If the price of natural gas is down so much why don’t I see it reflected in my monthly utility bill.
I live in San Antonio Texas where the weather stays mild compared to much of the rest of the country.
Probably because the actual expense of the gas is not that significant.
Recently during our water shortages here in CA, we all cut back & conserved and thn they increased our water bills. Why ? Not enough water was being used so revenue was down.
Sorta like the gov’t welfare agencies that cost more to operate than the “benefits” they administer.
Just discovered this site – looks great.
Really like your personal attack policy – too bad SA doesn’t incorporate it.
Thanks,
Bill