Thursday, December 08, 2011

Nat Gas is King, Will be No. 2 Fuel for Elec.by 2025

From today's WSJ article "Exxon Declares Gas is King":

"Natural gas will replace coal as the leading fuel for generating electricity in the U.S. by 2025, when it will also become the world's No. 2 overall fuel source thanks to its abundance and a drive for cleaner-burning energy, according to the latest long-term outlook from Exxon Mobil Corp.

Natural gas will overtake coal as the second-largest fuel source overall, ranking behind oil and powering everything from electrical plants to home-heating systems. But Exxon said coal use will continue to grow through 2025 around the world, primarily in developing nations such as China and India and the African continent, because economic growth will be fastest in emerging nations."

MP: The chart above (source) illustrates one of the reasons that the use of natural gas will continue to grow: it has a significant cost-advantage over other forms of energy.  Compared to natural gas, coal is 46% more expensive on an energy-equivalent basis, offshore wind is nearly four times more expensive, and some solar energy is almost five times more expensive.    

16 Comments:

At 12/08/2011 5:42 PM, Blogger rjs said...

its not a good sign that exxon says that...theyd make a lot more money on oil, if they could find it...as it is, their liquids production is in decline...

 
At 12/08/2011 6:22 PM, Blogger Benjamin said...

Develop natural gas and pull our boys home from the Mideast, central Asia and the Far east. And everywhere else for that matter.

 
At 12/08/2011 6:28 PM, Blogger juandos said...

"theyd make a lot more money on oil, if they could find it"...

Exxon isn't in the oil business, they're in business to make money off of energy...

BTW T. Boone Pickens has a crony capitalist angle on this natural gas situation...

 
At 12/08/2011 8:43 PM, Blogger Bruce Hall said...

Not if the EPA has anything to say about it:

http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CDEQFjAA&url=http%3A%2F%2Fwww.nrdc.org%2Fmedia%2F2011%2F110728a.asp&ei=TmfhTraINYS3twfNyJWLBA&usg=AFQjCNEAPEP1Cr9q0o67roZaZ-U5q9pxXA&sig2=u4UOzE9V13k5GhK_tx7QBQ

http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=5&ved=0CFAQFjAE&url=http%3A%2F%2Fwww.nytimes.com%2F2011%2F03%2F04%2Fus%2F04gas.html%3Fpagewanted%3Dall&ei=TmfhTraINYS3twfNyJWLBA&usg=AFQjCNHkvdJpXBHc3helu6pqcxlEQYeIhQ&sig2=qXZZDYXkA5Ss2rLOopgp2w

 
At 12/08/2011 8:45 PM, Blogger Bruce Hall said...

Sorry 2nd link was corrupted; correct link:

http://www.nytimes.com/2011/03/04/us/04gas.html?pagewanted=all

 
At 12/09/2011 9:36 AM, Blogger Zachriel said...

Natural gas provides more energy than other fossil fuels in terms of the carbon emitted into the atmosphere. Unfortunately, methane is a very powerful greenhouse gas, so leakage in the supply chain and orphan wells are an important issue. Natural gas also produces fewer of many other types of atmospheric pollutants, but there are a number of problems with the mining process that have to be resolved.

Natural Gas Supply Association
http://www.naturalgas.org/environment/naturalgas.asp

 
At 12/09/2011 12:51 PM, Blogger Dave said...

NAT GAS is trading at a new low today [see CNBC $3.31 down 14]. DRILL-DRILL-DRILL !
With a change in policy the U.S. can become energy independent in no time. Just a start in the RIGHT direction will have a tremendous affect on world oil prices giving consumers a much needed tax break. "PEAK OIL" won't happen in my lifetime.
Long term Exxon will be right. Too bad we didn't have 5 or 10 Exxon's paying big time bucks to employees. We could with the stroke of a pen !

 
At 12/09/2011 8:55 PM, Blogger VangelV said...

The chart above (source) illustrates one of the reasons that the use of natural gas will continue to grow: it has a significant cost-advantage over other forms of energy. Compared to natural gas, coal is 46% more expensive on an energy-equivalent basis, offshore wind is nearly four times more expensive, and some solar energy is almost five times more expensive.

I thought that Mark was an economist. About twice as much electricity is generated by coal than it is by natural gas. For the two to switch places and meet growing demand the US producers will have to come up with a way to double production. But there is no way to do that very easily without jacking up costs of production. Actually given the marginal cost of $7.50 per Mcf for shale production (and I am being very generous) there is no way for the scenario to work out. The price of natural gas would have to increase substantially and when it does so will the cost of gas based electricity production.

Sorry Mark but I like to look at the actual numbers rather than hype. When I look at the industry I see that operations of coal companies tend to be very profitable and generate a lot of cash flow. I do not see very many shale gas producers that show the same thing. And the accounting is a lot cleaner in the coal sector because the reserves, depletion, and other numbers are easier to check.

 
At 12/09/2011 9:34 PM, Blogger Hoosierman said...

You get a double bonus by using natural gas instead of coal. The fuel cost is cheaper but so is power plant construction. Coal fired power plants must be fitted with electrostatic precipitator to remove particulate matter (fly ash) and "scrubbers" to extract the sulfur dioxide. In addition to the considerable initial costs of building the precipitators and scrubbers there is the ongoing headache of depositing of the fly ash and expended hydrated lime from the scrubbers. You could take a 1950's era coal fired plant and convert it to burn natural gas and exceed all present EPA requirement. This makes the Employment Prevention Agency's war on fracking even more absurd.

 
At 12/10/2011 3:32 AM, OpenID Roy Cobden said...

Could this be a contrarian investing opportunity? (given just how cheap & "unwanted" natty is right now.)

Have to start watching Exxon and see if they start accumulating gas producers and gas reserves...

 
At 12/10/2011 9:13 AM, Blogger David said...

Nat gas can also be used as fuel for the highly-efficient combined-cycle turbines (gas turbine + steam turbine), whereas coal cannot (unless it is gasified first.)

OTOH, since everyone is climbing on the nat gas bandwagon...not only for electrical generation but also for industrial uses and certain transportation applications...the increased demand is almost certainly going to drive higher prices at some point. It would be very unwise to assume that the current ng price levels will continue forever.

 
At 12/10/2011 9:23 AM, Blogger VangelV said...

Could this be a contrarian investing opportunity? (given just how cheap & "unwanted" natty is right now.)

You might be right.

Have to start watching Exxon and see if they start accumulating gas producers and gas reserves...

Keep in mind that Exxon sees value in natural gas reserves to hide its overall reserve decline. The SEC allows the shale gas companies to assume reserve levels even though there is no way to verify them. And when doing the conversion Exxon is allowed to use the 6:1 energy equivalent ratio rather than the 20:1 price equivalent ratio.

If your goal is to keep the value of your shares up it makes sense to use some of your cash reserves to buy uneconomic shale reserves.

 
At 12/10/2011 2:22 PM, Blogger Sean said...

This comment has been removed by the author.

 
At 12/10/2011 2:23 PM, Blogger Sean said...

Yeah Drill-Drill-Drill!...Just keep your window open while you're showering or you might F'ing die!

http://money.cnn.com/2011/12/09/news/economy/epa_fracking_wyoming/index.htm?iid=Lead

Many more of these to come. It doesn't take more than a high school education to understand that pumping pressurized chemicals in and around water sources might have unpredictable results. Just add $0.01/MMBtu of NG sold in the market, and give that money back to the people you're bending over by ruining their water supply. I'd pay it, if I actually believed it would make it into their hands.

 
At 12/10/2011 8:50 PM, Blogger VangelV said...

Many more of these to come. It doesn't take more than a high school education to understand that pumping pressurized chemicals in and around water sources might have unpredictable results. Just add $0.01/MMBtu of NG sold in the market, and give that money back to the people you're bending over by ruining their water supply. I'd pay it, if I actually believed it would make it into their hands.

I am sorry but none of the data that I have looked at indicates that there is a major problem with the fracking process. The cases where there has been groundwater pollution comes from surface storage issues, something that should be easy to prevent or correct.

My argument is still with the lack of evidence of economic success in the way of positive cash flows.

 
At 12/10/2011 10:32 PM, Blogger Bruce Hall said...

NEW YORK (CNNMoney) -- The Environmental Protection Agency said this week that chemicals from "fracking," a controversial method of extracting natural gas from the ground, have polluted groundwater in Wyoming.
The findings represent the first time in the heated debate over fracking that the agency has drawn such a connection, which has long been claimed by environmental activists.
In a statement released on Thursday, the EPA said a study had found that groundwater in an aquifer around Pavillion, Wyoming, contained "compounds likely associated with gas production practices, including hydraulic fracturing."

See, as I wrote earlier, "Not if the EPA has anything to say about it." What the article didn't say was that the EPA are the "environmental activists."

 

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