Monday, January 16, 2012

Low Natural Gas Prices Help Families, Businesses

 USA Today -- "The natural gas futures price fell 13% last week, to $2.67 per 1,000 cubic feet. That's the lowest winter level in a decade (see chart above).

"The market has been overwhelmed with gas," says Anthony Yuen, a commodities analyst at Citibank. He and other analysts expect the price to average near $3 for all 2012. If the weather stays mild, the price could even dip below $2, a level not seen since 2002.

Cheap natural gas is mainly a good thing for the economy:

• More than half of U.S. households use natural gas for heat, and a quarter of the nation's electricity is made from it. Falling heating and electric costs are offsetting the impact of high gasoline prices and enabling families and small businesses to spend on other things. Residential gas and electric customers are saving roughly $200 a year, according to a study by Navigant Consulting.

• For companies that make plastics, fertilizer and other chemicals derived from natural gas, falling prices are a windfall. The same goes for makers of products from steel to bricks to beer. All use a lot of natural gas to heat their furnaces. U.S. manufacturers are becoming more competitive globally as a result of the country's cheap natural gas, industry officials say."

18 Comments:

At 1/16/2012 4:47 PM, Blogger W.C. Varones said...

Inflation is slowing both in energy and in "core" CPI.

I fully expect Zimbabwe Ben to use this as an excuse for more money-printing this year.

After all, those trillion-dollar deficits aren't going to monetize themselves!

 
At 1/16/2012 4:50 PM, Blogger juandos said...

"After all, those trillion-dollar deficits aren't going to monetize themselves!"...

LOL!

Bingo!

So few words say so much...

 
At 1/16/2012 5:23 PM, Blogger Benjamin said...

The Fed should ease up and stop passively constricting the money supply.

The Fed in fact monetized a trillion dollars of debt, and we are deflating right now. They should monetize another trillion.

I like prosperity more than deflation--unlike idiotic Theo-Monetarists who worship gold.

------------

BTW, we have tracking now, but "super-fracking" is on the way. See newenergyandfuels.com.

The natural gas "glut" is here to stay. It's going global, and it is going to mean cheap natural gas up our rear ends to the moon for generations.

 
At 1/16/2012 5:54 PM, Blogger Unknown said...

You would never know that natural gas was good for our country given how our President never acknowledges this great stimulant for lower energy costs as well as creation of a lot of good paying jobs.

 
At 1/16/2012 5:55 PM, Blogger steeple said...

You would never know that natural gas was good for our country given how our President never acknowledges this great stimulant for lower energy costs as well as creation of a lot of good paying jobs.

 
At 1/16/2012 5:55 PM, Blogger steeple said...

You would never know that natural gas was good for our country given how our President never acknowledges this great stimulant for lower energy costs as well as creation of a lot of good paying jobs.

 
At 1/16/2012 5:55 PM, Blogger steeple said...

You would never know that natural gas was good for our country given how our President never acknowledges this great stimulant for lower energy costs as well as creation of a lot of good paying jobs.

 
At 1/17/2012 12:02 AM, Blogger Hydra said...

This may lower food prices, since fertilizer is made from natural gas.

 
At 1/17/2012 12:05 AM, Blogger Hydra said...

I understand there is a plan to superfrac NE PA using subterranean nukes.

 
At 1/17/2012 6:40 AM, Blogger W.C. Varones said...

Benjamin,

If they have to print to stave off deflation, how about giving the new money to the people rather than the Wall Street crooks?

 
At 1/17/2012 8:47 AM, Blogger Jon Murphy said...

This may lower food prices, since fertilizer is made from natural gas.

Intuitively, I'd agree with you, Hydra, but I'm not sure we'll see much of a decline in food prices since there are an umber of subsidies and farm programs designed to keep the prices constant.

 
At 1/17/2012 9:07 AM, OpenID 2ccce880-403e-11e1-b996-000bcdcb471e said...

The potential price impact of exporting natural gas has been studied and published by Deloitte:

http://www.deloitte.com/assets/Dcom-UnitedStates/Local%20Assets/Documents/Energy_us_er/us_er_MadeinAmerica_LNGPaper_122011.pdf

 
At 1/17/2012 9:11 AM, Blogger Hydra said...

there are an umber of subsidies and farm programs designed to keep the prices constant.

=================================

Jon may be right about food prices staying high, but even with those subsidies, the farmer gets a fraction of your food bill, so the subsidies (bad as they are) won't be the driving issue.

 
At 1/17/2012 9:30 AM, Blogger PeakTrader said...

W.C. Varones says: "...how about giving the new money to the people rather than the Wall Street crooks?"

Financial innovation on Wall Street is important in raising U.S. living standards, like technical innovation in Silicon Valley.

Wall Street help build the most efficient economy the world ever saw, created and captured trillions of dollars of real wealth in the global economy, distributed that wealth to America's masses, and diversified the risk globally.

Subprime lending and "too-big-to-fail" were government policies.

 
At 1/17/2012 9:33 AM, Blogger VangelV said...

Intuitively, I'd agree with you, Hydra, but I'm not sure we'll see much of a decline in food prices since there are an umber of subsidies and farm programs designed to keep the prices constant.

In the short run there are two large factors that are in play. One is the weather, which has a big impact on the futures market and can cause prices to decline significantly under certain circumstances. The other is the amount of grain carried over into the next season. That is at very low levels if measured as days of use and is putting pressure to the upside. The cost on nitrogen fertilizers is a minor component and is only important over the long term if shale production is profitable and sustainable. But it isn't and many of the players are going to have to go under in the next year or two. As the drilling slows down, and that has already began in many of the established shale areas, depletion will do its job and production from those areas will fall. The combination of reduced output and larger losses will make the shale gas bubble harder to sustain.

 
At 1/17/2012 5:48 PM, Blogger Todd said...

Dear Mark,

I generally enjoy your blog. However, I'm bothered by the fact that you don't address the concerns that Shale gas is an unsustainable bubble. Vange most notably on this blog has raised them.

I know you are busy, and you can't reply to every comment. But if your goal is to sway public opinion I believe you need to address reasonable concerns. Scott Grannis and Brian Wesbury, for example, do this, and I'm inclined to listen to them because they do.

As it stands now, you are losing me.

 
At 1/17/2012 8:24 PM, Blogger tyonk said...

How low is gas if inflation adjusted? My guess is that we are selling for the equivalent of 7 or 8 cents per mmbtu, inflation adjusted. Check out how much it costs to drill an Eagleford shale well and then to frac and complete if successful. The current low prices are unsustainable. They will increase with the decline curves when the bulk of the drilling gets done. That may be a long way off but it is coming. Remember the Austin chalk boom? Same thing here. Don't forget there are many businesses, taxes, royalty owners, etc who depend on the gas price. What would be good for the gas producing states would be to returns to conservation via ratable take reductions.

 
At 1/17/2012 8:25 PM, Blogger tyonk said...

How low is gas if inflation adjusted? My guess is that we are selling for the equivalent of 7 or 8 cents per mmbtu, inflation adjusted. Check out how much it costs to drill an Eagleford shale well and then to frac and complete if successful. The current low prices are unsustainable. They will increase with the decline curves when the bulk of the drilling gets done. That may be a long way off but it is coming. Remember the Austin chalk boom? Same thing here. Don't forget there are many businesses, taxes, royalty owners, etc who depend on the gas price. What would be good for the gas producing states would be to returns to conservation via ratable take reductions.

 

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