Sunday, March 11, 2012

Real Natural Gas Prices Lowest Since July 1995

Last week the spot price of natural gas (Henry Hub Gulf Coast) fell to $2.30 per million BTUs, which is the lowest inflation-adjusted price since July 1995, more than 16 years ago when the price was slightly lower at $2.17.  Without adjusting for inflation, it was the lowest price in a decade, since January 2002.  Welcome to the game-changing, shale gas revolution.

As Scott Grannis commented, "If there is any reason to be optimistic about the future of the U.S. economy, [falling natural gas prices] is arguably the best."

25 Comments:

At 3/12/2012 4:32 AM, Blogger PeakTrader said...

It seems, while Asia demands tens of millions of more autos and the U.S. shifts to smaller autos, more people in the E.U. will be riding bicycles.

Natural gas and oil:

Why Europe is Experiencing Higher Oil Prices than the US
06 March 2012

Lower heating and utility costs (from low U.S. natural gas prices) help offset the rising price of oil (natural gas prices in the U.S. falling towards $2 per mbtu, while in Europe rising towards $12 per mbtu).

The low price of natural gas also makes the cost of refining heavy oil less expensive in the United States than elsewhere, because natural gas is used by complex refineries that refine heavy oil, both as a feedstock, and to fire the furnace that heats the crude oil.

This makes the United States a sought out destination for refining heavy crude oil, and helps add jobs to the US economy.

For example, nearly half of crude oil imported from Mexico to the US is exported back to Mexico as oil products, according to EIA data.

EIA data also shows that we import crude and export a smaller amount of products back to Canada, Brazil, Ecuador, and Venezuela.

The low price of natural gas is thus a reason US product exports, such as diesel and gasoline, have been increasing recently, even though the United States continues to be a big importer of crude oil.

The Eurozone includes 17 countries that have adopted the Euro. It does not include the major oil-producing countries of Norway and the United Kingdom, and it does not include Switzerland.

The oil supply situation for the Eurozone is very poor... the natural gas supply situation is only a bit better. It is pretty much entirely dependent on imports.

The world is presently sharing a limited supply of oil. When oil prices rise, oil production doesn’t rise very much, if at all.

Europe, and in particular the Eurozone, is the area of the world getting hit the hardest by high oil prices.

If the nations of the world are sharing a virtually flat oil supply, it is difficult for very much economic growth to take place.

 
At 3/12/2012 8:38 AM, Blogger Hydra said...

Despite the low cost of natural gas, gas powered electric power "peaking" plants are having problems making money.

This is due to the etra "down time" caused by alternative energy. Gas plants are used as backups when alternative energy is not available, but as more alternative energy comes on line the backup plants are spending more time idle.

One of the hidden costs of alternative energy that should be added to the cost equation.

 
At 3/12/2012 8:43 AM, Blogger Hydra said...

Europe, and in particular the Eurozone, is the area of the world getting hit the hardest by high oil prices.

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

If oil is a commodity traded on world markets, then why is the eurozone hit any harder by rising prices?

Eurozone countries charge a high tax, in additio the the price of fuel, but the change of the fuel price itself, shoul be no more there than anyplace else.


Are european fuel taxes charged by the Euro, or by the gallon?

 
At 3/12/2012 9:59 AM, Blogger PeakTrader said...

Hydra says: "If oil is a commodity traded on world markets, then why is the eurozone hit any harder by rising prices?"

1. The Eurozone imports almost all its oil.

2. A weaker Euro means exports are cheaper and imports are more expensive (and high natural gas prices mean it's more expensive to export processed imports).

3. The world's three biggest economic regions, North America, Europe, and Asia are competing for a fixed, or flat, supply of oil. Europe is the weakest economy. Yet, it has to pay the most.

 
At 3/12/2012 10:02 AM, Blogger Jon Murphy said...

Your first two points make sense, Peak, but number 3 does not. The supply of oil isn't fixed. As we are seeing in North Dakota, the supply of oil is rising.

 
At 3/12/2012 10:09 AM, Blogger PeakTrader said...

Jon, more oil in some places and less oil elsewhere resulted in a fixed supply.

 
At 3/12/2012 10:21 AM, Blogger Buddy R Pacifico said...

Peak Trader, your Why Europe is Experiencing Higher Oil than the US, does not have quotes or an attribution. Are these your own thoughts? If not, then who are you quoting and why not use quotation marks? The statement is quite interesting.

 
At 3/12/2012 10:21 AM, Blogger Jon Murphy said...

But since oil is a globally traded commodity, easily transferable and tradeable, then it doesn't matter what individual regions are doing, but their affect on the global oil supply. Oil strikes or dry wells may affect local prices in the short run, but in the medium and long run, the prices move with global prices.

To say the supply of oil is fixed implies it can only go down as consumption increases. As we have seen in the past 20 years, the oil supply has increased, not remained flat or declined.

 
At 3/12/2012 10:25 AM, Blogger PeakTrader said...

Buddy, everything below the title in that comment is from the article, except what's in parentheses (I wanted to keep it compact).

 
At 3/12/2012 10:27 AM, Blogger PeakTrader said...

Jon, did you notice the higher oil prices? Or the weaker economic growth?

 
At 3/12/2012 11:02 AM, Blogger PeakTrader said...

Although, the U.S. economy weakened substantially since the 2007 peak, it weakened from a very strong position.

The U.S. has a "lighter" production base, from the Information and Biotech Revolutions, light industry, and services, which require less oil (China, for example, produces more oil-intensive goods, although the yuan appreciated making oil imports cheaper).

Also, the U.S. has a special relationship with the Saudis, and other Middle East allies, which increased global demand for dollars and more foreign investment flowed into the U.S..

The energy saving in U.S. production shifted to consumption, e.g. bigger houses, bigger autos, more goods, including imports, etc.

 
At 3/12/2012 11:07 AM, Blogger Buddy R Pacifico said...

Peak Trader, again, what is the attribution -- "the article"? I now understand you are quoting, but what is your source?

 
At 3/12/2012 11:19 AM, Blogger PeakTrader said...

Buddy, go to Google, click news, and cut and paste:

Why Europe is Experiencing Higher Oil Prices than the US

Click the one that says OilPrice.com - 5 days ago

 
At 3/12/2012 11:21 AM, Blogger PeakTrader said...

Or

http://ourfiniteworld.com/

 
At 3/12/2012 11:27 AM, Blogger Buddy R Pacifico said...

Peak Trader, thanks for the link.

 
At 3/12/2012 1:02 PM, Blogger juandos said...

Relatively cheap natural gas might start an increase in the fleet of LNG carriers..

I have a second cousin involved in the LNG transport business and sent me this link which is a series of articles showing an increase in fleet sizes...

gCaptain LNG articles

 
At 3/12/2012 1:06 PM, Blogger Hydra said...

The Eurozone imports almost all its oil.

If it is a commodity it does not matter whether you make it or buy it: the price will be near the same. As MJP has already pointed out, part of the high prisces in the US are becasue we Export gasoline.

I think it is also true that Eurozone improts more finished product and less crude.

This comment does not seem to explain whey Eurozone should be hit harder by higher fuel pries.



2. A weaker Euro means exports are cheaper and imports are more expensive (and high natural gas prices mean it's more expensive to export processed imports).

You might be on to something here. Europe uses more energy per unit of GDP produced than the US does. But this argument adresses economic condithions not whay higher oil prices hurt Europe more than someplace else

3. The world's three biggest economic regions, North America, Europe, and Asia are competing for a fixed, or flat, supply of oil. Europe is the weakest economy. Yet, it has to pay the most.

"Yet it has to pay the most" only repeats the premise and does not adress the question: If oil is a global commodity, why does it cost more in Europe? MJP is going to argue with you that it is a fixed supply of oil."

 
At 3/12/2012 1:33 PM, Blogger PeakTrader said...

Hydra, the U.S. pays less for oil, because it also produces a lot of oil, which is cheaper (up to $20 a barrel) than the Brent crude the Eurozone pays.

The Eurozone has to buy more foreign oil, because it produces very little oil, and in terms of Euros, the price of Brent crude is higher than the 2008 peak.

The Eurozone is being hit hard by two shocks:

1. High oil prices and the need to import.

2. High natural gas prices and the need to import.

The Eurozone economy was already weak before the energy shocks.

The new Eurozone recession is a mechanism to free up oil for stronger regions, e.g. North America and Asia.

 
At 3/12/2012 2:37 PM, Blogger Hydra said...

Hydra, the U.S. pays less for oil, because it also produces a lot of oil, which is cheaper (up to $20 a barrel) than the Brent crude the Eurozone pays.

=================================
"Petroleum production from Europe, Africa and the Middle East flowing West tends to be priced relative to {Brent Crude], i.e. it forms a benchmark. However, large parts of Europe now receive their oil from Russia."

Is Russian oil priced based on the Brent Baseline?



Why would I sell US domestic oil here for $20 less a barrel than I can get for it someplace else?


"In Europe however, January saw a drawdown on stocks to a six-year low for that period according to CGES. This drawdown has been compounded by the crisis in Libya which is a substantial supplier to Europe. The result has been much higher prices for the European benchmark crude over that of the United States (Figure 1 below). The Brent-WTI price spread has been one of the largest in recent times." http://www.cges.co.uk/media/articles/2011/02/28/crude-oil-prices-a-brief-on-current-drivers


This quote seems to corroborate your statment that domestic oil is cheaper. However the reference graph also shows that the price of WTI is increasing rapidly, and thus closing the gap.

MJP has already pointed out that one reason we have high gas prices is that we are now exporting gasoline. But, whether we are exporting it or importing it, we would expect to get/pay the market price, no? (US imports Gasoline from Europe, while Europe imports Diesel from Russia.) If East oast US is importing gasoline from Europe, why are they hurt ore than we are?






If the Euro system charges tax per Euro of fuel sold rather than per gallon as the US system, then I can easily see why Eurozone would be hurt more by rising prices. but that is a tasx issue as much as an oil price issue.

They would also be hurt more if they produce less GDP per unit of energy. But that is an efficiency isue, not an oil price issue. It might also be that one reason the produce less GDP per unit of enertgy is because energy is so expensive, they avoid using it and use more labor (Also because of labor laws.)


But unless there is some difference in their economy, I still don't see why they get hurt more by a rising global price than anyone else on the globe.


Now, if the answer is as you say, that there are two different prices, and Europe pays a higher price, then that is different from saying that Eurozone is hardest hit by high prices generally.

If US suffers a 20% price increase and Eurozone suffers a 20% price increase, why would that hurt them more than us?

 
At 3/12/2012 3:00 PM, Blogger juandos said...

"The Eurozone has to buy more foreign oil, because it produces very little oil, and in terms of Euros, the price of Brent crude is higher than the 2008 peak"...

I wonder what the Euro is really worth considering the problems in Greece, Spain, Portugal, etc?

 
At 3/12/2012 3:03 PM, Blogger Jon Murphy said...

Is Russian oil priced based on the Brent Baseline?

Not quite. Russian oil is traded on Russian exchanges. While movement in the Brent exchange may affect Russian prices, it doesn't directly.

 
At 3/12/2012 3:05 PM, Blogger PeakTrader said...

Hydra, 20% of 100 is more than 20% of 80.

Also, the Eurozone economic recovery has been weaker than the U.S. economic recovery.

Moreover, the Eurozone implemented austerity policies, unlike U.S. expansionary fiscal policy that offset higher oil prices.

I suspect, Eurozone consumers and producers are paying a larger proportion of their (lower) incomes on (higher priced) oil and natural gas.

 
At 3/12/2012 3:15 PM, Blogger PeakTrader said...

U.S. domestic oil is $40 a barrel lower than the peak in 2008.

E.U. Brent crude is higher in euros than the peak in 2008.

 
At 3/12/2012 3:44 PM, Blogger Ron H. said...

"The new Eurozone recession is a mechanism to free up oil for stronger regions, e.g. North America and Asia."

A "mechanism"? Do you mean it was intentional?

 
At 3/16/2012 8:26 AM, Blogger VangelV said...

As Scott Grannis commented, "If there is any reason to be optimistic about the future of the U.S. economy, [falling natural gas prices] is arguably the best."

Nonsense. That would be true if the cost of production were not well above the market price. But as we know from looking at the 10-K filings by the shale gas producers that is far from the case. Most of the players need $7.50 gas to break even (if they count all the costs) and are only producing so that they do not have to write down the lease costs. If they did that most of the players would be bankrupt.

 

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