Wednesday, July 25, 2012

CPI for Natual Gas Falls to Nine-Year Low This Year

 
The chart above displays the monthly CPI series for "Utility (piped) gas service" back to 2000 (the series equals 100 in 1983), and shows the significant benefits of the shale gas revolution for American consumers. Despite a slight uptick in June, the CPI measure of the price consumers pay for natural gas last month was the lowest since February 2003, more than nine years ago.  And compared to the peak index level four years ago in the summer of 2008 of almost 300, the price index for natural gas today is almost 50% lower at 161 in June.  

Consumers might be paying higher prices this year for some food items, medical services, college tuition and textbooks, clothing and other goods and services, but one of the consumers' best friends is natural gas, thanks to the abundance of shale gas and the resulting falling prices.  Just like advances in technology have dramatically lowered the price of electronic goods, computers and software, and cell phone services, so has technology (fracking and horizontal drilling) lowered the price of natural gas for American consumers and businesses.  Result? Those technology-driven falling prices have significantly raised our standard of living.  

7 Comments:

At 7/25/2012 11:19 PM, Blogger Rufus II said...

Don't look now, but nat gas is up 65% since it bottomed a couple of months ago at $1.85.

I halfway expect it to hit $15.00 before this run is over.

 
At 7/25/2012 11:22 PM, Blogger Rufus II said...

Btw, nat gas production in Tx, our largest nat gas producing state, is down

20% Year over Year.

 
At 7/26/2012 6:32 AM, Blogger Jon Murphy said...

Don't look now, but nat gas is up 65% since it bottomed a couple of months ago at $1.85.


Yeah, but a gain of 65% off a historical low is still $3.05, still down nearly 50% from last year.

Besides, this has been an abnormally hot summer. Electric demand has risen due to more people running a/c, which means more demand for natural gas in the electric producing sector.

And are you really surprised Texas natural gas production is down? Most of what is making its way to the natgas market is the byproduct stuff that comes from oil drilling. Something like 30% of rigs are producing natural gas. Can't make money at $1.50 per. If prices are to remain above $3.00 (the low end of BE point), you'll probably see some rigs come back on-line, but we'll likely see this oversupply remain, simply because we have so much inventory to get through first.

 
At 7/26/2012 8:16 AM, Blogger Jon Murphy said...

Yeah, but a gain of 65% off a historical low is still $3.05, still down nearly 50% from last year.

Excuse my math. Current natgas prices are 26.4% below last year.

 
At 7/26/2012 8:20 AM, Blogger VangelV said...

Let us look at the logic here.

Yeah, but a gain of 65% off a historical low is still $3.05, still down nearly 50% from last year.

True but trends in commodities have tendencies to run for quite some time before they turn.

Besides, this has been an abnormally hot summer. Electric demand has risen due to more people running a/c, which means more demand for natural gas in the electric producing sector.

Also true but don't you remember that a very warm winter cut demand for heating? Your heating bill fell mainly because of the change in temperature, not the tiny bit of the price decrease that the utilities passed on.

And are you really surprised Texas natural gas production is down? Most of what is making its way to the natgas market is the byproduct stuff that comes from oil drilling. Something like 30% of rigs are producing natural gas. Can't make money at $1.50 per.

That has been my argument with you and Mark. Shale gas can't make money at less than $7.50 if the Chesapeake statements were to be believed. (That is all in costs, not the costs that do not include depreciation, leasing, etc.)

If prices are to remain above $3.00 (the low end of BE point), you'll probably see some rigs come back on-line, but we'll likely see this oversupply remain, simply because we have so much inventory to get through first.

Why would rigs come on line when the core areas need more than $5.00 gas to have a chance of making profit and the average well is not economic under $7.50? Shale gas has been a disaster for the industry and has wound up destroying capital. Do you really think that investors are eager for another bout of capital destruction?

No matter what the narrative that Mark is pushing I can't see any economic logic in having companies that do not have to in order to keep from going under by writing down their leases spending any money on new gas production. The simple fact is that there is no way for natural gas production to fill the growing demand that is added by closing of coal generation plants without a significant increase in prices. And I suspect that the next time the shale companies act they will demand fixed cost contracts from drillers and a fixed price from purchasers in order to guarantee sufficient profit to try to stave off bankruptcy.

 
At 7/26/2012 8:21 AM, Blogger VangelV said...

I halfway expect it to hit $15.00 before this run is over.

Perhaps but if the economy collapses you could see both oil and gas prices pull back by enough to drive many of the shale players out of business.

 
At 7/26/2012 9:20 PM, Blogger Benjamin said...

Meanwhile, the federal government wants you to finance biofuel development and buy ethanol.

USDA and DOE select 13 biofuels projects for more than $41M in awards
26 July 2012
The US Departments of Agriculture (USDA) and Energy (DOE) will award $41 million investment to 13 projects to drive more efficient biofuels production and feedstock improvements through genomics.

Through the joint Biomass Research and Development Initiative (BRDI), USDA and the DOE are working to develop economically and environmentally sustainable sources of renewable biomass and increase the availability of renewable fuels and biobased products. Five projects newly selected will help to replace the need for gasoline and diesel in vehicles. The cost-shared projects include:

 

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