Saturday, August 29, 2009

New Age of Cheap Energy Approaches: A Tribute to the Virtues of Markets, Free Trade and Capitalism

UK Telegraph -- We have all become so used to reading that the end of the world is nigh that we tend to close our eyes and stick our fingers in our ears when there is evidence to the contrary. So you have probably missed one of the biggest pieces of good economic news to emerge recently: energy prices are coming down, in some cases to record lows. Furthermore, even if prices start to recover, they are not likely to return to the ridiculous levels of 2008 any day soon.

This is excellent news, of great import. The trend for gas and electricity bills is downwards; diesel is back at the same price as regular gasoline; the world is practically choking on natural gas, and is potentially awash with oil. The main international natural gas price has this week fallen to a record low, due to a surplus of new resources from North America (see chart above). Even the stubbornly high oil price has dropped.

How come natural gas prices have fallen so much? To understand why, you need to get up to speed on the exciting phenomenon of so-called tight gas. This, after coal, could perhaps be the world's most prolific energy source. Hitherto, we have relied on conventional deposits of natural gas. But tight gas is locked into difficult rock formations, such as shale, and in the past couple of years the industry has found low-cost ways of fragmenting those rocks in order to get at the gas, particularly in America. The result is that US gas reserves have effectively doubled, almost unnoticed; and the same technology can be readily applied in Canada, Australia, Asia and even parts of Europe.

As we go into the autumn, US gas storage units are almost full to bursting. Facilities once designed to import are being turned around for export. When it comes to gas, America is the new Russia. And for the rest of the world, tight gas equals one thing: freedom. How has this amazing development come about? Well, my friends, it is the market at work. The high prices of the past decade incentivized a scramble for new technology and projects which are now producing.

An era of cheap and abundant energy will be a much-needed tribute to the unfashionable virtues of markets, free trade, and capitalism.

MP: As the chart above shows, inflation-adjusted natural gas prices have fallen by 80% since the peak in 2005, and are now close to the prices that prevailed in the 1990s. In addition to the significant benefits of falling natural gas prices, another advantage to natural gas is that there is "no OPEC cartel to dominate it," as the article points out.

HT: Arthur Little

Originally posted at Carpe Diem.


At 8/29/2009 5:37 PM, Blogger Cabodog said...

Why am I still burning petroleum in my vehicle? Honda's got a great solution: turn natural gas via a fuel cell into hot water, electricity for my home (and the grid) and hydrogen for my fuel cell vehicle:

GM's still working on a fuel cell vehicle (thankfully), along with Honda.

Like I said, why am I still running on gasoline?

At 8/29/2009 9:26 PM, Anonymous Anonymous said...

Cabodog has it a bit wrong, why bother with the conversion conventional engines with some modification burn methane quite well. In addition methane is easier to store than Hydrogen as it is less leaky. The CO2 will come out in either case but will be less than for gasoline. (CH4 versus cxh(2x-2)) as a molecular construct.

At 8/29/2009 9:33 PM, Anonymous geoih said...

Quote from Cabodog: "Why am I still burning petroleum in my vehicle?"

Because gasoline is far more portable than natural gas. When you figure in the cost of transporting and storing natural gas in a moving vehicle, gasoline is far more efficient.

At 8/29/2009 9:45 PM, Blogger Plamen said...

In Europe vehicles modified to run on propane are quite common. Methane is not propane, of course, but from what I recall from organic chemistry, the conversion is trivial and cheap. The conversion of the vehicle is inexpensive; the biggest drawback is the gas bottle taking up space in the trunk of the typical European vehicle.

Geoih, do you have anything research in support of the cost claim? It may very well be right, but sounds counter-intuitive to me, as PECO delivers a rather similar product right to my kitchen stove; also, I have seen propane fueling stations in in parts of Eastern Europe that are much poorer than the US.

At 8/29/2009 11:28 PM, Anonymous Benny The Libertarian said...

The epic supplies of natural gas in the USA, from shale, are large enough to change the energy landscape. Indeed, motor vehicles run on natural gas, and well enough. Globally, there are more than 10 million compressed natural gas vehicles running, Proven technology.
Predicting oil prices is futile, especially as priced can be gamed on the NYMEX. But if oil goes up and stay up, look for heavy conversion to CNG, starting with fleets.
The Peal Oil doomsayers have it all wrong, though. Due to rapid improvements in lithium batteries and CNG vehicles, we may see an American renaissance in energy matters. More US jobs, less imports and cleaner air to boot.
The market system works wonders, in a free country endowed with ample capital and many R&D shops. The future is very bright.

At 8/30/2009 4:23 AM, Blogger KO said...

The 2nd part of T. Boone Pickens plan is to use newly cheap CNG to fuel vehicles. That was after his wind farms displaced natural gas fired electrical plants. Maybe part 1 isn't so urgent now.

But CNG cars don't go as far as a gasoline cars. The Honda GX claims 170 miles for example. But to save money people would be ok with that.

At 8/30/2009 9:46 AM, Anonymous Anonymous said...

Don't worry. Congress is planning to change all this...

At 8/30/2009 10:20 AM, Anonymous Anonymous said...

Benny, you don't think that moving to CNG would cause nat gas prices to rise? You don't think that gretaer use of electricity for transportaion would cause nat gas to rise (most new electricity capactity is nat gas)?

What we have here is atemporary supply glut caused by shale extraction and easy money, plus an economic collapse causing demand destruction. Well the easy oney is over, so I guess those ponzi nat gas drillers will be closing up shop soon. Here's a hint - look at marginal nat gas production costs to get an idea of long term prices, and shale gas production is generally very expensive.

At 8/31/2009 6:04 AM, Anonymous Teeth Whitening said...

Because gasoline is far more portable than natural gas. When you figure in the cost of transporting and storing natural gas in a moving vehicle, gasoline is far more efficient.


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