Tuesday, February 21, 2012

Natural Gas Prices Are the Lowest Since 1999


Based on data through the middle of February from the EIA, the inflation-adjusted spot price of natural gas (Henry Hub Gulf Coast) this month at $2.50 per million BTUs is close to the lowest price in the history of the EIA data back to January of 1997 (see chart above).  There have been only three other months in the  last 15 years that real spot gas prices have been lower: December 1998 ($2.40), February 1999 ($2.45) and March 1999 ($2.48).

Welcome to America's shale gas revolution, where thanks to modern, advanced drilling technologies, we've become the "Saudi Arabia of Natural Gas," which translates into the lowest prices in recent history for U.S consumers and businesses.   

Related quote from Kevin Williamson in his National Review article "The Wonders of Frack: Why We Should Be Exploiting Our Natural Gas":

"Cheap, relatively clean, ayatollah-free energy, enormous investments in real capital and infrastructure, thousands of new jobs for blue-collar workers and Ph.D.s alike, Americans engineering something other than financial derivatives - who could not love all that?" 

28 Comments:

At 2/21/2012 10:08 AM, Blogger morganovich said...

http://www.uticaod.com/features/x740678844/Gas-prices-are-highest-ever-for-this-time-of-year

shame about the gasoline prices.

EW YORK —

Gasoline prices have never been higher this time of the year.

At $3.53 a gallon, prices are already up 25 cents since Jan. 1. And experts say they could reach a record $4.25 a gallon by late April.

"You're going to see a lot more staycations this year," says Michael Lynch, president of Strategic Energy & Economic Research. "When the price gets anywhere near $4, you really see people react."

 
At 2/21/2012 11:55 AM, Blogger juandos said...

In one month the average price of gasoline has gone up 20 cents...

I wonder when the huge new finds of crude will finally mitigate the price rise?

 
At 2/21/2012 12:08 PM, Blogger Benjamin Cole said...

We see that natural gas prices are low, but not that low. This may be the new normal.

 
At 2/21/2012 12:13 PM, Blogger Benjamin Cole said...

BTW, 13k on DJIA today?

Poor Morgan, poor little Morgan. The DJIA is up 60 percent since 2008.

 
At 2/21/2012 12:14 PM, Blogger morganovich said...

juandos-

based on crude prices right now, it's sure not yet.

$105.

 
At 2/21/2012 12:15 PM, Blogger Jon Murphy said...

I wonder when the huge new finds of crude will finally mitigate the price rise?

Probably not too likely, honestly. Oil is traded globally and much easier to ship that NatGas, so the demand in the global market is most likely going to keep oil prices high in the coming years.

 
At 2/21/2012 12:27 PM, Blogger morganovich said...

benji-

and we are up more than twice that.

hell, we made more than that in 2009 alone.

are you really so simple minded that you cannot conceive of making money in the stock market despite thinking the economy is stagnant?

why repeat stories you know not to be true?

we're having a great time, thanks very much.

this is a fact of which you are well aware.

so why lie over and over?

do you need to tell such fibs to try to distract others from your inability to support any of your augments with facts?

resorting to ad hominem is the sign of a weak argument and a weak mind.

making up the false facts with which to engage in ad hominem is the sign of serious ethical failings as well.

is that really how you want to come across? as a feeble-minded liar?

 
At 2/21/2012 12:28 PM, Blogger KauaiMark said...

"...ayatollah-free energy"

I like that phrase!

 
At 2/21/2012 12:29 PM, Blogger juandos said...

pseudo benny cackles: "Poor Morgan, poor little Morgan. The DJIA is up 60 percent since 2008"...

Typical! Never looks at the realities...

As Dow Passes 13,000 In Nominal Terms, Here Is The "Real" Picture

 
At 2/21/2012 12:36 PM, Blogger juandos said...

Yeah morganovich & jon murphy, I was kind of throwing a lame hope out there...

BTW Richard Epstein writing for the Hoover Institute has the following: The Oil Market Panic

Politicians on both sides of the aisle must embrace the principle of laissez-faire

The 2nd paragraph speaks volumes I think: The greatest casualty of the current debate over the price of oil is to turn sensible market responses to its scarcity into grist for a political mill in an election year. The blame game between the political parties is likely to lead to flawed reform proposals that offer no short-term relief, but do impair the long-term efficiency of oil markets...

 
At 2/21/2012 12:45 PM, Blogger Buddy R Pacifico said...

"...investments in real capital and infrastructure, thousands of new jobs for blue-collar workers and Ph.D.s alike, Americans engineering something other than financial derivatives - who could not love all that?"

That is a truly great quote.

 
At 2/21/2012 12:48 PM, Blogger Jon said...

Who's seen the movie Gasland?

 
At 2/21/2012 12:53 PM, Blogger morganovich said...

juandos-

that's an interesting chart on gold.

a lot of hedge funds offer gold backed products now.

i have some personal money in the greenlight capital gold fund.

for every $ of assets, they buy $1 of physical gold (held in a vault with no delivery risk) and then $1 of the standard greenlight fund's portfolio excluding the gold stocks.

a number of the big funds offer such products now.

to be sure, there is some overhead from the leverage, but in the age of ZIRP and crazily easy money, borrowing is cheap and gold has been pretty strong.

it's done very well over the last couple years.

 
At 2/21/2012 12:55 PM, Blogger kmg said...

Fracknation is up to 66% funded. It should exceed $150,000 with ease...

Cracks in the dam are appearing... and not a moment too soon.

 
At 2/21/2012 1:09 PM, Blogger Buddy R Pacifico said...

OK, there is lot of natgas, so, what to do with it all?

Compress the gas and use it to power vehicles. But wait, the tanks to hold compressed natgas (CNG) are "its most expensive single component".

Where does the natgas producer, wanting to develop CNG vehicle technology, turn to for cheaper tanks? The maker of Scotch Tape and Post-it notes.

MMM and Chesapeake Energy are partnering to create lighter, stronger and cheaper CNG tanks.

Chespeake Energy will use MMM's "nanoparticle-enhanced resin technology" to make the tanks.

CNG provides vehicles with energy at an "average price per gasoline gallon equivalent of $1.00 to $2.00".

 
At 2/21/2012 1:11 PM, Blogger juandos said...

"i have some personal money in the greenlight capital gold fund"...

Good move m...

I don't know if you saw this exchange but there was some entertainment value to it: Ron Paul vs Bernanke: Is Gold Money?

July 13, 2011

 
At 2/21/2012 1:13 PM, Blogger morganovich said...

"CNG provides vehicles with energy at an "average price per gasoline gallon equivalent of $1.00 to $2.00"

it's much cheaper than that.

per BTU, natgas is about 1/10 the price of diesel.

the tanks are only that expensive in the US. in the rest of the world, you can use welded steel.

in the us, there needs to be carbon fiber reinforcement.

it's a DOT reg.

for a class 8 truck, these tanks are $12k in the US, and $1200 in the rest of the world.

another fine example of regulation hamstringing business opportunities.

 
At 2/21/2012 1:56 PM, Blogger Marko said...

The tanks for CNG in any case should be cheaper than batteries in electrics and hybrids.

East Europeans frequently convert their cars to CNG and enjoy the much lower prices. Works great!

 
At 2/21/2012 2:01 PM, Blogger juandos said...

buddy says: "CNG provides vehicles with energy at an "average price per gasoline gallon equivalent of $1.00 to $2.00""...

buddy if I'm not mistaken the energy density of natural gas is higher than gasoline by mass but much lower (by 30+%) if its measured by volume...

These tanks 3M and Chesapeake are working on better be impressive both in construction and price...

 
At 2/21/2012 2:43 PM, Blogger morganovich said...

juandos-

cng is never going to be abi vehicle fuel. lng works MUCH better and lets you put far more energy into a tank.

the tech to thermally insulate them is readily available and works well.

i think that's the way it's going to go.

 
At 2/21/2012 3:14 PM, Blogger Buddy R Pacifico said...

juandos and morganovich

Clean Energy Fuels is building "America's Natural Gas Highway".

Clean Energy states:

"We build, operate and maintain fueling stations that compress and dispense compressed natural gas (CNG) fuel for light- and medium-duty vehicles and dispense liquefied natural gas (LNG) fuel for heavy-duty vehicles."

So...

CNG for "light and medium duty vehicles and LNG for "heavy-duty vehicles".

 
At 2/21/2012 4:25 PM, Blogger Buddy R Pacifico said...

morganovich and juandos,

Another heavy vehicle use of LNG will be for:

locomotive fuel at Canadian National RR.

 
At 2/21/2012 6:57 PM, Blogger kmg said...

Japan and India will both import as much LNG as we can supply them.

Of course, it is silly to export one liquid fuel to the other side of the world, while importing another liquid fuel the same distance, but hey..... we gotta start somewhere.

 
At 2/21/2012 8:13 PM, Blogger Ron H. said...

juandos: "I don't know if you saw this exchange but there was some entertainment value to it: Ron Paul vs Bernanke: Is Gold Money?"

Thanks, that's great. Bernanke seems clueless.

 
At 2/21/2012 8:22 PM, Blogger Ron H. said...

juandos: "I don't know if you saw this exchange but there was some entertainment value to it: Ron Paul vs Bernanke: Is Gold Money?"

Thanks, that's great. Bernanke seems clueless.

 
At 2/22/2012 8:08 PM, Blogger VangelV said...

Welcome to America's shale gas revolution, where thanks to modern, advanced drilling technologies, we've become the "Saudi Arabia of Natural Gas," which translates into the lowest prices in recent history for U.S consumers and businesses.

I am sorry to say this Mark but you really should be ashamed of yourself. We have seen that the shale gas industry is in disarray as it bleeds red ink all over the place and is in desperate need for financing. (I will note that the Saudi producers do not have the same problem.) You of all people should know the implications. Shale gas companies can't continue to lose money and keep drilling. And given the huge depletion rates there is no way to keep production from falling once drill activity starts to decline.

If you want to see the American production trends take a look at this. Reality is not exactly what it is portrayed to be by the promoters and charlatans.

 
At 2/23/2012 8:55 AM, Blogger Mark J. Perry said...

I'm only reporting the facts: natural gas production is at an all-time high and natural gas prices are at an all-time low. Supply and demand, basic economics. Nothing to be ashamed of....

If prices are too low to cover costs of production, producers will exit the industry, supply will fall, and prices will rise.

In other words, it just market forces in action.

 
At 2/27/2012 10:53 AM, Blogger VangelV said...

I'm only reporting the facts: natural gas production is at an all-time high and natural gas prices are at an all-time low. Supply and demand, basic economics. Nothing to be ashamed of....

But you are cherry picking data points that only support a narrative that you want to tell. You did that during the housing bubble too and afterwards when you tried to convince everyone that things were getting better by citing inaccurate housing data.

The shale gas story was very simple.

The EIA and USGS claimed that there was a lot of hydrocarbon trapped in shale. That was true and has always been true.

Companies went to the markets for equity and borrowed to pay for the acquisition of shale leases and to pay for horizontal drilling and fracking that would allow them to produce shale gas.

Many shale producers hedged their future production at prices that would ensure that they made a profit. When the contraction caused prices to crash they were not hurt by the action and continued to report profits.

The problem was that the terms of the leases required drilling activity be undertaken. If the company did not drill it would lose the lease and have to write down the asset immediately. This requirement threw economic sense out the window and forced companies to drill no matter how low the price and how big the loss.

We all knew this was happening. The CEOs were clear that if they had their way they would stop drilling until prices picked up. Instead of reporting that you claimed that new businesses would prop up to take advantage of lower prices even though that meant that the producers would go bankrupt. That is a serious problem that reflects poor analytical skills.

If prices are too low to cover costs of production, producers will exit the industry, supply will fall, and prices will rise.

The problem is the return on the energy invested. The world is driven by net production. If you need 1 Mcf of energy to produce 1 Mcf of natural gas there will be no progress. You can't replace a 1:100 return ratio with a 1:2 return ratio and claim that nothing important has happened. This is something that you are quite capable of learning but refuse to because it would create a problem for your optimistic narrative.

In other words, it just market forces in action.

No. Market forces would have caused the drilling activity to collapse two years ago. Between the lease terms and the SEC reserve recognition rules many of the actions have far removed from the market. Which is why so much promotion is needed to sell the story.

 

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