So what’s so good about low gas prices?
The most recent prices I have for natural gas are under $2.00 and the spot price for NG, bought without a long-term contract traded at $1.87. By the time you read this, it could be even lower! So I ask the question, is this good or is it bad? But before I answer it, let me take you on a little journey into this world with some facts and figures.
Prices and Costs
· Current U.S. futures price: $1.98/1,000 cu. Ft.
· All-time low: $1.32 (Jan. 1995)
· All-time high: $15.38 (Dec. 2005)
· 10-year average: $5.96
· Current price in Asia: $15.90
· Current price in Europe: $9.37
Producers
· Top Producers of NG in U.S.: ExxonMobil, Chesapeake Energy, Anadarko Petroleum, Devon Energy, Encana.
· Top five producing states: Texas, Alaska, Louisiana, Wyoming, and Oklahoma (yeah for the home team).
· Top five producing countries: U.S. Russia, Iran, Algeria, Canada
How Natural gas is used in the U.S.
· 34% is used for generating electricity
· 30% is used by industry to heat boilers or make chemicals, fertilizers, etc.
· 21% is used to heat homes, cook, dry clothes and heat water
· 14% is used to heat buildings, restaurants and shops
· 0.1% is used to power trucks, cars, buses and other vehicles.
How it might be used to benefit from US growing supply
· Expand the production of plastics, fertilizers, etc., that use NG as a feedstock
· Liquefy it for export to Asia and Europe where prices are far higher
· Build more NG fueling stations
· Turn it into diesel or ethanol.
Sources: Oil Price Information Service, Platts, Energy Information Administration, Natural Gas Supply Administration, World Publishing Company
So back to the question. Is this good news or bad?
For many in our industry, it is simply awful. At E-Tech we sell energy recovery. Just a few years ago when natural gas soared to $15.38, paybacks on our equipment were measured in mere months. Installed! But those halcyon days have passed. In a return on investment calculation, the energy effect is linear so that if NG is priced at $2.00, it takes seven to eight times as long for an investment to pay for itself as it does at $12.00. So it’s bad, right? Ouch and yikes!
No, it’s good tidings. Just ask those in the ethanol business. Their issue of course is that the primary source of stock is corn. With corn prices sitting above $6.00 bushel, this is becoming an expensive business, correct? Well, not exactly. Low NG prices allow those producing ethanol to continue moving forward profitably which is good, right? Ooh and aah!
Well no, it’s bad news. Check out the natural gas producers who have based their exploration on predicted NG pricing that not so long ago was several times higher than it is today. There’s so much gas being produced that we are running out of places to store it thereby exacerbating the price issue further. This is bad, right?
Not really, it’s good. Just look at places like Japan that pay about $16 for LNG (liquefied natural gas) and other countries paying similarly high prices. Exporters in the US are looking at shipping LNG at high margins, something we all love. Consider also Compressed Natural Gas (CNG) that is becoming more and more available in our country at a price of about $1.15 per gge (gasoline gallon equivalent). This will likely lead to higher natural gas prices. Which is good, right?
Well I could go on and on here. The point I’m really making is that we are most fortunate in this country to have resources such as this that offer wonderful opportunities including reduced dependence on unstable energy sources around the world while at the same time lowering harmful emissions.
To end, I could say “the grass is always greener…” but, this is better.
“Start where you are. Distant fields always look greener, but opportunity lies right where you are. Take advantage of every opportunity of service.” ~ Robert Collier, American Motivational Speaker (1885-1950).
PS – Once again I beg your indulgence. Because of upcoming travel schedules, the next edition of this blog will be posted in mid-May.
