Commodities Class: Natural Gas
The idea for this mini series about commodities and energy came from the forthcoming Energy Rodeo, so perhaps it is time to discuss the uncrowned king of American power...
Topic #4
Natural Gas
What's that I say? Natural Gas more important than oil?
Obviously not the case...not yet, at least...
Ever since T. Boone Pickens came out from the environmentalist closet, markets have changed their tune to natural gas.
What was once looked at as merely a potential backup resource has sprung into the limelight of trading and power over the past decade.
But as they often do at the most inopportune time...
Along Came a Spider
Nobody knows who or what the spider may be but it has pulled Natural Gas into a distinct class of its own over the past year...
Namely, at a time when commodities are bubbling and sizzling all over their respective markets...natural gas has taken a header in 2010.
SB to the first monkey that tells me why this is the case.
Also, what do you guys think about Natty going forward?
With it being just about the only secure power source the U.S. has not been exhausting like a trophy wife on a Bergdorf binge, why are prices down? and more importantly, will they stay that way.
Stay tuned for a good Natural Light story...later in this topic.
Anyone interested in a nice info summary of Natural Gas info can click here.
Excess supply pushing prices down, especially since nearly all the oil majors have placed their bets on natural gas and increased exploration and production accordingly.
some decent info here:http://www.optionetics.com/market/articles/21234
Additionally, it isn't as acceptable to the public as previously thought, frac-gas projects are getting a lot of heat in the states and reports out of Quebec point to natural gas leaks into ground water. Turns out people aren't very open to natural gas powered plants near their homes (nimbys) and the hippies still want to convert the planets surface to a gigantic wind farm, hydrocarbons be damned.
Basically the discovery of huge natty shales and the fact that extracting shale gas isn't nearly as hard as previously thought crushed gas prices this year. Like it was mentioned on the oil thread, there's not a lot of downside to gas at this point but demand isn't exactly picking up because there has been some slack in oil demand over the last couple years and no real pressure to switch over to natty. Tree-huggers tend to find solar, wind and nuclear power sexier than nat gas as well so figuring out how to make natural gas cars doen't seem to be anybody's priority right now. I think the price will pick up in a year or two as oil starts to go well above $100 again.
Way to steal my thunder down on the upside, you just stole my banana like you were Aladdin.
not Aladin, but Abu driving Aladin's magic carpet like a Rolls through WSO!
Natural Gas has gone down in price because of the fairly recent increase in supply. Supply has increased because:
Moving forward, the price will be heavily influenced by regulations as natty gas is getting bad publicity from movies such as Gasland.
Apparently, there are vast shale wells that remain untapped in different parts of the United States.
Can you say horizontal rigs?
I'm not bullish on NG prices but I am bullish on NG itself. I think NG has the potential to become the dominant fuel in America (for both transportation and electricity) within the next 25 years.
For electricity production (44% of which comes from coal, http://www.eia.doe.gov/cneaf/electricity/epa/figes1.html), Natural Gas is a clear winner. It produces about half the CO2 emissions, and is safer to extract. In addition, we could export coal to bring down trade deficits.
The same goes for oil, though NG for transportation is more difficult to implement. Fuel cell technology could potentially use NG as the source of H. Again, if implemented correctly, we could become an oil exporter and reduce trade deficit in that way as well.
Everybody is right about oversupply of NG but everyone is missing the point: the drilling continues because of NGL prices, which trade inline with oil as naptha substitutes for petchem. In the wet plays nobody really cares what price dry NG trades at because the NGL margins are so high. However the producers are running into issues of gas processing capacity and pipeline restrictions on gas content.
If you are interested in the LNG play check out CQP, the ceo is a crazy guy with grandiose schemes but if he pulls it off...
NG has historically been a volatile commodity, extended stays in the current price range will make utilities start to think long and hard about conversion from coal. Oh and green legislation helps too.
The next innovation that must be done for natty gas drilling to get over the regulation hurdle is to have stronger but FLEXIBLE concrete so that the gas does not seep into water supplies.It needs to be flexible because natty gas involves drilling in a curved L shape well, they call this "horizontal drilling"...
It's particularly interesting becase demand is pretty high in Asia but they just don't have access to the supply. If I remember correctly, a few groups have begun investing in infrastructure to match the physical supply to the demands in the east. Could be something interesting to watch in the coming years
There is enough NG in the Gulf of Mexico alone to power the entire US for something like 50 years (assuming everything was converted to NG-power). BP may have screwed us on that one though..
Till the JV cash and the leaseholds don't go away. They will drill drill drill.
Export LNG is still a long ways away, the White House ain't approving that one overnight.
Exactly, this more than anything else is why rig counts will stay high and prices low...
Anyone know what NG price we need for it to become profitable for the average coal plant to convert?
Does anyone have any insights or thoughts as to the depression of geographic basis volatility?
I have some thoughts of my own, but before polluting with them, I'd be very interested to hear theories circling out there. Economic slow down? Too much shale flow? Nobody cares anymore? What do you think?
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