Guest post by Ric Werme
One minor sign of fall where I live is the arrival of a letter from the gas utility announcing the “Fixed Price Option (FPO) lock-in price” for the winter season. FPO offers a price which people can accept and can plan on heating expenses for the winter. I haven’t taken advantage of it, I think only once in the last decade it would have saved money. However, it does make a decent estimate of the winter natural gas price.
For some reason or other, I’ve been tracking this along with monthly natural gas and electricity billing. At the very least, it gives me some sense of what’s happening in the industry without paying much attention.
Over the last six years, the FPO prices in US dollars per therm(*) were:
Year "FPO" price 2007 $0.8925 2008 $1.2043 2009 $1.2835 2010 $0.8420 2011 $0.8126 2012 $0.6919
This is stunning – in three years the price of natural gas has fallen 46% – nearly half. This isn’t the whole cost to me. Bills include delivery charges which include a fixed rate per day, different tiers for the first several therms, and a lower rate for the rest, and some “Distribution Adjustment” that is per therm and could be folded into the other rates.
National prices from the U.S. Energy Information Administration:
(*): A therm is a silly unit – 100,000 BTU. A BTU, you may recall, is the heat needed to raise one pound of water 1°F. A gallon of heating oil is 1.39 therms. A therm is about 100 cubic feet of gas, so dividing the EIA prices by 10 will be close to the per therm price.
All in all, it looks like I’ll be paying the equivalent of less that $1.50 per gallon of home heating oil, and that is currently selling for $3.60 per gallon. I can afford a cold winter if that’s what we get.
But wait, there’s more! This letter proved to be a springboard that sent me off to bigger things.
Cheap energy powers economies. Natural gas is more than just energy, it’s also a feedstock to all sorts of important chemical production, from nitrogen fertilizer to plastics. Pierre Gosselin has a couple relevant posts at his No Tricks Zone. 500,000 New US Jobs By 2025 Thanks To Affordable Shale Gas – US Gas 75% Cheaper Than In Europe notes some of the industries moving back to the US or starting from scratch thanks to cheap natural gas. It’s quite a counterpoint to his lament about companies leaving Germany and that Chemicals Industry Bosses And Labor Union Send Angela Merkel Warning Letter Over Skyrocketing Energy Prices.
Good manufacturing jobs naturally based in America. Maybe there’s hope for the middle class after all.
But wait, there’s more….
While it’s nice to be getting a good energy break, I’m amazed that there’s talk about hybrid cars, cars running on waste fry oil, all-electric cars, but there’s only one car available in the US market that runs on natural gas. Someone has to be looking for a way to get rid of all this excess gas (at a profit) and someone has to be looking for cheap energy.
People are looking, of course. I’ve heard a couple notes about exporting liquified natural gas (LNG). Five years years ago you would have been laughed off the web for suggesting such a thing, but people who can make it happen are talking this year and Asian countries, currently paying wholesale prices 4-5X US wholesale prices, are interested.
Cheniere’s Chance To Profit From Cheap Natural Gas says in part:
Many state lawmakers are pressing the Obama administration to allow more natural gas to be liquified and shipped overseas. According to Secretary of Energy Steven Chu, the administration is hesitant to allow more natural gas to be exported to foreign countries, like China, because they do not want to be responsible for higher prices at home. I’m sure that they are far more concerned about the Romney campaign distorting a decision to export more fossil fuels as an act of treason. I’m sure that soon after elections, exports of natural gas will be allowed to rise.
A LNG facility in Louisana has been approved, and there’s even a specific plan for a site in Oregon:
Developers Seek Liquid Natural Gas Exportation Through Oregon says in part:
Veresen Inc., a Canadian-based utility and natural gas, is currently proposing the construction of a liquid natural gas (LNG) export plant on Oregon’s West Coast. The project would include an updated LNG pipeline system, which would pipe gas into the plant for exportation to Asian markets.
The project is currently in the proposal phase. Veresen Inc.’s $5.4 billion project includes a facility near Coos Bay, Ore., that would liquefy domestic natural gas from a planed pipeline to be shipped via transport vessels overseas to China and India. The facility would be the West Coast’s first LNG export plant and would process about 1 billion cubic feet of gas per day.
Commodities exportation through the Pacific Northwest is nothing new. Coal exportation has been a consistent economic trend since foreign demand greatly increased over the last decade.
LGN [sic] developers as well as their partners and shareholders hope that exporting natural gas overseas will be just as profitable. Currently, Asian markets are demanding natural gas at four times the cost compared to its domestic price tag.
But wait, there’s more….
Another market for LNG is domestic trucking!
Less costly over long haul discusses CNG (compressed natural gas) fueling stations then looks at the nascent LNG infrastructure and trucks:
Clean Energy is spending $225 million to complete 70 stations by the end of this year and another 80 next year, all of them spaced along long-haul truck routes to create a truly viable natural gas support network, Clean Energy’s Feighner said.
Its “America’s Natural Gas Highway” plan to develop the stations came about as Clean Energy executives realized there was serious appetite among the country’s biggest fuel users for natural gas and the savings it could provide them, he said.
But the real game-changer for natural gas trucking has come in Clean Energy’s approach to delivering the gas in a specific form: As liquefied natural gas, or LNG, as opposed to compressed natural gas, or CNG, Feigner said.
LNG trucks are about the same weight as diesel trucks, while CNG tanks can be much heavier and take up more space to offer the same travel range, cutting into the space on the truck for paying freight.
LNG pumps can fill tanks about as fast as diesel pumps can, whereas CNG, which is used in cars and regional fleets, take much longer.
And LNG truck fueling stations cost less than half as much as CNG stations, according to Clean Energy. A four-pump LNG station costs $2 million, whereas a CNG station of the same size would cost $5 million.
The Clean Energy and Shell truck stations will offer LNG pumps. Shell plans to open its first LNG fuel lanes next year.
But wait, there’s more….
The horizontal drilling and fracking that has made this possible is being applied to new and old oil fields. This is opening up places like the Bakken deposit in the Dakotas, but infrastructure for refining and transporting is holding that back at present. Other fields will be coming into play, for example the Eagle Ford Shale in the Western Texas Basin which is close to existing infrastructure.
A “discussion paper” (they want the full cite: Maugeri, Leonardo. Oil: The Next Revolution Discussion Paper 2012-10, Belfer Center for Science and International Affairs, Harvard Kennedy School, June 2012) reports in a fragment of its 86 pages:
The Eagle Ford Shale in the Western Texas Basin, another tight oil play that stretches more than 300 miles (480 kilometers) from the Mexico border south of San Antonio to northeast of Austin. The first horizontal drilling on Eagle Ford shale was done in 2007, but commercial evidence came out only in October 2008, when Petrohawk, an American exploration and production company, was drilling in the midst of the global financial crisis and falling oil prices. Consequently, there was little action until 2010, when new discoveries and unexpected recovery rates similar to those in the Bakken finally attracted an eager crowd of oil and gas independent companies. Activity in the field has even surpassed Bakken;
The low cost and short time for transportation to the Gulf Coast refining complex will likely make Eagle Ford’s shale oil the most competitive American shale oil. What’s more, Eagle Ford tight oil production results to be cheaper than Bakken’s, being profitable at oil prices ranging between $50 and $65 per barrel.
The paper notes that current oil prices are much higher today in part because people aren’t seeing what’s just over the horizon. As infrastructure and production ramps up prices will come down and and I think ultimately stabilize.
And that’s all I have. If you have time, read that discussion paper. There are a number of things that seem to be a bit of a reach, but there’s also a lot of good information collected in one place.
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US EPA has not yet decided how it will regulate fracking to frustrate production and increase costs, but give them time.
But wait, there is more:
http://articles.chicagotribune.com/2012-09-30/business/ct-biz-0930-nicor-20120930_1_nicor-gas-agl-resources-nicor-customers
“The heart of the alleged scam turned on what sounded like a win-win for the company and its 2.2 million customers. Nicor makes its money from gas delivery and is supposed to only charge customers the same price it paid to obtain the gas.
In 1999, Nicor had convinced the commerce commission, which regulates utilities, that it would strive to get customers the cheapest natural gas prices available under a “performance-based” rate plan. In short, the better it did for consumers, the more richly the company would be rewarded.
To determine the utility’s performance under the plan, Nicor’s natural gas prices would be measured against a “benchmark” price established according to a formula. Beat the benchmark, and Nicor could split those savings equally with consumers. Miss the benchmark, and the additional costs would be shared.”
“In gaining approval for the rate plan, Nicor insisted it could not manipulate the benchmark. But documents show the company was able to control certain elements used in determining the benchmark, allowing it to more easily meet its goals.
The most frequently used method was to keep gas it was removing from storage off the books. Gas companies routinely tap cheaper gas from storage during cold months to prevent price spikes. Under the benchmark formula, hiding the withdrawals worked in Nicor’s favor by increasing the price Nicor was attempting to undercut.
Beyond manipulating the benchmark, the company also figured out a way to further undercut the benchmark. The easiest way was to tap old, cheap gas it had in storage.
The utility isn’t supposed to tap old gas until the newer gas is gone. Some of its oldest stored gas dated to the 1950s.”
They are still holding gas that was taken in the 1950’s?????
Ric says
I haven’t take (sic -you can correct) advantage of it, I think only once in the last decade it would have saved money
Henry says
maybe you should re-consider
looking at my plots for the change in global maximum temps. (who nobody but me is plotting) it looks like you (not me in the SH) are heading for one of the darkest and coldest winters yet in the NH and a few more of those winters are still to come….
he that has an ear, listens.
http://blogs.24.com/henryp/2012/10/02/best-sine-wave-fit-for-the-drop-in-global-maximum-temperatures/
The cost of energy is not the only issue. It seems that anything run by a municipality or public monopoly charges extra fees such as delivery charge, infrastructure charge, base fee, debt reduction, service charge, taxes and so on so that your actual bill is much higher than just the cost of the fuel. This goes for my electricity bill as well.
Meanwhile in Europe.. the only thing heard around is a permanent ban on “environmentally dangerous hydraulic fracturing”, even it has not started yet. Dunno whether our politicians are bought by Russians (from which we import the natural gas) or that stupid by themselves or they realize too clearly that fracking has potential to destroy their so-called “green” carbon-tax based dream.
The part about shipping a lot of our inexpensive natural gas overseas may not be as big an issue or opportunity as people think. First of all, it is quite expensive to liquefy, transport and vaporize the gas. The number I’ve heard is nearly $5 per million BTU which still makes sense with $3 per million BTU gas in the US and $12 per million BTU prices in Europe and the Pacific rim. What might slow that down a bit is that Europe and many Pacific rim countries have their own untapped shale gas reserves. (They seem to be located in regions with a lot of coal??) Who wants to invest in all the infrastructure, facilities and shipping to export LNG only to have the price of natural gas fall when the domestic sources come on line. If the price of unconventional gas in Europe, and the Pacific rim drops close to the cost of extraction and refining (~$6-7 per million BTU) then an export bonanza for north American gas could be very short lived. I suspect the energy corporations know this.
I just got a notice from the power company in Reno, Nevada that my natural gas price is being reduced about 9%.
Since Obama pledged that energy prices would skyrocket under his policies, I’ll assume this price reduction wasn’t his idea. And since it’s not his idea, it has to be a bad idea.
Natural gas isn’t economic for my car yet:
On the other hand, if the cost of gasoline doubles, converting a car to natural gas will be viable. http://www.popularmechanics.com/cars/how-to/maintenance/should-you-convert-your-car-to-natural-gas
This paper and the older Rand paper demonstrate that North America has a window of opportunity to actually take the lead role in the world’s oil and fuel supply. I’m not convinced that the energy density for LNG is fixed, but, we don’t need it, either. We just need to go get our hard oil. That combine with the traditional oil we have and North America can be the new OPEC.
Ric,
Like you for some reason I have been tracking the “California Natural Gas Prices sold to Electric Power Consumers” for a few years as I was interested in seeing how the price of natural gas was affecting the price I am paying for electricity from PG&E.
Year Avg price (1000 cubic feet)
2007 $6.79
2008 $8.34
2009 $4.43
2010 $5.01
2011 $4.90
2012 $3.32
When PG&E first filed their 2011 General Rate Case (GRC) with the CPUC a few years back they were requesting an 8.6% rate hike in residential rates to cover all their costs. This would of led to an AVERAGE price of $.199 kwh with a marginal price for average usage of $.35 kwh starting in 2011. Luckily for us rate payers the cost of Nat Gas has gone down at the same time as we have added in more RE to meet the 20%RES. The net effect was that the Average price for the residential market actually dropped a tad in 2011 to $.18299 kwh.
Matthew W says:
October 3, 2012 at 5:46 am
You do not have even a basic understanding of natural gas underground storage operations. The “old” gas you refer to is called “cushion gas”. It is compressed into the storage facility to a pressure above the maximum pressure of the pipeline into which the storage gas must be delivered. That gas is not removed from storage. The gas which is added to storage through the summer is referred to as “working gas”. It has the same cost as the gas the utility delivers to customers during the same period. Additional gas is consumed during the summer to compress the working gas into the storage facility, but that gas is treated as an operating cost, rather than as gas acquired for sale.
I understand that “picking on utilities” is fun. Regulators, legislators and the press do it all the time. In the case of legislators and the press, many of them are as ill-informed or uninformed as you are.
I spent some 4 years working on LNG tankers for El Paso Marine and Energy Transportation Corp. The ships carried 125,000 cubic meters at -160 deg. C. The liquefaction process consumes maybe ¼ to 1/3 of the energy of the product. One loading port was in Algeria where previously the gas was flared off. If there is no use for the gas then it is essentially “free”. Loading ports in Sumatra and Borneo were essentially the same.
LNG is fairly commonplace in the US, or at least it was when I went through training. Gas distribution utilities used small LNG liquefaction/gasification plants for “peak shaving”. We went on a tour of a Baltimore Gas and Electric facility. The plant liquefied gas when it was cheap and then used it during peak usage in the winter. We were told that the savings of just one day’s production in the winter would pay for the entire cost of the plant for one year. At the time, Boston used LNG for gas supply to neighborhoods. It was liquefied at a central facility and trucked around the city to local re-gasification plants.
The bottom line is that there is considerable experience with LNG.
Regards,
Steamboat Jack (Jon Jewett’s evil twin)
One of the prior problems of relying on Natural Gas has been consistent line pressures. A re-fuel could take five minutes or it can take an hour. Utah is one of the states which has numerous Natural Gas re-fuel stations. When there are multiple re-fuel stations, conversion to a dual use system (Natural Gas and Unleaded) makes sense. However, the cost is between 6 & 8 grand for the conversion.
The EPA allows the conversion but mandates that conversion must keep all ODBC2 functionality and sensors in place. Which is a good thing. There is a company which sells a at home Natural gas refuel station which hooks in to an existing Natural Gas line.
As Natural gas re-fuel stations appear and line pressure problems can be resolved, this can be a great daily use fuel for driving!
A few years ago my father ran a regular car converted to run on LNG in the UK. I think there was a government incentive scheme at the time [i.e. less prohibitive taxation], and he definitely considered it worth the conversion cost.
Filling stations were just about adequate, though not found everywhere, and it helped to locate them in advance for long journeys. It wasn’t much of a problem though, as it could be toggled between the two modes of operation while in motion just by flicking a switch.
Historical prices for energy are regularly published. Here is the site for NY state.
http://www.nyserda.ny.gov/Energy-Prices-Supplies-and-Weather-Data/Natural-Gas.aspx
The declines you note from 2007 are evident, but go a couple years further back and it’s a different story. So cheap NG energy now relative to high prices mid-decade. But more expensive than what we saw 10 years ago and through the 1990s.
@ur momisugly Ed Reid says:
October 3, 2012 at 7:06 am
Maybe you should read the tribune article.
This is a quote from the story.
“The utility isn’t supposed to tap old gas until the newer gas is gone. Some of its oldest stored gas dated to the 1950s.”
If you would read the article, maybe you would understand what the context is
And if the tribune story is not correct, you can contact them with your expert information.
To clarify for some
LPG, Liquid petroleum gas, propane or butane, liquifies under storage pressure and is used throughout South East Asia as bottle gas for domestic use and fuel for public cars, taxis and lorries. (Trucks for some)
LNG, Liquified natural gas, needs both pressure and temperature drop to liquify, thus is more difficult to handle. Is shipped internationally in LNG carriers of between 125,000 and 150,000 cubic metres capacity of liquified cooled gas. It is mostly correctly called termed Methane.
CNG, LNG without the cooling, new form of motor transport fuel, which is pressurized to minimize storage space but not chilled so remains a gas. As stated above it thus needs bigger and stronger tanks. It is now generally available in Thai petrol stations. Some Malaysian facilities offer it as well.
South East Asia has huge amounts of LPG And CNG vehicles of all types.
James Hamilton has some good info on NG for transportation.
http://www.econbrowser.com/archives/2012/10/natural_gas_for.html
@Michael Hart – A few years ago my father ran a regular car converted to run on LNG in the UK.
Are you sure it wasn’t LPG?
LNG (mainly methane) can only be stored as a liquid by keeping it at a temperature below its critical point of -161.5C, so it isn’t really suitable as a fuel for regular cars. You need a tank that is effectively a huge Thermos flask. As far as I know there are only about 10 public LNG refuelling facilities in the UK, and these are for long-distance trucks.
LPG (propane) on the other hand can be kept as a liquid by the application of a few atmospheres of pressure. LPG filling stations are quite common in the UK – there are around 1,500.
And CNG is another alternative – natural gas (mainly methane) compressed to 200 atmospheres or so – but again there are only 20 or so of these stations in the UK.
Apparently, most of the 7% reduction in CO2 emissions in the US in the recent past was due to natural gas power plants replacing coal fired units. Just a few years ago coal accounted for around 52% of electricity, but now is down to 32%, almost all of it replaced by natural has generators. The CO2 I’m not so concerned about, but coal does produce emissions that are more harmful than natural gas. I also read the comments of an industry observer who worries that this massive use of natural gas is shortsighted. Nuclear power is the obvious, but so far ignored (at least in this country) way to go for electricity (it’s cheaper than natural gas as well), and better and much cheaper batteries are just around the corner, I believe, which would eliminate the market for a natural gas vehicle. Attempting to switch to natural gas for transportation would be a big mistake down the road, I think.
[Don’t be too confident about new batteries. Pierre Gosselin has a post about electric cars with both an economist, Toyota, and commenters saying breakthroughs, at least adequate breakthroughs, are not in sight. See http://notrickszone.com/2012/09/29/no-future-in-sight-for-electric-cars-says-toyota-german-auto-economics-professor/ -Ric]
There are a number of cars available in Germany either after-market modified or directly from the factory (notably from Opel, GM’s european branch and Volkswagen) running on CNG or LPG as well as gasoline, for which they have smaller gas tanks as a fallback option. Volkswagen has some more plans for CNG engines, including a version that doesn’t offer reduced power when in CNG mode.
In BC two LNG plants are planned for Kitimat. Also in BC we get charged a carbon tax on our fuels, I think they mean a C02 tax, they get confused. Understandable as we have David Suzuki.
All of the post is true and welcomed, but… (there’s always a But Monkey) Very real concerns exist (at least in Northeastern USA) that the increasing reliance on natural gas-fired capacity above other fuel sources (e.g., coal) could expose commercial and industrial customers to an increased likelihood of supply curtailment. ISO New England, which manages the regional electric grid for a large portion of the Northeast, has been concerned to the point its included the reliance concerns and associated topics (e.g., other-fueled generation retirement, increased integration of variable resources or renewables, and resource performance and increased flexibility) in its Electric/Gas Operations Committee meetings – http://www.iso-ne.com/committees/comm_wkgrps/othr/egoc/index.html .
Gas-fired capacity (no duel fuel capability) in New England has jumped from 16,159 GWh in 2000 to 46,378 GWh in 2011 – a 290% increase – http://www.iso-ne.com/markets/hstdata/rpts/net_eng_peak_load_sorc/energy_peak_source.xls . Today, natural gas (as primary fuel) represents 53% of New England’s capacity and continues to increase. And of this percent, only 13% is duel-fueled with oil.
ISO New England’s concerns with this increased reliance are focused on (1) the obvious risks associated with reliance on natural-gas-only resources (i.e., placing all you power generation eggs in one basket) and (2) the response from electric generators when the gas supply is not available to meet system demand, (a) during periods of very high seasonal demand (winter) where supply to residential customers is prioritized, (b) under other stressed system conditions (e.g., a regional transmission pipeline dig-in), or (c) when facing incidents associated with larger natural gas supply/transportation system (e.g., an extra-regional decrease or loss of pipeline pressure due to equipment failure). In fact, studies with regional and multi-regional foci have been commissioned to review these concerns in depth – http://tinyurl.com/9rx7pcl (link to ISO New England presentation on gas studies).
Where new capacity from nuclear fuel has been essentially silenced for the past 30 years by environmental activism and new capacity from coal fuel has been demonized by environmental activism and regulated by the government to economic inefficiency, the only viable alternative for base load (because customers never want to pay more for their electric supply) is natural gas. Fluctuations in the price of oil over the past five years has essentially closed that market as an efficient fuel supply for power generation. But it doesn’t take a climate scientist to realize the increased risk associated with placing your regional power generation capacity into (primarily) one fuel basket, regardless of it’s cheap pricing.
Kent Beuchert says
Nuclear power is the obvious, but so far ignored (at least in this country)
Henry says
Are you serious? get out of here..
Note that Japan is now officially admitting that nuclear energy is not safe.
Apparently they have so many claims for clean-up costs that they have decided to halt all plans for new nuclear plants. Germany and Belgium and Holland have stopped using nuclear energy altogether.
They have also shelved all plans for new plants. \
These people are not stupid….
The world is currently still sitting with two enormous problems in Chernobyl and Fukushima.
Obviously, nobody of those still singing the praises of nuclear energy is prepared to volunteer to clean up the mess that we still have there. The 300 people that were involved in the encapsulation of Chernobyl, have all since died. And that job actually needs to be re-done, but the government in the Ukraine does not have the money for it. Can you believe that? How much can it cost if a whole country cannot pay for it?
I therefore would like to add my voice to that of Greenpeace and others who are opposed to
nuclear energy!!!
HenryP says:
October 3, 2012 at 9:15 am (Edit)
Kent Beuchert says
Nuclear power is the obvious, but so far ignored (at least in this country)
Henry says
Are you serious? get out of here..
———————————————————————————————————
You are incorrect regarding deaths from Chernobyl . .
http://en.wikipedia.org/wiki/Chernobyl_disaster
There is no lingering radiation danger from Fukushima and it is now thought that there was no need to frighten the people around it as the escaped radiation levels were very low, less than the background radiation in some parts of the world.
As for abandoning nuclear power the Japanese government seems to not agree with you . .
http://fukushimaupdate.com/japan-backpedals-on-no-nukes-policy/
If you had read the threads here on WUWT at the time you would have seen a number of nuclear experts commenting on the radiation levels and the hydrogen explosions. The fear over nuclear power is largely irrational and certainly over hyped by the media. Considering that Fukushima was overwhelmed by a natural disaster larger and more destructive than it was designed for without causing any deaths or property destruction beyond that experienced at the plant I would say the nuclear power held up extremely well.