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:
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.