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.
Henry P, we’re going to need a better resource regarding the Chernobyl workers. I found
Read more: http://wiki.answers.com/Q/What_happened_to_Chernobyl_employees#ixzz28Frz7EqJ
This is considerably different than stating the 300 workers involved in the encapsulation died. Way too cherry picked of a number. You’re trying to indicate everyone involved died. No such luck. The same is true stating the country cannot pay for the clean up. The Ukraine was a republic of the Soviet Union during the disaster, and the Soviet Union chose not to pay for clean up. Rather, it was cheaper to abandon the town.
Was Chernobyl terrible? Yes. As bad the cherry picked numbers indicate? No.
Also, Chernobyl was a bureaucratic mistake in that someone who was not knowledgeable or experienced tried to play scientist.
Germany made a pledge to stop but has had to change that pledge since Wind and Solar aren’t so reliable.
Go sell alarmism somewhere else, we’re all stocked up on crazy here.
Keithab says
(quoting from wikipedia)
The battle to contain the contamination and avert a greater catastrophe ultimately involved over 500,000 workers and cost an estimated 18 billion rubles. The official Soviet casualty count of 31 deaths has been disputed, and long-term effects such as cancers and deformities are still being accounted for.
Henry says
obviously the people involved in the encapsulation did not die all at once. It took some which did not get “recorded’. Many more in the area have died since, mostly of “natural” causes/ do you honestly you believe that? either way 31 people is not enough for you? it could have been you, you know.
The problem with Japan is that they have little or no other alternative but to go back at that (awful) nuclear energy/ they have no other source for energy?
If you knew me you would know I don’t care too much about the experts. They never look at the right variable….
http://wattsupwiththat.com/2012/10/03/cheap-natural-gas-but-wait-theres-more/#comment-1099667
But I am so glad to hear that you have the money for the Ukraine to re-encapsulate and to help them get on with the job.
RHS says:
October 3, 2012 at 9:55 am (Edit) . .
—————————————————————
Even the 4000 deaths is incorrect. My understanding is that the expected 4000 deaths have not been realised and all but a handful of the thyroid cancers were treated and cured.
The expected/predicted horrors of Chernobyl were grossly exaggerated by the media and the anti nuclear lobby.
Henry says
eh eh eh
I was only talking about 300
KeithAb says 31
RHS says 4000
shall we say it was just 1 and that was 1 too many
because that person could have been you?
no more nuclear energy please…
HenryP says:
October 3, 2012 at 9:15 am
You need to inform yourself a little better: Holland had two nuclear plants, the smallest one was decomissioned a few years ago (as a test case for full decomissioning of such a plant back to a “green field”). The other one is still going strong (but only delivers 1% of total power in The Netherlands). Belgium still has 51% of all power from nuclear plants (third highest in the world after France and South Korea). There are official plans to shut them all down after their useful life and not replace them, the oldest first, but I will see if that really will happen, as there are no alternatives in the pipeline. The oldest ones are already beyond their “best before” date, and some currently need repair and an upgrade to get in order with the “stress tests” of the EU, but the government receives a lot of money (the “nuclear yield”) from the utilities company because the plants are allowed to go on longer than designed for. Since they need a lot of money, I don’t think that there will be much incentive to stop with nuclear power, except for two of the oldest plants…
Henry P says (and others have commented as well):
“The 300 people that were involved in the encapsulation of Chernobyl, have all since died.“
An Impressive number is presented but it is without support. According to a 2005 UN report on the Chernobyl , which built upon work from an earlier 200 UN report on the same, of the about 1,000 people involved in the initial response to the disaster and subsequent encapsulation, only 28 died from acute radiation syndrome (ARS) – http://www.iaea.org/Publications/Booklets/Chernobyl/chernobyl.pdf . In the intervening years (up to 2004), another 19 people died but not all of these were directly attributed to radiation exposure. So, there were about 1,000 people involved (not 300) and of these 47 have died of causes likely linked to the Chernobyl incident.
Now, let’s look at this statement, “I therefore would like to add my voice to that of Greenpeace and others who are opposed to nuclear energy!!!”
Greenpeace was very upset at the 2005 UN report mentioned above. The UN story failed to match their earlier and wildly high fatality numbers, which were well north of 100,000. Greenpeace needed more fear, if only for its motivational abilities. As a result, it released its own Chernobyl report in 2006, which placed the number of Chernobyl-related deaths at a markedly lower yet still wildly high (in comparison to the UN report) 4,000 – http://www.greenpeace.org/international/Global/international/planet-2/report/2006/4/chernobylhealthreport.pdf .
I mentioned environmental activism or environmentalism in a previous post. This “ism” uses our monkey brain (the limbic system where emotion resides and not to be confused with the lizard brain or brainstem/cerebellum) to process. On the other hand, skepticism (yes, yet another ism) requires use of the brain’s executive control (cerebral cortex) to apply reason in the processing of the emotional. Now, which portion (monkey brain or executive control) is being used more when someone proclaims boldly, “I therefore would like to add my voice to that of Greenpeace and others who are opposed to nuclear energy,” …?
Enough said there. And as for anything “wiki” as a reference source, don’t trust it complicity – ever.
I am finding that this comment has not been posted…
Keithab says
(quoting from wikipedia)
The battle to contain the contamination and avert a greater catastrophe ultimately involved over 500,000 workers and cost an estimated 18 billion rubles. The official Soviet casualty count of 31 deaths has been disputed, and long-term effects such as cancers and deformities are still being accounted for.
Henry says
obviously the people involved in the encapsulation did not die all at once. It took some which did not get “recorded’. Many more in the area have died since, mostly of “natural” causes/ do you honestly you believe that? either way 31 people is not enough for you? it could have been you, you know.
The problem with Japan is that they have little or no other alternative but to go back at that (awful) nuclear energy/ they have no other source for energy?
If you knew me you would know I don’t care too much about the experts. They never look at the right variable….
http://wattsupwiththat.com/2012/10/03/cheap-natural-gas-but-wait-theres-more/#comment-1099667
But I am so glad to hear that you have the money for the Ukraine to re-encapsulate and to help them get on with the job.
Tom Murphy says
Enough said there. And as for anything “wiki” as a reference source, don’t trust it complicity – ever.
hnery says
I know. This is where we agree. But nuclear energy is really a big NO-NO
believe me. trust me.
Ferdinand Enegelbeen says
The other one is still going strong (but only delivers 1% of total power in The Netherlands).
Henry says
If you are referring to Borselen
it was recently on the NOS news that it was declared not safe
NO MORE NUCLEAR ENERGY PLEASE
Ric;
The Gosselin article ignores the only competent and “all-in” EV company in the world, the US’ own TeslaMotors. Its vehicles are a decade more advanced than any of the token kluges put out by the ICE (Internal Combustion Engine) companies. It has just announced inauguration of a FREE transcontinental highway charge station network (thru arrangement with a sister company, Solar City, that will install arrays at suitable stations to sell back to the utilities more power than the units in the n/w could draw running flat-out ’round the clock, all year.)
Its Model S and X seat 5-7, get 200-300 miles range, and are exquisitely engineered and finished. S deliveries have begun, and about 13,000 are pre-sold, rising rapidly. Gosselin is seriously selective, or uninformed.
And they go like bats out of hell; one ex-Air Force jockey said he hadn’t experienced the like since the last time he fired up a jet’s afterburners.
[Germany’s plan was to get one million electric cars on the road. While 1.3% is a start, it’s quite a ways to get to one million, especially when the selling price is US $50 – $100,000. I have a long commute in New Hampshire, perhaps if I saw one some day I’d be more impressed. -Ric]
Brian H says:
“The Gosselin article ignores the only competent and “all-in” EV company in the world, the US’ own TeslaMotors.”
It ignores Tesla probably because it’s very wise to do so – http://jalopnik.com/5887265/tesla-motors-devastating-design-problem . If you let the battery discharge fully on a Tesla (intentional or not), the battery needs to be replaced. And unlike a $2 9-Volt battery, the Tesla’s battery pack costs about $40,000 (without any discounts applied). Oh, and the battery replacement is neither covered under warranty by Tesla (for any circumstances) nor insurable for loss.
So, buyer beware here!
Re: Ed Reid (first comment): “US EPA has not yet decided how it will regulate fracking to frustrate production and increase costs, but give them time.”
I would submit that the new regulations have been written and will be published somewhere between Election Day and the end of the year – regardless of the outcome of the election. And they are carefully crafted to ensure that a well enhancement technique used for over 60 years will no longer be used in this nation.
Regarding HenryP: Leave us not feed the anti-nuclear troll. Cheers –
This will upset the green brigade!
http://www.bbc.co.uk/news/uk-13592652
AGIMARC SAYS
Regarding HenryP: Leave us not feed the anti-nuclear troll.
Henry says
let us not trust agimarc with our life,
shall we?
Utilities offering a “Fixed Price Option (FPO) lock-in price”, are a sure sign that prices will fall further.
[Not when it is an annual program. – Ric]
@HenryP
More Nuclear Energy, please.
See “The Health Hazards of NOT Going Nuclear”, Petr Beckmann, 1977 (yes, thirty-five years ago).
http://www.amazon.com/The-Health-Hazards-Going-Nuclear/dp/0911762175
Wake up. I don’t want more nuclear.
[You’ve made your point. Multiple times. You’re entitled to your opinion, you don’t need to chant it. The title of this post makes it clear the topic is primarily natural gas, and I believe I made no mention of nuclear energy. Please get back on topic.
Personally, I’d rather live next to a nuclear power plant than a LNG plant, coal plant, down stream of a hydroelectric dam, and many other power generation facilities. I’ll grant you that Chernobyl’s graphite block reactor with many safety devices disabled to do some low power testing proved to be a bad combination, I don’t believe any power plants use that design today, at least not in Europe or the Americas. I don’t want more of those either. -Ric]
HenryP says:
October 3, 2012 at 12:38 pm (Edit)
Wake up. I don’t want more nuclear.
——————————————————-
Well Henry I think we get it that you don’t want nuclear but it doesn’t seem to be a rational position from where some of us are sitting. I for one am of the opinion that cheap and ubiquitous electrical energy will save a lot of the natural habitat of our Earth and nuclear seems to be the least destructive way to achieve that.
However let’s agree to draw a line under this debate for now as it seems to be a bit liturgical and after all that’s just built on opinions.
HenryP says:
October 3, 2012 at 10:39 am
If you are referring to Borselen
it was recently on the NOS news that it was declared not safe
Quite an accusation… Of course the Borssele nuclear plant is safe, or it would have been closed a long time ago. But the EU “stress test” has shown that the plant is not safe enough to survive a Fukushima size tsunami, neither a similar magnitude earthquake. The latter is very unlikely to occur in the Western part of The Netherlands (no known earth faults in the neighbourhood), but you never know for a tsunami: if Iceland splits around the continental plates and some big chunk gives a huge wave towards Northern Europe (this is a quite unrealistic scenario, but a similar, more realistic scenario may occur at one of the Azores islands, that would be a disaster for the US coastal cities).
If that was the case, about 2/3rd of The Netherlands would be flooded, probably killing some 10 million people. Something of another order than the flooding of a nuclear plant…
The same for Fukushima: the tsunami killed 25,000 people, because the government allowed those people to build and live in a tsunami prone area. The same government allowed to build a nuclear plant there, which killed nobody and probably nobody in the future. Everybody blames the government (and the company) for the nuclear disaster by not foreseeing the size of the earthquake and the tsunami. Nobody blames the government for allowing people to live (and die) in the same tsunami area…
BTW, to upgrade the power plant at Borssele conform the stress test standards will cost a lot of money, but the productivity of a nuclear plant is so high that this only represents a fraction of an eurocent per kWh of production…
In the USA, we had the “Pickens’ Plan” to convert diesel trucks to LNG (more correctly, to replace diesel trucks with LNG-powered trucks) and replace natural gas power plants with windmills.
Critics realize the primary purpose of the Pickens Plan is to enrich T. Boone Pickens’ pocket. It is fraught with bad ideas — taxpayers subsidizing the purchase of LNG power trucks and taxpayers subsidizing the purchase of electricity from Pickens’ wind farms and no real purpose, as we actually have plenty of oil for diesel in the USA, if only our regulators would get out of the way and let us harvest it. Canada has plenty of oil they would like to sell us as well, if only we get the KeyStone pipleline built.
That doesn’t mean LNG-powered truck and cars are a bad idea, but there is no real reason for this exercise in central planning and the taxpayer funding of this scheme.
Often overlooked is gas-to-liquid conversion for fueling our passenger cars and light trucks. If I understand correctly, natural gas can be converted to liquid fuel which can run in conventional gasoline engines without the costly conversion needed to burn LNG.
Matthew W asks above “They are still holding gas that was taken in the 1950′s?????” Ed Reid confuses the issue by responding about storage and pressure. The physical gas is irrelevant. The gas is, for all intents and purposes, co-mingled. With the exception of a few isolated back-up storage facilities, you can not point to a particular cubic foot of gas and say that “this came from X.” The issue described in the article is purely a bookkeeping/inventory issue.
Bookkeepers match cost of inventory against the price of their resulting product to calculate profit. When inventory is received over multiple periods of time and consumed at a different rate, bookkeepers have several choices in how they will account for the inventory. The most common choices are FIFO (First-In, First-Out) and LIFO (Last-In, First-Out).
A simple example:
In January, you buy 10 units of inventory at $1 each and sell no product.
In February, you buy 10 more units of inventory at $2 each and sell 15 units of product for $3 each. At the end of February, you have 5 units left in inventory. You’re taxed on profits and, depending on jurisdiction, you may be taxed (at a different rate) on inventory. How much did you make and how much is your remaining inventory worth?
Under FIFO, you count off the first 10 units bought in Jan plus 5 units bought in Feb for total cost of $20 and profit of $25. Your remaining inventory is worth $10.
Under LIFO, you count off the last 10 units bought in Feb plus 5 from Jan for total cost of $25, profit of $20 and remaining inventory worth $5.
Neither FIFO or LIFO is automatically correct. In theory, FIFO keeps your inventory value closer to “replacement cost” which is useful for some business decisions. LIFO, on the other hand, keeps your profit closer to “expected future rates” which is better for other business decisions. And you can get much more complicated with “reset-to-market”, various averaging schemes, etc. GAAP (generally accepted accounting principles) allows any of those algorithms for inventory accounting.
The one thing that you are supposed to do (which appears not to have been done based on the description above) is to stay consistent in your accounting treatment of inventory. If you start with FIFO, you stay with FIFO.
So, no, the gas was not pulled out of the ground in the 1950s. But they have had a rolling inventory balance since the 1950s so there could easily be unconsumed inventory valuations still on the books from then.
Sorry – typo in the first sentence of the second paragraph. “to calculate product” should have been “to calculate profit”.
[Fixed -Ric]
There are hugh geopolitical ramifications to this as well. Here is an article about Russia freaking out over their potential loss of power and prestige.
http://www.newsvine.com/_news/2012/09/30/14159669-next-cold-war-gas-drilling-boom-rattles-russia
Less than a decade ago natural gas prices were high enough to trigger significant LNG imports into the country. Here in Louisiana, major companies applied for permits to have the huge tankers tie up to facilities significantly offshore that would use the wamth of the Gulf waters to warm the gas so it could be transported onshore in pipelines. Some environmentalists squawed about that process giving minnows a cold, so the permits were denied. Today we are EXPORTING LNG out of Louisiana to foreign countries where natural gas prices are much higher than here. If we do not take advantage of the tremendous economic opportunities that shale oil and gas are giving us, shame on us…DJ
@Kelvin Potter Vaughan:
That Deltic ‘out of retirement’ is a beauty! https://en.wikipedia.org/wiki/Napier_Deltic
has a nice animation of the design. Three crank shafts with 6 pistons and no heads in a bank ( a delta shape). Multiple banks. More HP/ volume than most things from that era.
FWIW, we’ve made natural gas Rail Engines from time to time. Usually a conversion of a Diesel. Direct injection in some cases (though it is possible to just valve natural gas into the air intake up to about 3/4 power and use the Diesel injection as a kind of spark plug for modestly low compression Diesels. I’ve run mine on propane / LPG that way. )
Natural gas rail engine tender:
http://www.energyconversions.com/tender.htm
New “development”:
http://www.ngvglobal.com/westport-and-emd-to-develop-natural-gas-fuel-system-for-rail-locomotives-1202
That are recapitulating history:
http://qstation.org/BN_LNG/
Peru doing Natural Gas too:
http://www.iadb.org/idbamerica/index.cfm?thisid=3757
This one covers the Peru train but also the Napa Valley Wine Train ( with discussion of dual fuel ability to run on what’s available)
http://www.lngplants.com/Locomotives.html
India too:
http://www.hindustantimes.com/India-news/Mumbai/Railways-to-replace-diesel-with-natural-gas-to-reduce-cost/Article1-746706.aspx
See a pattern here?
The really interesting thing to realize is that the heavy haulage that depends on Diesel Engines can relatively easily be converted to Natural Gas instead. From trucks to trains to ships. This makes natural gas a direct threat to oil demand on a very large scale.
This matters.
Talking to E&P folks, they expect oil to also drop over the next few years as the US gets more shale oil wells in production. Some claim that if the government does not get in the way, we could eliminate imports other than from Canada.
Also, aside from the LIFO / FIFO issues, my experience (limited) with buying and selling storage facilities suggests with some facilities no one really knows how much gas is in the facility or how much can be pulled out in total.