s there any critical industrial material as bizarre as natural gas?
The stuff holds almost zero interest for the general public, for the same reason no one is interested in the sound of a washing machine. Both boring. Both ubiquitous. Natural gas isn’t even sold on Amazon. But forty-six percent of American homes use natural gas for heat, and surely more in Canada.
But consider the storm below the surface. Traders love it, because it is one of the most volatile commodities in existence, and volatility means trading profits. The volatility, at the slightest provocation, is almost unbelievable at times. The weather pattern shifts for three weeks out over a portion of the US and boom – the entire forward 18 months of prices can collapse or soar.
In the bigger picture though, natural gas today in North America trades at close to the same price it did a quarter century ago – not inflation adjusted, just the same old nominal dollar value, which is astonishing since global gas demand has increased by 60 percent in that time.
Natural gas is a critical fuel for much of the world, and usage is growing, particularly the relatively new field of LNG. According to the Global Gas Infrastructure Tracker website, which doesn’t even like the stuff, there are a total of 2,449 significant pipeline projects underway in the world for a total of 1.2 million kilometers (and that’s the big pipe, not the little straws that go to your house). There are 238 LNG import terminals and 189 export trains in development globally. One hundred and thirty countries either have natural gas systems or are constructing them.
Traders, consumers and businesses love the stuff even if they don’t say it often enough, while others loathe it because it is a ‘fossil fuel’. Natural gas is caught in an existential war whereby said opponents will do everything in their power to just make it go away (they really think they can). The Toronto Globe and Mail, “Canada’s news paper” (note to self: develop ethnocentric balloon head emoji, make millions), recently ran a pricelessly ludicrous opinion piece entitled ‘Natural gas is a dying commodity, and Canada needs to stop supporting it’. The article was written by one of those think tanks (International Institute for Sustainable Development) that produces nothing but ideological amplification, safely distanced from people that actually do stuff, and a mountain of impressive T4 income tax slips (latest fiscal year personnel/consultant expense: $33 million). There is no surprise that their team of political scientists would attack natural gas; their latest financials show that the Government of Canada granted them $40 million, a third of which is from climate activist/federal minister Guilbeault’s office. There’ll be no biting that little hand.
Many climate leadership icons of the world, the US, Canada, Western Europe, Japan… pretty much anyone that can, is building natural gas (LNG or non) infrastructure as fast as they can. Germany, home to the world’s most advanced green energy demolition derby, built an LNG import terminal in an astounding 5 months. Many that want to import LNG but weren’t able to last year because Europe hoovered up every molecule on the market are simply doing what it takes to attain energy security, and that can mean, lord tunderin’, coal. Pakistan is the most notable example – the country plans to quadruple coal fired power output and move away from gas only because it could not obtain it: “A shortage of natural gas, which accounts for over a third of the country’s power output, plunged large areas into hours of darkness last year.” The country’s energy minister went on, “We have some of the world’s most efficient regasified LNG-based power plants. But we don’t have the gas to run them.”
For those fortunate enough to line up LNG supplies, the ante is normally a 15-20 year contract.
To say that “natural gas is a dying commodity” takes either some world-class mental dishonesty, disturbingly blind faith in policy over reality, or some kind of “clouds hate me” philosophical stance on life.
Beyond the silly messaging looking to undermine natural gas though are some very powerful undercurrents that are shaping the world in ways most don’t consider, but they should.
Thanks to the shale revolution in the US and Canada, native natural gas production exploded onto a scene that couldn’t handle the excess, leading to persistently low prices. North America is turning into an LNG export powerhouse, but until that export capacity outpaces productive capability, natural gas prices in North America look set to remain far below global prices.
It is worth remembering how significant this scenario is for North America. Cheap natural gas is an industrial godsend, enabling many strata of industries and enterprises that simply would not exist without. In May of 2022, the head of the Western Equipment Dealers Association, said that the previous winter’s high natural gas prices were unsustainable for businesses that had to heat 30-40,000 square-foot shops. The 2021-22 winter of which he was discontented saw Henry Hub prices average $4.56/mmbtu – about a third of global prices, and a fraction of what the world was to face later that year.
The same article pointed out how the Industrial Energy Consumers of America, a trade group whose members include smelters, plastics and paper-goods makers, wanted the US to stop permitting new LNG export terminals because “The manufacturing sector cannot invest and create jobs without assurances that our natural gas and electricity prices will not be imperiled by excessive LNG exports.”
Those guys aren’t crazy. The US gas market is balanced on a knife edge. A change in next month’s forecast can create havoc in forward prices even up to several years out.
The rise of LNG is making things even more unstable. The Freeport LNG terminal had an 8 month outage due to an accident, removing 2 bcf/d of demand from the market (in a 100 bcf/d market); this single event caused a storage surplus in the US that has depressed natural gas prices ever since. All else being equal, the US natural gas storage scene would be in a deficit to the five year average as opposed to today’s surplus if Freeport hand not gone down, and both spot and futures prices would most likely be significantly higher. The Freeport outage probably knocked US natural gas prices down by at least $1/mmbtu for a period of 8 months, and actually probably much more. But even at that level, in a 100 bcf/d market, where 1 bcf is equal to 1 million mmbtus, the cost savings to US consumers totaled $100 million per day. (Of course, had the price stayed higher, we might have seen far more drilling, which may have caused a collapse as well, just a bit further down the road.)
That $100 million per day cost saving came out of the hide of North American natural gas producers selling into that market, and you’d think they wouldn’t like that one little bit. And they don’t. But gas producers have their own realities and game plans which don’t generally involve sacrificing any of their sales for the good of all other producers, as economically sensible as that strategy may be.
US producers find themselves in an odd situation. Every one of the large producers knows that they could cut production by 5 percent and double their profits; the market is that tightly balanced. Doing so would single handedly drive up NG prices substantially – just observe how the gas market goes ape over a change in weather forecast.
But driving up prices, even if it is in their own self interest, will mean a spike in production, because at sustained $4 US gas, the market becomes flooded. EQT president Toby Rice, the largest US gas producer (EQT, not Toby), says at a sustained $4/mmbtu natural gas price, the US could export 60 bcf/d of natural gas. Keep in mind that $4 gas is a fraction, anywhere from a third to ten percent of global LNG prices.29dk2902lhttps://boereport.com/29dk2902l.html
Mr. Rice may very well be correct, but glosses over the reality of natural gas prices: we will never see a sensible sustained price like $4, even though we may average it – we will see 2 and 8 and 3 and 9 and so on and so on.
On top of this, solution gas from oil plays like Permian us providing massive amounts of gas in itself. The Permian, primarily an oil field, produces more solution gas than the entire country of Canada. Permian solution gas, if a stand alone country, would be one of the world’s top five largest producers.
So who cares? Well, you all do. We all do. The goofballs that wrote the Globe & Mail article do, though they either won’t admit it or simply refuse to understand.
Natural gas is the bedrock of most economies, and cheap natural gas is a special elixir to North America. It is absolutely crucial to the level of industrial activity we enjoy. There is no substitute for the clean burning capability of the stuff. Wander into a typical big box store or more crucially try to wander into an industrial building that you won’t be allowed to because it is unsafe… drive around an industrial park and look at all the magnificent industrial activity that gives us the life we live. Now imagine those being heated by wood stoves. Or solar panels in dead of winter. Geothermal? Sure, if you plan on drilling into the earth’s mantle. And if you live on an appropriate acreage. And have enough money. I guess there’s always coal.
And that sums up a lot of the world’s population’s situation: If countries aren’t building LNG, it’s likely because they are building coal, as in the countries that Europe outbid for LNG last winter in a shocking me-first display of hydrocarbon-swilling (accompanied by fossil-fuel-subsidizing self-loathing?) hypocrisy.
There are storm clouds on the horizon. The drilling efficiency that these companies boast about relentlessly in IR presentations and every 90 days in conference calls consists to a large degree on drilling longer horizontal wells. Do the math on that one. Reservoirs are finite in size. If you increase the length of wells by another mile or two, you’re just draining the reservoir faster. One day we will see true sweet spot exhaustion, which is not a laughing matter when one considers that three fields – Appalachia, Haynesville and Permian – account for more than 70 percent of US gas production, and about a fifth of global production.
But for now, North America reigns supreme with respect to the world’s most coveted heating and industrial fuel. The US, Canada and Mexico remain more or less isolated from global natural gas prices for now, which brings incalculable benefits to North American businesses and citizens, a benefit that shouldn’t be taken for granted.
Energy conversations should be positive and, most of all, grounded in reality. Life depends on it. Find out more in “The End of Fossil Fuel Insanity” at Amazon.ca, Indigo.ca, or Amazon.com. Thanks!
Read more insightful analysis from Terry Etam here, or email Terry here.
Damn those Fracking low gas prices anyway
Don’t worry, Brandon will fix it!
He’s just been a little busy solving the wars in Ukraine, the Middle East and for Taiwan (a bit of a hangfire still!) And now that Gov. Gruesome has been officially anointed by Chairman-for-Life Xi as Brandon’s approved replacement, we can all look forward to the DemoKKKrat policies of foreverwars and Western economic suicide continuing unabated!
The Uni-party debate between DeSantis and Gruesome should make sense to everyone now!
I’ll have to watch that debate. It ought to be interesting. Gavin is a smooth distorter of the facts, so let’s see how Desantis handles it.
Yes, my local electric utility is saying its customers are going to get a price reduction because of lower natural gas prices.
There are storm clouds on the horizon.
So I guess enjoy it while it lasts.
A brilliant and lucid article. Thank you.
Where are the entrepreneurs here….
Check my numbers.
Take yourself an empty ‘oxy-aceletylene’ style gas bottle (get one that had plain compressed air in it, or Argon or CO₂)
As best I can tell they are good for 200Bar and contain about 60litres
Find yourself a little compressor and pump them up with Natural Gas from the supply coming into your house/home/cooker/hob/boiler/furnace
Simplicity itself to find an adapter valve/throttle that will fit your petrol engine car = same as an LPG conversion.
(My calcs and my fuel consumption figures) there will be enough energy in there (I see 430MJ) to get me about 150 miles
From one single steel flask that you see sitting around in garages/workshops everywhere.
Compare that to a Li-Ion battery
why is no-one doing that?
and vastly safer than Hydrogen could ever be.
Like this?
https://en.wikipedia.org/wiki/Natural_gas_vehicle
And nobody will do hydrogen for cars.
Or use a forklift bottle. and then exchange them or fill them at the pump.
A short Google search on “can I buy a compressed natural gas car?” says you can do exactly that.
Hello Peta,
I was wondering exactly the same things. In the U.K., about twenty or so years ago there was quite a surge in LPG conversions for cars but it seemed to just disappear. The only disadvantage was you lost some storgae space for the tank. You could still run on petrol if necessary so it seemed a good idea. Possibly the push for diesel cars and their better fuel efficiency killed it?
I am surprised, until your post, that it has not been pushed before, althgough the green blob would oppose it and rather have gas fuelled electric cars (In the U.K., other countries are different depending on their power station’s fuel that does the grid balancing)
Here in Argentina there are many (20%?) conversions of cars to run on compressed natural gas. The Service Stations have an area of the pumps labelled “GNC”, for Gas Natural Compressed. The downside is that the total distance on a filling is limited to around 150 kilometers, so they are city vehicles only. The adapted motors make a distinctive booming sound.
Relying upon commercial infrastructure generally makes more sense than trying to make a homemade system like Peta suggested.
It seems that energy costs could be reduced greatly in the UK if only fracking were allowed to occur.
The key to home systems is you avoid road use taxes and can refill at night, every night.
I had a CNG truck at work, City of Las Vegas, around 2005. I needed to fill it twice a week at one of only 2 points in the City. It also ran on gas.
I did use the Natural Gas, as management wanted, and clearly informed my “stupidvision” every time I had to spend the 40 minutes to an hour to travel to the filling location and fill up, taking 15 minutes or more once connected. This notice both for why production was reduced and virtue signaling of doing what they wanted.
I didn’t see much change in operation, just a little loss of hp, but a big loss of range. Running gas only was a once a week fill up. BUT I always had the gasoline backup so no range anxiety.
I had my 2000 Toyota Landcruiser 6cyl 4litre converted to dual fuel petrol / lpg.
The factory fitted reserve fuel tank was swapped for an 80 litre lp gas bottle.
Running on lpg used about 20% more litres than petrol for the same distance.
And a slight drop in oomph from the engine.
Still more economical than running on petrol only though.
Given that 1 gallon of gas is 121 MJ – 420 MJ will not get you anywhere remotely near 150 miles unless you are driving a motorcycle or a hybrid. In the case of the motorcycle, the bottle would have to go on a sidecar.
Using CNG in an ICE engine is very possible, but the engine does need to be significantly reworked. There are also large populations in the US that cannot be served by natural gas for transport fuel due to lack of pipelines – I’m looking at you, New England and California.
AND thank heaven that the loony left is stopping new pipelines and new construction connection to NG service so the rest of us have less competition for the NG we are producing.
Compression consumes energy and compressors rated to 200 Bar are expensive, and one had better make sure there is no air leakage on its suction side, i.e., doing this has its hazards.
Thirty years ago I started a company that ultimately located on the former Norton Air Force Base, California, sharing its HQ building with the San Bernardino Airport Authority. At that time, the California government was hugely into natural gas, and the SBAA had a number of CNG vehicles for official use. We were doing a project at NASA/Armstrong (nee Dryden) Flight Research Center, north of Edwards AFB, and SBAA helped us out with transportation by letting us use one of their 6 passenger vans for a small price. We always had to fill up once for the 170 mile round trip, at a California State CNG filling station roughly halfway along the route. It always scared the living daylights out of me. The van’s tanks were thin-walled steel lined, Kevlar over-wrapped jobs that held 6,000 psi. I had spent the previous decade working on development of the Peacekeeper and Small Mobile ICBMs, were Kevlar composite pressure vessels had been at the focus of my engineering existence. We rejected them for gas storage, due to NASA’s problems with Kevlar “static fatigue” in its pressure vessels – and reluctantly made them work as the cases for the Peacekeeper stages, because graphite hadn’t been perfected. Standing beside a Kevlar 6,000 psi tank of of perhaps three cubic feet volume, made by some commercial tank company (it might even have been Brunswick, yes, of bowling ball fame) always made me nervous. Years later, I was on an AIAA committee looking at a rash of CNG tank disasters in graphite-overwrapped bus cylinders. I never saw it go anywhere, but the tanks were made in China. I avoid any Chinese manufacture where safety is at stake.
My point is that even with a big, relatively lightweight composite overwrapped thigh-pressure tank, the van’s range was really limited. Secondarily, composite overwrapped tanks still make me nervous.
Meanwhile it’s pantomime day at Newcastle coal port with all their polypropylene kayaks-
Port of Newcastle blockaded as paddlers protest coal exports and lack of climate action (msn.com)
Lefties don’t do irony.
I had thought economic sabotage would be against some law or other. Australia has lots of laws and a nasty police force.
If only economic sabotage was against the law here in the US!! Then we could arrest most of our politicos for criminal conspiracy, strip them of their ill gotten gains and replace them with ones that actually work for the public good!
Hah! Like the Big Tech Nazis and the IC would ever let that happen!
Well as long as it’s just Albanese’s government that’s got it’s tail wedged into a crack it’s all good.
This, though, should be a warning to all governments that appeased or molly-coddled the ignorant muppets for whatever reason. If they’d educated the population on what was actually happening, not bought into the idiocy because everybody else was and actually made a stand, they would be in a far stronger position and with fewer of these ignorant muppets or wannabe communists to deal with. You reap what ye shall sow.
Just Stop Oil is reliant upon plastics, perhaps none more than polypropylene.
Story tip? Robert Bryce has another excellent article re: the lunacy in New England.
https://robertbryce.substack.com/p/bone-chilling?utm_source=post-email-title&publication_id=630873&post_id=139143266&utm_campaign=email-post-title&isFreemail=true&r=kv2ig&utm_medium=email
Cheap natural gas – Why so many European manufacturers that are heavily dependent on natural gas have moved to the Texas gulf coast
There is very little of this article that is accurate.
First of all – natural gas is not a favorite of traders. It is called the “Widow Maker’ because of the swings.
Secondly, natural gas does not trade at its ~2000 price. Natural gas prices prior to fracking were in the $4 to $6+ per mcf range vs. the $2 to $4 range today. A number of pure play natural gas producers, prominently McClendon of Chesapeake Energy, went bankrupt because of post-fracking natural gas prices. McClendon did not believe natural gas prices would fall and stay near $2/mcf. He was wrong because shale fracked oil is not “oil” from a non-fracked well; it is really NGLs (Natural Gas Liquids). These are basically the lightest gas/border portions of the hydrocarbon scale; methane (1x), ethane (2x), propane (3x) and butane (4x) are gases but pentane (5x) heptane (7x) octane (8x) etc are liquids with the scale going up to say, octa decane (18x). In practical terms, NGLs are fine for gasoline but you can’t cheaply make diesel from them – meaning shale fracking “oil” is really just gasoline parts with lots and lots of natural gas thrown off. Or in other words – natural gas production is highly impacted by oil/gasoline prices. If oil prices jump, the amount of natural gas from fracked “oil” wells jumps. At the fracking peak – 40% of US natural gas production was coming from fracked “oil” as basically free excess.
Third: exports. The article speaks of 60 bcf/day of LNG exports – this is maybe far future. Existing and already in progress LNG projects max out at 20 bcf/day by 2026. Pipeline exports are less than 7 bcf/day right now to Mexico. Worldwide, the LNG market is 500 bcm right now – 60 bcf/day is 623 bcm/year – i.e. no way, no how accurate.
4th: drilling. North Dakota/Bakken is looking at a massive natural gas glut due to pipeline+consumption bottlenecks in the 375 million cubic feet to 1 bcf per day – and this is because 2017 vintage natural gas wells are producing 4% MORE per well, overall. Compare this with 2017 vintage “oil” wells which are producing 17% less. Drilling is not going to be an issue if fracked natural gas wells are not declining like the “oil” ones.
Lastly: natural gas is extremely important but not for cooking/heating purposes. It is important because it is the base of the Green Revolution: cheap nitrogen fertilizer via the Haber Bosch process converting methane to ammonia. The impact of cutoff in Europe of most of Russian natural gas pipeline imports means the death of the nitrogen fertilizer industry in Europe.
Ammonia is also used for a lot of other things besides the 80% that is fertilizer. 10% is used for effectively clothing, for example. The Haber Bosch plants also throw off enormous amounts of CO2 – this CO2 is used for anything from beer carbonation to greenhouses.
NG IS extremely important to ME and my wife for cooking, we hate electric stoves and have LPG for cooking in our cabin. (And water heat and clothes dryer)
It also provides for heat in both of our houses.
And yes, our gas bill for the Vegas home is lower than it was 20 years ago.
The volatility of natural gas prices during 2022 and up to about March of this year was simply stunning in places. Any number of utilities are now clawing back money spent for fuel during that period, and asking for large (apprx. 20%) general rate increases fearing future run-up in price.
In three years time our balancing authority area will move dramatically away from coal and into natural gas. Then we will probably feel the full weight of price volatility. Back in the 1970s energy crisis we did not discriminate against fuel sources because we were short of supplies. We are repeating some of the same mistakes that led to shortages of energy then, but now declaring certain fuels out of bounds. Putting all the energy eggs in one basket…
In 15 years time natural gas will be phased out if the plans of so many utility IRPs come to fruition. Then what? Magic, that’s what.
“In three
yearstime our balancing authority area will move dramatically away from coal and into natural gas.”There fixed it for you.
So magic carpets around 2040?
This was an interesting article, but there was one important fact left out about LNG.
Liquefied natural gas (LNG) is usually shipped as a liquid at nearly atmospheric pressure but at a temperature of about -256 F (-160 C). Refrigeration is required (usually as cascaded steps, where a high-boiling refrigerant is vaporized to condense a lower-boiling refrigerant) to liquefy natural gas, and refrigeration requires compression, and a lot of power is required for the compressors in an LNG export terminal.
The need for compression increases the cost of exporting LNG well above the cost of drilling/fracking and purification of natural gas (removal of hydrogen sulfide and propane/butanes) for the domestic market.
In order for an LNG export terminal to be profitable, it has to sell LNG to the shippers at a high enough price to recuperate the cost of compression for the refrigeration process. The shipping companies operating the LNG tankers have to recuperate their costs (energy costs and paying the captains and crew members), and then the LNG importer overseas has to recuperate its own costs of re-warming and compressing the natural gas into a pipeline.
For this reason, LNG which was originally produced in the USA has to sell at a much higher price overseas than natural gas used domestically in the USA. This would be true for any country that produces more natural gas than its domestic demand.
Since an LNG export terminal costs billions of dollars to build, anyone contemplating building one has to be reasonably confident that prices of LNG in importing countries will be much higher than domestic prices for several years into the future, in order to recuperate their original investment.
Any sudden decrease in domestic natural gas supply (such as foolish restrictions on production by a government) could force LNG export terminals out of business, unless overseas prices increase accordingly.