Thursday, July 26, 2012
Natural Gas Prices Headed to $8+?
The article excerpted and linked below argues we are headed to $8+ natural gas. The > $2.00 per unit prices from the spring are being driven higher by a number of factors, not the least of which is a full 32% of our electricity is now being generated by natural gas fired power plants, the same percentage as those fired by coal.
The article contains a lot of very interesting information and I encourage you to read the whole thing. Hat tip to Andrew Abernathy in Arizona, the author of the very interesting My Strings Blog. An excerpt follows:
The British Thermal Unit (btu) equivalent of one barrel of oil equals six thousand cubic feet of natural gas. Therefore if gas at $3.00 per mcf were to be at energy parity with oil, then oil would sell for $18.00. But WTI sells at $90 bbl. So gas must get more expensive or oil will get cheaper. As the gas rig count dwindles and evidence mounts that at least some of the shale plays are depleting much faster than projected, the result has been the aforementioned much lower than normal stockpile injection rates. With the disparity between oil and gas prices at such extremes, all available capital will continue to flow into drilling for gas liquids and oil. Some of the remaining dry gas drilling is probably just to maintain lease rights. Newton’s 3rd Law of Thermodynamics says for every action there is an equal and opposite reaction. Natural Gas at $13.28 is too high and the April price of $1.89 is too low. The rubber band is becoming stretched in the direction of tight supply. It’s too cheap to drill for, so supplies will further dwindle until inexorably the shortage occurs and prices spike irrationally higher. That time is sooner than later.
Link to the Article
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