Is Big Oil using crude & gasoline profits to temporarily hold down natural gas prices?

The Huffington Post recently posted an article on July 29, 2011 titled Big Oil Companies Post Huge Profits On High Gas Prices that has apparently tapped a deep well of anger and emotion – it has already received more than 3,400 comments.

I can empathize with that anger; though I drive a small car that gets more than 42 miles per gallon and I have a good job, I wince every time I fill up. It costs more to fill the tank than it costs to take my wife out to dinner. I can imagine how painful it would be to be a small business owner who depends on a pickup truck to carry supplies to a job site. Maybe that is because in one of my previous lives, I ran a small factory that offered free delivery services to local customers using two F-150s that each got about 10 miles per gallon.

The weekly gasoline purchase for that little company was between 100 and 150 gallons. It was not an easy expense to take in the later part of the 1990s, when gasoline cost just a bit more than $1.00 per gallon, but it was a popular service for our customers. At today’s prices, that gasoline purchase would be the equivalent of hiring two or three additional entry-level machine operators. Construction workers, plumbers, and carpenters who are struggling with fewer hours already must be getting slammed as they try to find local work that can pay back the cost of getting to the job sites in their heavily laden trucks.

However, the generous profits being captured by selling high-priced crude and gasoline are also enabling multinational oil&gas companies to sabotage the nuclear renaissance by keeping natural gas prices seductively low enough to convince utility executives to defer and delay new nuclear power plant construction projects. That seduction extends to government policy makers who also believe the purchased press stories that claim that cheap natural gas is a “game changer” that can replace coal AND allow nuclear plants to be shutdown prematurely.

Heck, while they are at it, petroleum pushers are even trying to claim they can reduce our dependence on foreign oil by using natural gas as vehicle fuel – if their favorite politicians can convince already pinched taxpayers to give the oil&gas companies more money by building out the required fueling infrastructure.

However, I noticed while perusing some quarterly reports that several independent gas producers have reported a reduction in their natural gas output because of a shift to drilling in areas that are richer in liquids than in gas. I remain convinced that natural gas prices will soon rise at a rate that is substantially higher than predicted in the levelized cost models being used to claim that natural gas is a more cost effective choice for power plants than new nuclear power plants.

Here is a copy of the comment that I posted on the HuffPost article. I suspect that it will be buried soon over there, but it might encourage more comment here.

Never forget that the people who are pushing natural gas as a fuel for power plants are exactly the same people who are making obscene profits by selling oil and gasoline. Natural gas (CH4), otherwise known as methane, is a fossil fuel and a hydrocarbon that comes out of the same wells as crude oil, though there are some differences in the proportions of each component in all oil and gas producing formations.

My deeply held suspicion is that companies like Chevron and ExxonMobil – two of the largest natural gas producers in the United States – have purposely been over producing natural gas for the past several years in an effort to temporarily keep the prices low.

The reason for that is simple but not obvious – oil&gas companies have a long-term perspective. They have a strong financial incentive to do anything they can to derail the nuclear renaissance. Every reactor-year of delay that they can insert into the process of building new nuclear plants rewards them with another $400 million in revenue by selling a year’s worth of natural gas in replacement of what could have been produced by a nuclear plant.

Every nuclear plant that does not get built can be worth 60 years x $400 million/year or $24 billion to the oil&gas industry.

An old fashioned price war now can result in huge returns in the future – especially when the companies are making tens of billions in profit already.

Rod Adams
Publisher, Atomic Insights