1. Well, that was interesting, wasn’t it? Stay tuned, I suppose.

    I think it’s well worth the investigation toward 1 aspect of what Rod noted above in the exchange. Unlike other commodities: frozen orange juice, oil, diesel, soy beans, gas is simply is only a globally trade commodity, like the above ones, outside the U.S. Given the huge limitations in LNG production facilities in in the U.S. and Canada, it’s geographic isolation by way of pipeline from the rest of the world, and the lack the LNG *import* facilities in the U.S., the market for gas can reflect the true supply and demand originating and limited to this continent.

    Rod noted that there is/will be a rush to build LNG export facilities in the U.S. They fought as hard as people fight against nuclear, I might add. But the natural gas suppliers…the Big Gas companies (not to mention the smaller, middle-level players) are pushing big time for this to happen so they can “play” in the world market, something they are physically unable to do so…for now.

    The only way, IMveryHO, that Rod’s 2014 price-per-mmbtu can get to $10 is if this occurs…or seriously starts to occur. So what I’d like to suggest Rod do is to point his investigative “gasdar” (gas radar) toward current legislation and regulatory changes that could lessen the restrictions on LNG facilities and to let us know what is being proposed.


      1. Excellent! Exactly. So we have to pay attention to this. It’s a lobby effort no doubt that has been flying under the radar…gasdar…for some time though it is hiding in plain site.


  2. I forgot…

    Look at the rise in diesel prices. Historically they were below gasoline prices by 1 to 10%. Now it’s reversed. Guess why? The US exports about half of all diesel produced in U.S. oil refineries to Europe, where most vehicles run on it, and where diesel refining plant is maxed out.

    The vast export of diesel (often listed in lists as “petroleum exports from the U.S.”) industry servers two purposes. It makes billions in profits for the big players and…by devoting so much oil refining capacity toward diesel from gasoline, it artificially keeps gasoline prices higher than they would be.

    Gotta love commodity capitalism.


  3. I’ve been told that historically, the refining process was pretty simple distillation, and first the gasoline came out and then the diesel. So diesel was the ‘leftovers.’ But nowadays, the Chem E’s have figured out how to turn the crude into whatever hydrocarbons you want – so they decide how much of the barrel goes to make gasoline and how much goes to make diesel. Since diesel has a higher energy content, it is worth more, and sells for a higher price.

    Don’t know if that’s true, but that’s how I heard it from a petroleum engineer.

  4. Rod: When he said this: ‘six hundred year supply’ it was time to stop wasting time with him. The short answer to the question at the top? Speculation. Also, I don’t think NG will ever be exported significantly. The price will rise to the cost of production, and all the new NG plants (taking the place of coal) will be taking the gas we can produce. There are a lot of interesting discussions by some knowledgeable folks on ‘The Oil Drum’. It’s not a bad scenario. The gas plants are killing coal. When gas goes up in price, nuclear will look very attractive (assuming Vogtle and Summer get built on time and on budget). We can keep the gas plants for peaking.

    1. Some other odd claims:

      Kenneth ll: “Also, in North Dakota more Natural Gas is being flared off than is being used in the rest off the country …”

      “About 5 trillion cubic feet (b.c.f.) of natural gas were flared or vented without burning worldwide last year. That huge amount of wasted energy is roughly equal to a quarter of all natural gas consumed in the US annually, the World Bank reports.” http://www.csmonitor.com/Environment/2012/0713/Thanks-to-North-Dakota-US-waste-of-natural-gas-grows-rapidly

      “The good news for gas production in North Dakota is that it is increasing rapidly, reaching an all-time high 21.3 Bcf, or almost 688,000 Mcf/d, in May.
      The bad news is that more than 30% of the gas produced in the state is being flared, …” http://www.platts.com/RSSFeedDetailedNews/RSSFeed/NaturalGas/6533725

      Kenneth ll: “… the per unit MCF production cost for a frac well can range from $0.05 to $0.45, and the production cost for a straight bore hole well generally recognized at $2.50.”

      My understanding is that fracked gas costs about $6 to produce, which is why nobody who doesn’t have to is still drilling gas wells (as opposed to oil wells that also produce gas).

  5. I wish it were possible for Dominion to put Kewaunee in some sort of a cold layup condition, to be brought back on-line when the economics of running the plant are more favorable. But they would need to keep the highly trained staff on site, which would be expensive if they didn’t know how long it will be before power prices are high enough to make Kewaunee profitable again. It is a shame no other power companies are stepping up to buy the plant.

    1. It would be possible except Dominion would also have to pay the NRC to write new rules for having a reactor in an extended layup condition until business conditions warranted bringing it back on-line. At the going rate of $274 per hour for NRC review time it just isn’t the plant staff that would have to be paid. It is also the NRC itself that would need to be paid for as long as the reactor would remain offline.

      So once again we are presented with a situation where the solution is relatively simple but the bureaucracy will not permit it.

      In other words trying to keep a reactor in cold layup is a high impact risk event for a publically traded company due to a unquantifiable cost factor. Which is not good for the ratepayers in Wisconsin and elsewhere.

  6. Good Morning Rod,

    Lindsey’s comments about the abundance of natural gas have some merit.
    I’ve been in the nuclear industry since 1979.
    But several things did bother me about the comments.
    #1 Storage Capacity was almost reached in 2011.
    #2 Prices did drop to less than 1/4 of the world spot price for LNG
    #3 Cheniere is the only company with a permit to export
    #4 Cheniere will have their export port ready by 2015
    #5 World prices are still 3 to 4 times US prices
    #6 Cut backs in LNG production have maintained the $3.50
    Major producers shut down wells to maintain price demands.
    The Texas oil patch stopped, and Texans clearly said, “No more oil until the price reaches above $60/barrel.”
    Now, not only oil, but natural gas wells are being cut back. Why?
    There are 9 more export permits sitting on someone’s desk, and have been sitting there for several years, waiting to be signed. Why?
    When you’re able to own the product, and control the distribution, you can set the demand price.
    Coal is being thrown under the bus, and to some extent oil as well, for electric production.
    Remember the arguments the Russians used to convince the Germans after Fukashima?
    “Nuclear is bad. Shut them down. We have natural gas for your turbines. We’ll supply your gas needs at a reasonable price.”
    The plan seems very simple. Shutdown the coal, oil, and nukes. Generate using natural gas as the primary baseload.
    I believe (even by your calculations of 89 years) we have the natural gas reserves. I also believe the price is being maintained for a reason. Greed!
    Thanks Rod

  7. Here’s an article you will find interesting, Rod,


    Note the sensitivity of gas prices to nuclear output, and the fact that $8 gas was just seen in New England.

    Of all Llindsey’s arguments, I found the stuff about gas produced from oil wells to be most (potentially) compelling.

    In a recent post at the ANS Nuclear Cafe, I listed four reasons why current low gas prices won’t last. They are 1) the fact that oil costs ~6 times what gas does on an energy equivalent basis, 2) the fact that gas sells for ~3-4 times the US price in most of the rest of the world, 3) the high sensitivity of gas prices to the supply/demand balance, resulting in a large price increase when the economy (finally) grows, and 4) the fact that fracked gas costs far more to produce than the current price.

    If Llindsey’s right about there being little gas-only drilling, and it were true that by product gas (from oil drilling) by itself were enough to maintain glut conditions, then it would take out my 4th argument, at least, and it may be possible for low gas prices to persist. I’m not sure if those premises are true, however.

    Another argument that has some merit is that it will probably take a long time for the US to build significant gas export capacity (LNG terminals, etc…).

  8. Rod,
    Thanks for the discourse on Wall Street. I think the price for natural gas will go up and hit $10/MMBtu even sooner, depending on weather conditions or any other potential disruptions, eg pipeline failure in one region. Prices drove the production of new wells to lows. I’m having some trouble finding the graph I’m looking for. It used to be an EIA publication, monthly new gas wells. Seems information about how gas is produced needs to be shrouded in secrecy due to “budget cuts”.

    I saw a presentation at Coal Gen where they showed the number of new wells along with the gas price. More wells are closing than are opening. And have been for some time, the only new gas wells are this that produce liquids. Here is a historic graph from EIA that ends in 2010 of the number of wells:

    Here is a Reuters article putting natural gas rig counts at a 13 year low. http://www.reuters.com/article/2012/10/19/us-energy-natgas-rigs-idUSBRE89I13Q20121019

    Using some second order modeling, predator prey type relationships, the price signals to expand rigs need to occur before we get more rigs. If hub gas price needs to be $6/MMBtu then no new wells will come until hat market price is cleared. Because it takes finite time to drill new wells the price will overshoot, by a non trivial amount as stored gas is depleted and not replaced. I’m just waiting for when that price shock will hit.

Comments are closed.

Recent Comments from our Readers

  1. Avatar
  2. Avatar
  3. Avatar
  4. Avatar
  5. Avatar

Similar Posts