Cheap Natural Gas Heralds an Energy Revolution

American Thinker ^ | April 11, 2012 | S. Fred Singer

[neverdem]

All bets are off for the future of energy in the United States and, indeed, the world, as the price of natural gas plummets to ever-lower values -- thanks to the development of technology that can access gas and liquids trapped in hitherto inaccessible shale rocks. In 2011, shale gas accounted for a quarter of U.S. natural gas production. But this seemingly bright future may depend on a court decision (expected in June 2012) and, of course, on the outcome of the November elections.

The Economics of Natural Gas

Consider the history of natural gas prices just in the last few years. In mid-2008, the spot price (at Henry Hub) reached a peak of $13 per mcf (1,000 cubic feet, with a heat value of 1 million Btu -- denoted as 1 MMBTU) -- having doubled since mid-2007. Since then, the price has decreased sharply, dipping to $2 in mid-March, and it now stands at $2.30. If prices decline further, natural gas will be cheaper than the average steam coal, which up until now has been the lowest-cost fuel on a heat basis.

How realistic is such a price path? Operators drilling for gas are also extracting large quantities of natural gas liquids (NGL) as well as crude oil. As pointed out by Richard Trzupek, the profit potential lies in these liquids, as natural gas becomes simply a byproduct. It reminds me of the situation in the early 1970s, 40 years ago, when "associated gas" was so cheap, only pennies per mcf, that it was flared at the well-head. The problem then was the lack of pipelines to convey the gas to consumers in major cities.

Electric Power Generation

With the pipeline problem solved (at least in the Lower 48), consider the consequences...

[Wonder Warthog]

"My assertion is that “cheap” natural gas – which is actually only available in North America – is just a transitory condition caused by a perfect storm combination of factors that include a warm winter, a still struggling economy, drillers whose current cash flows are buttressed by oil revenues, and financially stressed landowners willing to to mortgage their future in return for some quick cash from frackers."

Ridiculous. Right now, the new tech is most widely used in the US, but I am sure that there are similar shale deposits in Europe and elsewhere which will be found and exploited. As to the other factors, they undoubtedly ACCELERATED the price drop(s), but the main driver has been and will continue to be the discovery of "new" gas.

[1010RD]

The EPA's proposed regulation sets allowed CO2 emission levels at 1,000 pounds/megawatt-hour, which would stop the building of new coal-fired power plants. In Virginia, Dominion Power is already building a 1,300-megawatt gas-fired plant. Of course, it is quite possible that the EPA will try to extend their regulation to include all coal-fired plants -- and then perhaps lower their arbitrary 1,000-lb limit to go after gas-fired plants -- part of an ill-advised campaign against all fossil fuels, based on pathological fears of imagined climate catastrophes.

That's the key here. The EPA's limits on so many issues are arbitrary and anti-science.

[CPT Clay]

Great Article!!!

[CPT Clay]

Ping

[SunkenCiv]

Thanks neverdem.