Gas is cheap!!!

At the time my writing this, natural gas futures are trading for $6.65 per cubic feet. Less than 3 months ago, the price had spiked upwards to more than $15, anticipating a cold winter. But fortunately for most Americans, their heating bills did not go up 400% as predicted during the turbulent days of Hurricanes. Instead, the prices declined due to an unusually mild winter. We may not be so lucky next winter.

Natural gas futures might continue to trade, in and around their current price for some more time, but not very long. Unlike a lot of people think, natural gas demand is not confined to the winter. Many electric power plants in the nation are powered by natural gas. People turn on their A/C during the summer causing spikes in electricity demand. Here in Californian we have gotten used to rolling black outs in the summer. There is no reason to believe that this coming summer is not going to stress the electric grid system.

Figure 1 – Source : hubbertpeak.com

Gulf of Mexico has experienced some active hurricane seasons over the last couple of years and if experts are to be believed, this could be another year of high hurricane activity. A repeat Hurricane Katrina or Rita could knock out much of the natural gas output from the Gulf of Mexico. Though most of the Natural gas consumed in the US is produced locally, we have become increasingly dependent on imports. US natural gas production peaked in 1972 at 21.4 TCFG. In 1998, US natural gas production was at 18.4 TCFG. US has been importing increasing quantities of natural gas to meet growing domestic demand. Canada has been the biggest source of our natural gas import . There are indications that natural gas production in Canada might have peaked already. Hence the natural gas situation in North America looks rather grim. The public aversion to building LNG facilities, has not been helping the situation.

Source: Dave Russum, Geo-Help, Inc. Calgary

Our neighbor to the north has been experiencing a boom, based on rising interest in vast amounts of hydrocarbons locked in Alberta's oil sands. Many of the ongoing projects are scheduled to start production over the next 1-3 years. Unlike conventional oil wells, crude mined from oil sands are heavy and highly viscous. Heavy oil needs to be converted to light synthetic crude before it can be transported through pipelines to refineries all around the world. The process of converting heavy oil to lighter crude is known as upgrading. This upgrading process uses large amounts of natural gas. Demand for natural gas from these oil sands projects are expected surge in the coming years.

On the other hand, there has been an increased interest in Ethanol, since the “Addicted to Oil” state of the Union speech by President Bush. This could lead to an increased demand for natural gas based petrochemicals used in agriculture. Whether Ethanol is the answer to our energy woes is a discussion for another time.

At current prices, natural gas is a great value.

© 2006 Oil Shock for TheViewFromThePeak.com