Personally, I think that has some merit when looking at filling your heating oil or propane tank for the winter, but I'm not sure it does you any good on motor gasoline. The stations are quick to raise prices and slow to drop them based upon the spot wholesale markets.

 

Yeah, I think you're right on both counts.

 

Is the US more self sufficient in natural gas than oil? There seems to be a lot of ongoing drill activity across the West. I know that in the Four Corners area of Colorado, for example, the Ute Tribe, BP, and other gas companies were drilling one well per 640 acres just a few years ago, then it was lowered to one well per 320 acres, then 160 acres, and now it is one well every 80 acres and headed for 40.

 

The short answer is yes we are. The "gas bubble" has yet to burst and many of the LNG import facilities that had been planned and were thought to be absolutely positively 100% necessary to keep us from freezing in the dark are not being built due to lack of demand for the imported LNG.

 

There are wells on the land on all sides of my property, and I'm just hoping they don't decide to drill on my land. (I did get a free gas tap from Kinder Morgan when they sank a gas transfer pipe along one side of my property, so I am one of the few locals who has natural gas instead of a propane tank.)

 

We filled our oil tank today. I fill at half tank....we've now spent $600.00 on oil since the fall, and we have at least two full months of winter weather to go.

I don't know how people on fixed incomes are getting by.


Martha knows a lot more about oil than I do. All I know is that it costs too much.

 

From my experience, natural gas prices (and consumption) are very much a function of the economy. LNG facilities need about $8/MBTU to break even (at least the last time I looked closely at it 2 years ago). If we are heading into a recession, natural gas prices may not consistently be above the breakeven point for LNG facilities.

 

On a cost basis, you can get LNG into the US at a landed cost of about $4/Bcf. Compare that to the average drilling cost in the newer locations out west of $5-6/Bcf (all considered "tight gas", hence expensive to produce). It's really a little simplistic to say that the gas price is driven just by the economy; there are three issues that influence domestic gas prices and LNG imports:

1. Lack of storage - which is why FERC is allowing new builds to charge market-based rates instead of regulated rates, without any stringent tests whether the storage owner has market power. If the tanks are full, gas prices drop at least regionally (Wyoming and Colorado "benefit" from this at least occasionally because there is little storage locally and the pipeline system, e.g. the Rockies Express system that takes gas to Ohio, is not completed yet).

2. Lack of pipeline capacity - both in producing areas but also and particularly on the last mile towards/beyond the city gate. The domestic transmission system can just about handle average gas demand, but when a cold snap hits the Northeast and demand peaks, you have a problem getting the gas where it is needed. Combined with issue #1 (particularly in market areas) that can lead to a short-term tripling of the gas price

3. Europe has no storage capacity, so they import LNG on a real-time basis and will pay just about any price to get their gas when it's cold. As a result the US, which has storage capacity, picks up the swing supply during the summer time and LNG imports are extremely seasonal. That of course has an impact on prices, too. Cheaper in summer, more expensive in winter.

 

Not quite true, by the way. It's not lack of demand; at this point it's lack of supply. Given the cost for an LNG terminal, you don't spend that kind of money without having supply contracts in place that guarantee LNG shipments into the facility. Since prices are higher in Europe and Asia that is where most of the gas goes and only the "extra" comes to the US. Volumes are supposed to increase significantly in the next 10 years, of ocurse, but then you are facing those storage and transmission issues again.

Yes, I do this for a living.

 

You are, of course, right. That's why I said "the short answer". Bottom line, the supply will be available with the huge new plants coming on stream starting now. You can argue economics, but if we had natural gas shortages here, we'd pay the price to draw it away from Europe and Asia. We haven't reached the point of needing it that badly yet. That's why some of the planned import facilities have been cancelled and others delayed (indefinitely?). When we get to the point we have to have it, the price will react accordingly and it will make economic sense to build those facilities. My understanding, and correct me if I'm wrong, is that the existing import facilities are not fully loaded now.