Terrel L. Shields
Elite Member
- Joined
- May 2, 2002
- Professional Status
- Certified General Appraiser
- State
- Arkansas
Ah, you're an appraiser. "Cost" does not equal "Value". In fact, the shale drillers have been wildly successful. That's why gas is cheap. Nat gas was $9 5 years ago, the cost of horizontal drilling has fell on a per MCF basis since the technique developed. The downturn also hurt demand. Demand relates to industrial uses. As gas got high, those "dual fuel" power plants that could begin using coal.
Now coal is being whacked by new powerplant rules that go into effect Jan 1, 2015, so gas is cheaper and easier to meet the 2015 standards. So the pendelum appears (imho) to be ready to swing back the other way. Such swings are slow so we won't notice for a while. But about the time the new nat gas autos hit the road as hundreds of new gas refueling stations are built and power plants gear up on gas and the economy recovers....nat gas will get high again.
Politically, the debate is drill baby drill v. the supply is dwindling anyway let's go with something else is absolutely the stupidest debate in the world on both sides. First, you do have to drill baby drill to find the gas and oil that is still here. Secondly, it can only be a bridge energy to a new paradigm. Will the brave new oil free world be using LESS energy??? or more? Where will it come from? Do we rip up the high plains and plant it in corn? The cellulose ethanol experiment just closed. In Texas this summer the 60,000 mgw windmill capacity from July 30th to Aug 4th produced just 10% of its capacity because of calm winds in the worst drought in that state in decades. Can you depend upon that? Hydrogen is almost impossible to store, its molecules are so small it literally soaks thru a steel container like water from a canvas bag.
Today the drilling has shifted to horizontal drilling of "oily" plays because oil prices remain high...very high. That is a function of the turmoil that exists in the places that have oil - the Middle East. Gasoline is literally dictating the price of oil instead of the other way around. The tail is wagging the dog.
Libya was 3% of the oil in the world. It is almost entirely offline and will remain so for at least 2 more years by most estimates. That oil was very light and produces an extraordinarily high percent of gasoline and was a major contributor to the gasoline supply of Europe. Europe is now having to pay a premium for oil to refine and their largest refiner just filed bankruptcy. That pulls supplies from the Saudis and Nigeria that we normally buy, so we pay more.
The dark side of the oil play here is that those oil plays are also producing a lot of associated gas with the oil so they are adding to the natural gas glut at the same time they are producing oil. BTW, if we were not producing Bakken oil, Eagle Ford oil and oil from the other "shale oil" plays the price of crude oil would likely top $150.
IF Israel gets enough (and they are very close) they will bomb the Iranian nuclear facilities. And if they do then oil will top $150 a bbl.
So we have a supply driven price for oil. And a demand driven cap for natural gas. The historic ratio between the two relates to the amount of BTUs in each. That ratio is roughly 10:1 ( a bbl. of oil has 10x the energy of a 1000 CU. Ft. of nat gas). That varies with the quality and impurities in each but overall, that ratio has pretty much held for decades. It showed signs of breaking down in the mid 00s and from 2008 on has pretty much went from 10:1 to 25:1. So obviously natural gas is cheap as well as cleaner energy.
Refueling an auto is the problem. You can compress natural gas but it still takes about 10 - 15 minutes to refuel. You can compress it to liquid and refuel faster and store it in a smaller tank but that tank is very high pressure and when you compress it, like any good air conditioner compressor, the escaping gas gets extremely cold. To refuel requires a mask and gloves because the temperature is like 200 below zero and would freeze your flesh instantly. I don't see this as an easy "self-service" option but then again, I recall the day when NOBODY - I mean nobody touched a gas pump except the attendant. Frankly, I miss those days.
