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A low price indicates too much supply, not too little
Mr. Neider readily admits that gas has sunk to some of the lowest prices in recent history. As he says, it has sunk to under $2.00, but is currently around $3.60. This, he says, is evidence of the ultimate failure of shale gas.
Ridiculous.
First, a little history. In the past ten years natural gas has never been cheaper than the last couple of years. In fact, in 2008 it was at $9.00 per mBTU (million BTUs), spiking at $13.11 (see http://www.scanaenergymarketing.com/en/historical-gas-data/natural-gas-settlement-prices/ ). Not only was the price of natural gas much higher then, the fear was that we would run out. Plans were being made to *import* LNG to the US. Shale gas has changed all that. It does cost a bit more than we originally thought to produce it (i.e., it is indeed harder to drill than originally thought), but nobody in the industry believes we are going to run out or that the cost of production will go anywhere near $9 again.
Mr. Neider needs to review Economics 101, and learn about the laws of supply and demand. Every product has a cost of production. Nobody will supply a product for less than that. It's clear that the price of natural gas has reached that bottom, and we can expect that on the average natural gas will be at least $3.50 to $4.00 per mBTU. So what? There are still enormous volumes of gas available at that price. Drillers may switch to wet gas and shale oil, but that will only increase the price of dry gas until it becomes attractive to produce again. It doesn't mean that we will run out. It most certainly doesn't mean we will see $9 gas again anytime soon. Sure, I'd like to only pay $3 per mBTU to heat my home, but I'll take $5 over the old $9 any day -- especially since there are huge volumes of gas available at that price.
As for the economics of LNG, Japan is currently paying around $18 per mBTU for LNG (see http://ycharts.com/indicators/japan_liquefied_natural_gas_import_price ). Even if it costs producers here in the US $5 per mBTU to produce natural gas, they can easily liquify and ship it to Japan for well under $18 (I saw one estimate of $12 or $13). There's a huge profit potential here. The only problem is building LNG ports in the US and lining up ships. Once that's done, drillers in the US will have an enormous incentive to drill for dry gas again.
There's also the possibility of converting diesel trucks to compressed natural gas (CNG). At current prices, the cost of natural gas is half as much as diesel for equivalent energy (see http://online.wsj.com/article/SB10001424052702304707604577422192910235090.html ). Even at $4 or $5 per mBTU, it's still a lot cheaper than diesel on an equivalent energy basis. Once again, it only takes the development of an infrastructure to open up another huge market for natural gas that will be profitable because the average price of diesel will only go up, not down. And of course, natural gas burns with less CO2, and doesn't produce the particulates and other pollutants of diesel.
Now Mr. Neider might argue that we have to develop infrastructures to make all this possible, but of course he's been arguing that infrastructure is no problem at all when it comes to creating a renewable energy infrastructure out of nothing. The only difference here is that the profit is immediate, obvious, and doesn't depend on any massive government subsidies.
Ridiculous.
First, a little history. In the past ten years natural gas has never been cheaper than the last couple of years. In fact, in 2008 it was at $9.00 per mBTU (million BTUs), spiking at $13.11 (see http://www.scanaenergymarketing.com/en/historical-gas-data/natural-gas-settlement-prices/ ). Not only was the price of natural gas much higher then, the fear was that we would run out. Plans were being made to *import* LNG to the US. Shale gas has changed all that. It does cost a bit more than we originally thought to produce it (i.e., it is indeed harder to drill than originally thought), but nobody in the industry believes we are going to run out or that the cost of production will go anywhere near $9 again.
Mr. Neider needs to review Economics 101, and learn about the laws of supply and demand. Every product has a cost of production. Nobody will supply a product for less than that. It's clear that the price of natural gas has reached that bottom, and we can expect that on the average natural gas will be at least $3.50 to $4.00 per mBTU. So what? There are still enormous volumes of gas available at that price. Drillers may switch to wet gas and shale oil, but that will only increase the price of dry gas until it becomes attractive to produce again. It doesn't mean that we will run out. It most certainly doesn't mean we will see $9 gas again anytime soon. Sure, I'd like to only pay $3 per mBTU to heat my home, but I'll take $5 over the old $9 any day -- especially since there are huge volumes of gas available at that price.
As for the economics of LNG, Japan is currently paying around $18 per mBTU for LNG (see http://ycharts.com/indicators/japan_liquefied_natural_gas_import_price ). Even if it costs producers here in the US $5 per mBTU to produce natural gas, they can easily liquify and ship it to Japan for well under $18 (I saw one estimate of $12 or $13). There's a huge profit potential here. The only problem is building LNG ports in the US and lining up ships. Once that's done, drillers in the US will have an enormous incentive to drill for dry gas again.
There's also the possibility of converting diesel trucks to compressed natural gas (CNG). At current prices, the cost of natural gas is half as much as diesel for equivalent energy (see http://online.wsj.com/article/SB10001424052702304707604577422192910235090.html ). Even at $4 or $5 per mBTU, it's still a lot cheaper than diesel on an equivalent energy basis. Once again, it only takes the development of an infrastructure to open up another huge market for natural gas that will be profitable because the average price of diesel will only go up, not down. And of course, natural gas burns with less CO2, and doesn't produce the particulates and other pollutants of diesel.
Now Mr. Neider might argue that we have to develop infrastructures to make all this possible, but of course he's been arguing that infrastructure is no problem at all when it comes to creating a renewable energy infrastructure out of nothing. The only difference here is that the profit is immediate, obvious, and doesn't depend on any massive government subsidies.
Edited by zackers
Updated - 17th Oct