why coal will control the price of gas
If gas becomes much more expensive than coal, gas usage will drop as utilities switch back to coal from gas.
The cost to produce gas from dry shale is besides the point. If utilities switch from gas back to coal, then the demand for gas can be more than satisfied from wet shale by products and "conventional" gas.
Dry gas will not be strictly required for the next 5 years. Wet gas by products and conventional gas can meet the countries needs given an increase in coal.
And coal will fail to increase only if gas remains reasonably close to the price of coal.
In other words, if the maginal cost of dry gas is high, this country will switch back to coal and leave the gas in the ground for 5 years. If the marginal cost is "reasonable" then it can be sold profitbly for $5.
I believe the latter is probably true, and coal usage will remain depressed. But if the former is true, coal will return to fill the gap, and a henry hub price spike will not be required.
Honestly I think the problem is brazil (nor Nelder) really understand how commodities work. If commodity A and commodity B can switch, and commodity A has an almost endless supply of price X, then commodity B will never be priced higher than X.
Soo.... we are now in a situation where coal and gas can switch, and there is an endless supply of reasonably priced coal. So the price ceiling of gas is in, and the only question is how much gas will be produced, not the retail price.
For a while, anyways.
IF you disagree, feel free to trade gas contracts in the time frame 2015-2017. Brazil is trading farther range contracts, he won't take the bet that Henry Hub will run up in the next 5 years.
To be clear, I would be surprised to see significant henry hub prices north of $4 for some time, but north of $5 is quite far fetched given the wet shales and the massive backstop of coal we are now seeing.
