Monday, July 16, 2012

The Silver Lining

I'm not a fan of cheap natural gas, but it is an unavoidable condition these days given the advent of shale gas.  The silver lining of all this cheap gas in the southern part of the country is the rejuvenation of the U.S. manufacturing sector, which had pretty much been left for dead. Now there are a number of potential projects on the drawing board, and many of them are looking to locate in Louisiana for direct access to natural gas from the Haynesville Shale and cheap utility rates.  A good article in the New Orleans Times Picayune offers more details.

While inexpensive natural gas is creating new uses for the fuel that will help create long-term demand drivers to help moderate oversupply, l am a bit concerned that "cheap" gas will become too addictive.  Already, there are some in Washington making noise that the government shouldn't approve any more LNG export facilities because exporting U.S. gas may drive natural gas prices higher.

The current natural gas price cannot be sustained long term, but the longer prices stay this low, the more people will get used to them and think $4/MMBtu is outrageously high, when in fact it is barely break-even for most gas drilling.  In a couple of years will we be hearing cries of "expensive gas!!!" if prices get near $5/MMBtu?

2 comments:

Anonymous said...

The natural gas industry helped cause this problem when they told everyone that the US has 100 years for NG. The dirty little secret they kept from the public was that they needed $8/mfc or higher to get those 100 years. Its the same thing with shale oil, we have all this oil, but it needs $100+ prices and that price plays havoc with our economy.

Robert Hutchinson said...

See the link to the article linked in this post: http://www.haynesvilleplay.com/2012/07/on-subject-of-exports.html.

The breakeven price definitely is lower than $100/barrel.