The Real Significance Behind That Oil Export Hoopla

forbes ^ | 6/30/2014 @ 7:35PM | Christopher Helman

[ckilmer]

The present installed backup capacity of natural gas generators used for wind and solar farms is likely to be so great that if the govt stopped the subsidies it would immediately, not 2020, cause natural gas at the burner tip to be several bcfpd increase.
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Above is the conditional phrase of your argument.

There is no chance that the government will stop subsidies before 2016. Even then, if the pubbies got the reigns it would take another six months to a year for them to pass the enabling legislation over the complaints of a whole lot of industries that are springing up to take advantage of the low natural gas prices. These are the same organizations that don’t want the USA to be exporting natural gas because it would drive up prices.

So we’re talking 2017 at the earliest before the new rules would take effect. That’s three more years for the solar and wind industries to shave down their prices. (I don’t think they’ll be low enough by then to be competitive with natural gas. But solar and wind prices are falling.)

Finally while the prices may adjust instantly, the industry is not quite so fast. When natural gas prices collapsed in 2010 drilling rigs started their four year shift over to oil. Meanwhile natural gas production continued to rise.

I’ve just described the best case for natural gas.

In any case I’m not going to hold to 2020 as an exact date. Its a +-date. But I do think its safe to say that there won’t be any big shift because of a change in government rules between now and 2016. Unless the pubbies can effect rule changes from congress. (I do expect the pubbies to take control of the senate come november and increase their majorities in the house.)

[bestintxas]

“There is no chance that the government will stop subsidies before 2016.”

That is a very bold statement to make.

Guess if the Persian Gulf was closed tomorrow or Moscow stopped 100% of gas deliveries to Europe tomorrow, both of which I might add are distinctly possible, your assessment would stand: Zero Chance.

[ckilmer]

Guess if the Persian Gulf was closed tomorrow or Moscow stopped 100% of gas deliveries to Europe tomorrow, both of which I might add are distinctly possible, your assessment would stand: Zero Chance.
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Ok I overstated the matter. Instead of “zero chance” it would have been better to say that its “highly unlikely” just as its “highly unlikely” that the Persian Gulf will be closed tomorrow or that Moscow will stop 100% of their deliveries to Europe.

[ckilmer]

You are not thinking dynamically enough.
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Is this what you mean?
http://www.zacks.com/stock/news/138688/oil-prices-persistent-surge-endangers-us-gdp-expansion
General Electric on Brink of Drastic Reduction in LNG Liquefaction Costs

General Electric’s energy research division is reported to be in the testing stage of a new process for the liquefaction of natural gas, which reduces the costs of making LNG by an order of magnitude, or in the neighborhood of 90%.

While still in the testing stage, this breakthrough, if true, could radically reshape and restructure energy markets worldwide. Not only will it reduce the cost of shipping LNG to Asia from North America, it could make many more projects viable all over the world. Right now, producers take a big discount, since liquefaction and shipping can cost over $5 per million BTU, whereas pipeline gas may only get charged $1 or less per thousand miles.

It could also mean not just experimental, tentative, pilot-project-like efforts at use of LNG by transport fleets of trains, trucks, buses, and delivery vehicles in North America and elsewhere, but faster and more widespread deployment and demand for LNG and gas in general. This could mean that the apparent ‘hard floor’ of more than $4 per mBTU in North America could rise.

[ckilmer]

http://www.zacks.com/stock/news/138688/oil-prices-persistent-surge-endangers-us-gdp-expansion

Conclusion: Oil and Gas Prices Likely to Stay High

Aside from the potential lower costs of gas liquefaction from GE, most other energy news has been neutral or negative regarding the supply for the next several quarters, while demand for both gas and oil continue to rise, not just in North America, particularly for gas, but all around the world.

Therefore, even if there is not any major armed conflict (in addition to all the current ones) in the near future, it seems unlikely that either natural gas or oil prices will decline in the near term. The former could rise as coal recedes in use, the economy continues to slowly grow, and winter looms with storage levels below the long-term average. With the U.S. economic expansion already tepid at best, higher energy prices will depress growth even further.

[bestintxas]

“Conclusion: Oil and Gas Prices Likely to Stay High”

Not a true statement. Gas prices are low right now compared to inflation-adjusted historical levels.

There are few Unconventionals that can be economic at present ~$4.50/mmbtu prices.

If gas prices were higher by $1-2/mmbtu, tremendous volumes of already-identified gas would be brought in due to ramped-up drilling that has been thrown on backburner for years.

There is lots of gas in US waiting for these higher prices.