A New Global Market for Natural Gas - Russia's invasion of Georgia is a dangerous precedent.

Seeking Alpha ^ | 081308 | Michael B. Smith

[Fred]

In late 2006, China for the first time in its history became a net coal importer. This changed the dyanmics of the world's energy market. Korea and Japan, previously importers of Chinese coal, were sent scrambling for alternative sources of energy. What they found in the winter of 2007 was LNG for $18-$20/BTU. China too was a willing buyer.

The coal scramble was also felt in Europe. Australian coal was bottlenecked and/or kept in the Asian region. Power outages in South African coal mines made the situation worse for Europeans as they lost out on significant supply. What followed was a ramp in coal prices as coal was shipped off the east coast of the U.S. to willing buyers in Europe.

Fast forward to today and enter Russia. Russia's invasion of Georgia is a dangerous precedent. Russia controls over 25% of Europe's natural gas and in the winter of 2006 used it as a weapon against Eastern Europe. Russia's true intent today may very well be to take further control of the world's energy market. Does one really believe that the Russian government cares anything about 70,000 ethnic Russians living in the mountains of Georgia?

If China's coal deficit is greater today than it was just one year ago and the geopolitical situation is worse, one could conclude that liquefied natural gas [LNG] in the winter of 2008-2009 will fetch a minimum of last year's $18-$20/BTU.

Last year was the year natural gas became a global market. This year it will be reinforced. The market for natural gas has changed and so should one's perspective.

As one watches the price of natural gas collapse in the U.S., is it possible the price remains near $8.00 this winter as Asians and Europeans pay more than two times that price?

[meatloaf]

If you can’t move the gas, you get price discrepancies. Some folks around here are complaining about the drop in their royalty checks. Turns out the pipeline can’t carry any more gas. If you’re someone with just a few wells, you end up sucking hind tit.

Based on an article here at FR gas in the rockies is cheap because there’s too much and it can’t be piped elsewhere. Oil is also filling tanks at well locations because the closest refineries can’t take it. Drill here and drill now has been going on for a couple of years in WV.

Just because gas is high in Europe means nothing here. Within ten years if the nuclear power plants come on line as expected, the utilities will be running combustion turbines less and less. It takes an 18” pipeline to supply the natural gas for a 200 megawatt plant. At some point there’s going to be a 10 to 15% drop in the demand for natural gas in the US when those plants get mothballed or used very infrequently.