America Has Gas

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Sometimes a crash is a good thing.

Take the price in natural gas, for example. In 2009, the Gulf Coast spot market price of natural gas per million BTU was $3.94.  As of this week, that price is down to $2.09.

That is a 48% drop in price in only 3 years and an 80% drop off its peak in 2005!

And chew on this:  natural gas prices in the US are 75% lower than Western European rates.

But more than that, the US is literally full of natural gas!

One of the latest questions in the industry is where to store all the natural gas that is now being produced in record amounts almost overnight.

Not a bad problem to have, actually.

Anyone smell an export opportunity here to offset Russia’s near monopoly as Western Europe’s main supplier?

How about Japan, now that they’re taking most of their nuke plants offline?

Thought so.

So does the US government, which expects the US to begin exporting natural gas by 2016.

Even Obama himself has called the US “the Saudi Arabia of natural gas.”

Not sure who the President was bowing to when he said that, but you get the point.

America has gas--huge amounts, actually--and knows how to produce it cheaply.

Technology Leap

What has caused this huge drop in price?

In a word, technology.  We now have smarter ways of looking for natural gas and better ways of getting it out of the ground.

The technique of fracturing shale rock—which is quite plentiful in oil fields in two-thirds of the states in the US—has opened up huge new natural gas fields in just the past few years.

Fractured drilling or “fracking” as it’s called, is an old technique to get oil from rocks with natural gas as a by-product, but has been re-born by new technology.

The fracking revolution is what is behind the explosion of both oil and natural gas production in the US.

And, by the way, we have found a heck of a lot more of both than we thought there even just a few years ago.

But that’s just the beginning.

According to the Energy Information Administration, natural gas use has only gone up about 14% in the past 40 years.

That means that the rate of consumption has compounded just 0.33% per year over the past 4 decades.

But, due to technological advances, the US average daily production has gone up about 20% in less than 6 years, or 3.1% compounding growth in supply over demand.  That’s a lot of gas!

So, what does the natural gas boom mean for the US?

Well, for one thing, it means JOBS.

How many?

Projections vary, but hundreds of thousands of new jobs is a safe number.

According to the American Chemistry Council, up to 30 new chemical plants may be opened in the US within the next 5 years…

Creating about 200,000 jobs for chemical workers and suppliers.

And, USA Today reports that cheap natural gas will save US manufacturers $1.6 billion every year and create 500,000 new jobs by 2025.

As more natural gas is produced, the price will likely drop even further.

But there is more good news to talk about regarding prices…

Frack You, OPEC

As the cost of natural gas falls, it will eat into oil’s claim as our main source of energy.

The rise in domestic oil supplies as well as in natural gas should put downward pressure on oil prices.

This will allow the US to lower its use of foreign oil from people who don’t like us very much.

Given the tensions between Iran and Israel, as well as civil unrest and other political events in the Middle East…

Oil prices have been quite volatile lately, and will continue to be in the foreseeable future.

As we all know personally, any threat to supplies means an almost instant hike in consumer gas prices.

And really, does anyone think tensions in that region will get better before they get worse?

One effect of our natural gas boom has been on the use of heating oil.  We are using less of it.  Homeowners, who used to buy imported heating oil from that bloated, cancerous pig Hugo Chavez in Venezuela, no longer have to.  In fact, many in the northeast of the US have switched to natural gas and that trend is growing.

100 Year Supply and Economic Impact

Estimates on just how much natural gas there is in the US vary between the EIA, the US Geological Society (USGS), and industry experts, ranging up to 100 years or more by some estimates.

Others think we have less than that, but the larger picture is that of a cheap, local source of energy that we have at our finger tips that can helps us today.

Natural gas ain’t a Solyndra pipe dream; it’s the real deal in the here and now.

So if we have 100 or only 75 years’ supply the impact on our economy today is what matters most.

Supplies are large enough that Tom Ridge, who is now a consultant for the natural gas industry, but is also a former Secretary for the Department of Homeland Security and Pennsylvania Governor, suggested in a recent Op-Ed in the New York Times that we ought to run our cars on natural gas on a much larger scale than we do today.

That tells me that we won’t run out of natural gas any time soon.

The upshot is that America can re-invent the energy business, lower costs, bring manufacturing jobs home, export the stuff to huge markets abroad, and tell the oil punks overseas to “talk to the hand, Jack.”

I must say, having excess gas never felt so good.

And those are…The Gorrie Details.

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