It's difficult for me not to go off on a rant about oil prices breaking over $100 per barrel again. After watching oil prices move over $101 a barrel yesterday, I was tempted to scrap my other projects.
But then I realized something...
$100 for a barrel of oil shouldn't surprise us. Sure, this is the sixth straight week that U.S. inventories have increased, and it's true that OPEC may still cut production in March. So the only question for my readers is, "How many of you honestly feel oil prices are about to fall below $70 a barrel ever again?"
Okay, so maybe $70 a barrel is a bit out of reach, but what about $80-85 for a barrel of oil? Are we ever going to see oil prices pull back?
Let me put it this way...
I think the only time prices have a chance of falling is over the next few months. Certainly a U.S. recession could result in less demand, but once we hit the summer driving season in 2008, all bets are off.
In other words, we have about three months before seasonal demand picks back up.
The Natural Gas Crisis
Several of my readers have noticed natural gas prices moving higher, right alongside crude oil. For the last few months, natural gas prices have risen over 25% despite a warmer-than-usual winter...
I understand it's easy to point at the massive natural gas reserves in Russia, Iran and Qatar (those three make up 57% of the world's proved natural gas reserves) and scoff at the idea of a natural gas crisis.
Unfortunately, we're talking about regional markets. Unlike oil, which can be shipped to us via tanker, natural gas must be transported using pipelines (before you jump up in protest, we'll get to liquefied natural gas in a second). Right now, an overwhelming amount (over three-quarters of our total imports) of our natural gas imports comes from Canada. My Energy and Capital readers are already aware of the problems that Canada is having, though.
You see, more than 98% of Canadian natural gas is produced in the Western Canadian Sedimentary basin. Production in this basin peaked in 2000. Furthermore, extracting the oil sands in Alberta also takes a significant amount of natural gas, which means less will be available for exports to the U.S.
Also consider this...
Canada, Mexico and the U.S. account for about 25% of the world's natural gas consumption, yet they only hold about 4.3% of the world's proved reserves.
Before we get any further, a lot of you have been asking how I felt about liquefied natural gas (LNG). Frankly, I don't blame you for looking into LNG. After all, U.S. imports of LNG have more than doubled over the last few years. LNG does offer the possibility for a global natural gas market.
Natural gas prices, however, simply are not high enough yet. Countries like India, Japan or Korea are paying up to $16/Mcf for LNG, and I seriously doubt the U.S. would spend as much. Also, the infrastructure isn't ready handle the kind of volume we need. Building enough LNG facilities and tankers will cost billions of investment dollars.
Investing in the North American Gas Crisis
Despite the smaller amount of global reserves in North America, investors still have several opportunities open to them-especially since natural gas prices are threatening to push past $9/Mcf.
In the U.S., interest in the Barnett Shales has been heating up over the last few years. As far as producers, natural gas companies like Carrizo Oil and Gas (NASDAQ: CRZO) have been very successful in raising production throughout 2007.
But it's not just the producers who are on a hot streak. Service companies, like Natural Gas Services Group, Inc. (AMEX: NGS) are also able to get a piece of the action during a period of higher natural gas prices.
Until next time,
Keith Kohl
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Chris Asby BSc PhD
ex EU TACIS/EuropeAid Project Manager, Turkmenistan/Kazakhstan/Kyrgyzstan
In your article you state that India and Japan are buying LNG at $16.00/Mcf. Is that in liquid form or at the expanded state. LNG typically has a 600 to one expansion ratio at Standard temp and pressure. The calculation for pipeline quality gas is extremely complex and is seldom accurate because it is a gas. Temperature, pressure, liquid content, compressibility factors, and other things I barely comprehend are involved in the correct calculation for gas measurement. If the expansion rate holds true then $16.00/Mcf, in liquid form may not be as bad as we think. Mcf, in my training, is one thousand cubic feet. MMcf= 1,000,000cubic feet. I am not trying to impress anyone just want to get the units straight.
Thank you and I enjoy your insights.
Roland Blanchard
"It would never amount to anything. "there's nothing there."
That is until 3 years ago.Now the property the family owned has 7 producing gas wells. I now receive a nice monthly check because a company had devised a means to get at the Natural gas deposits.
Unless you either own some property or own mineral rights in the Barnett Shale that are producing, you aren't going to earn any royalties. You could, however, buy stock in any of the working companies & hope to make a profit.
Natural Gas is also the 'bridge' fuel to the future because of global warming. Natural gas has the lowest carbon content of all the fossil fuels (coal being the highest). New coal fueled power plants have been successfully challenged with the arguement that the PUC should not guarantee the investment return to the utility on a coal plant due to future restrictions on CO2 emmisions. The utility would not build a coal plant without this guarantee, so they will build a natural gas plant.
There is probably more natural gas in this country than oil and as noted one of the hottest plays is the Barnett shale and one of the largest players in Barnett is Chesapeake Energy (CHK).
Disclosure: Long CHK.