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Fortunes Will Be Made in Natural Gas by 2015

Written by Gary North on January 12, 2012

Natural gas sells for about $3 per million BTUs. Oil sells for $20.

Why is natural gas cheap? Because it costs money — a lot of money — to make the switch. We are an oil-based civilization. But this price will be paid. It must be paid. Peak oil is real.

Here is an article from the Gregor site. You should be on its mailing list.

The price differential for a million btu is blowing out once again, between Global oil and North American natural gas. The extraordinary discount has persisted for some years. But today, with West Texas Intermediate (WTIC) oil above $100 and Brent oil above $110, the spread has reached new highs. The energy content of natural gas is trading at an 83% discount to WTIC Oil, and at an 85% discount to Brent oil. An economist might be persuaded to say: “That is a gap that must eventually close. Or, at the very least, which gives North American energy markets a huge, competitive advantage to source cheap, domestic btu compared to the rest of the world.” I would not disagree. However, the infrastructure problems associated with energy transition do not make such switching from expensive oil to cheap natural gas an easy, or rapid, endeavor. I address these issues continually, but a post of mine from last year, Vexed By Natural Gas, might be worth a read for those who want to ponder the situation further.

As you study the chart below, consider for a moment a less well advertised price spread: the disparity between North American natural gas (which remains landlocked) and the price for landed LNG in the United Kingdom. As energy market observers already know, North American natural gas will—in the next couple of years—be released through LNG export terminals in British Columbia (Kitimat) and Louisiana (Sabine Pass). That will trigger a rather momentous price convergence globally, as world LNG prices adjust to the entry of North American volumes.

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5 thoughts on “Fortunes Will Be Made in Natural Gas by 2015

  1. Natural Gas as feedstock into a LNG plant is priced (at the moment) as indicated for "NA Gas" but processing liquefying NG for transportation and distribution is expensive from both a CAPEX and OPEX perspective. Unless LNG can be displaced by NG without the processing costs, one doubts that the LNG "$9" long term supply contract landed cost into the UK will change by a significant amount any time soon.

  2. john cummins says:

    For once I have grave doubts. I'm not even slightly a believer in "peak oil". Gary might be wrong for once! I would point all readers to the theories of oil formation by the Russians who for decades have been promoting different theories than the traditional "fossil fuels" argument. I would also poiint you all to Dr. Thomas Gold from Cornell who had loads of theories throughout the years that were scoffed at but later found to be true. To some degree both theories posit that oil is produced as the earth rotates. I don't understand all of it but in essence oil is found much deeper than expected and what we see is oil that has seeped upwards from larger deposits that are being renewed and thus, oil is renewable. During the same time period at Cornell Dr. David Pimentel after 30 years of research pretty much proved that ethanol was a net negative producer of energy, using more in the production than you got out. Pimental, believing in "peak oil" ends up with very pessimistic results because he pretty much proved the impossiblity of biofuels being anything other than a negative drain energy-wise. However, if you couple abundant oil that is renewable along with the worthlessness of biofuels you end up with NO PROBLEM. The problem ultimately is one of government policy, junk science and perception. As long as myths are projected we still end up with no refineries, no new oil drilling (except by "enemies" of America), and ridiculous wasting of land through "biofuels".

    I have to say, this is one of the only times I've really honestly thought that North needs to go a little deeper. Gary, look up oil formation theories and ponder! Pimentel's findings: http://www.news.cornell.edu/Chronicle/01/8.23.01/

    Oh, by the way, because Pimentel believes in "peak oil", etc. he basically goes for reducing world populations. We all know this is the common "answer" by the theorists. So, the pessimists always end up killing babies and ultimately old people, ending great chemicals like DDT in favor of malaria, etc.

  3. woodworker says:

    john cummins you have it right but nobody wants to belive you.

  4. " … M. King Hubbert has been given a great deal of air, as if the old rhetorical trick of argumentum ad verecundiam should be decisive in this matter. ~ Sean Corrigan is an economist of the Austrian School Liberal Tradition

    King has desperately tried to build a scientific consensus. After thinking about this for a while, I thought about what Dr. Michael Crichton said in addressing similar "Peak" issues, e.g. global warming, another issue built on "scientific consensus":

    “I regard consensus science as an extremely pernicious development that ought to be stopped cold in its tracks. Historically, the first refuge of scoundrels; it is a way to avoid debate by claiming that the matter is already settled. Whenever you hear the consensus of scientists agrees on something or other, reach for your wallet, because you’re being had.

    Let’s be clear: the work of science has nothing whatever to do with consensus. Consensus is the business of politics. Science, on the contrary, requires only one investigator who happens to be right, which means that he or she has results that are verifiable by reference to the real world. “In science consensus,” is irrelevant. What is relevant is reproducible results. The greatest scientists in history are great because they broke with the consensus.

    There is no such thing as consensus science. If it’s consensus, it isn’t science. If it’s science, it isn’t consensus.”

    ~ The late Michael Crichton, M.D

  5. ty, but I would expect Gary North to ponder this as he is normally correct and careful