Natural Gas: Is An Even Colder Winter Season Coming?

MyOldTDiIsStillGoing

I just opened up my Columbia Gas of Ohio bill yesterday (03-Jul) and what a shock on the ever increasing new price of natural gas. I had an old pack of bills that I was throwing out a few weeks ago and saw the previous price that were charge back in the 1990’s to see what is was like back then.

In 1998, the price charged was $0.29 per CCF. Now look at the past 8 months:

End of (cost per CCF):
OCT 2007 $1.026
NOV 2007 $1.045
DEC 2007 $1.038
JAN 2008 $1.095
FEB 2008 $1.104
MAR 2008 $1.210
APR 2008 $1.215
MAY 2008 $1.336
JUN 2008 $1.428

If this is an indicator of the new prices for the up coming winter season, we will need to wear more than one sweater to keep warm. Can you say “Shutoff”…you think last year was bad.

And natural gas is a “domestic” resource here in North America. Hum. Get ready.
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TreeFarmer · Heavy Crude Joined: Jun 26, 2007 Posts: 301

Would you mind taking a closer look at your last bill?

I'm thinking that the $1.428 is probably made up of $1.000 cost of gas and $0.428 delivery charge. How close am I?

FWIW, gas is currently selling for $13.5 on the NYMEX for August delivery and $14.516 for January 09 delivery.

I have invested in number of natural gas wells over the years but even I have mixed feelings about these high prices. With the runup in steel prices we now have to get north of $8 for our gas to begin to make a profit however, I don't know if the consumer can pay $14 for nat gas along with $4 for gasoline and not go broke.

TF

TreeFarmer · Heavy Crude Joined: Jun 26, 2007 Posts: 301

Here is a little more info. A barrel of oil has 6 times as many BTU's as an MCF of Nat Gas. For years and years you could take the price of a barrel of oil and divide by 6 and get almost exactly the current price of nat gas. However, for the last 3 or 4 years this has not held as oil has gone up much faster than nat gas.

With todays $140 per barrel for oil, nat gas should be at 140/6 = 23.333. Obviousy with nat gas at 13ish things are way out of balance. I do know that there are a number of facilities in industry that can switch between oil products and natgas for fuel. I'm wondering if this will impact prices and supplies this winter, i.e. will industry use enough to noticeably reduce supplies and thus move prices.

TF

MyOldTDiIsStillGoing

WyoDutch

NW Wyoming natural gas prices (residential) as of 7/4/08:

First 100Mcf - $8.1406

Anything over the first 100Mcf - $8.1006

They also tack on a monthly "Customer charge" of $11.00 and the state sales tax.
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TreeFarmer · Heavy Crude Joined: Jun 26, 2007 Posts: 301

MyOldTDiIsStillGoing

bonehead

It must be comforting to know that NG supplies are more or less healthy for this time of year and the only reason gas is skyrocketing is because oil says it can.If you're looking for evidence of rampant speculation you don't have to look any further than the NG market.Greed is a powerfull thing and the TPTB want as much of your disposable income as they can get.The really funny thing is that they probably don't even have the means to spend it all.

It's not rocket science,i've been watching this market as it relates to oil for a couple of years now and NG is cheaper than oil right now.As long as it's cheaper than oil and oil keeps going up,NG will go up in tandem.Don't complain,it's still a bargain compared to oil,or that's what they want you to think.
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MyOldTDiIsStillGoing

coyote

ROCKMAN

Gang,

There’s another big factor in the NG price run up since Jan. The guys in marketing say a big factor has been the jump in coal prices. Many electrical utilities can of switch between coal/NG/FO. Most have fairly long term coal contracts but they eventually end. The guys tell me coal has been chomping at the bit since oil started its run up a few of years ago. With the rapid transfer of energy data these days producers see these trends very quickly and adapt just as quick.

I don’t have any info where the spreads are right now but if coal can hold its position and we do get a colder than usually it might be truly devastating for our cousins up north.
Right now I’m waiting to see how hard it hits Texas as we quickly approach the heavy AC season. Lots of our PUC’s run on NG.

Right now we're slamming down tite sand NG gas wells in E TX as fast as possible even though drilling/completion costs have about doubled in 18 months. We bumped the projection for year end steel pipe costs by 50% last Jan. Just this week we hit that projection. Times are good in the oil patch but they are truly outstanding in steel.

MyOldTDiIsStillGoing

TreeFarmer · Heavy Crude Joined: Jun 26, 2007 Posts: 301

I'm pulling out a little bit of that article:

"The North American marketplace already imports less LNG than it did in 2004 and 2005. The price has been better elsewhere, and when the offshore infrastructure is deep and broad enough, imports to North America will shrink some more, and our internal demand growth will drive our prices up.

THE TIMELINE

As I see it, it should take until about 2010 for the effects of the infrastructure building going on now to bring about a North American gas/oil parity price."

The underlining is mine. Currently, as I undersand it, there are three nat gas markets with the North American market actually being the cheapest. We only import LNG when there is a glut because the price is better elsewhere if elsewhere is not over supplied. I recently read of a new nat gas regasification plant in LA that is sitting idle because the price for nat gas is much better in places like Japan, thus no tankers are coming calling.

To me, the disconnet on the 6:1 price level is becuase North America can currently supply its nat gas needs without imports and there is a bit of a surplus (tiny) of nat gas supply. On the other hand, there is worldwide competition for oil. One commodity being in tight supply and one in slight surplus is the cause of the price disconnect. All we have to do is see a good summer heatwave and most of the disconnect will disappear.

Summary, the 6:1 ratio will probably hold when both are in surplus or tight supply, but not when one is in surplus and one in tight supply.

I hope that helps some;

TF

allenwrench · Intermediate Crude Joined: Apr 23, 2008 Posts: 728

We keep the thermostat set at 64 at night and keep the heat off during the day. House gets down into the low 50's in daytime. I usually turn on the heat around 9 PM and shut it down at 8 or 9 am.

To heat this way cost us $250 a month to heat a modern 2400 sq ft house. (including garage as it has some water pipes in its ceiling). That's about all we can afford. Looks like it will even cost more next heating season.

As the nat gas runs out prices for all heating methods will only keep climbing. Even the coal will run out someday. Winter '08 they said they had a coal crisis brewing in China.