This page has been archived and commenting is disabled.

A Natural Gas Reality Check

Tyler Durden's picture




 

While T.Boone talks sense and gets to vent his frustration regularly on air, the sad reality is that although the obstacles for substitution to NatGas are not insurmountable, as Michael Cembalest notes we do not get the sense that an NGV fleet is imminent, even with very high gasoline prices. The best shale gas plays are the ones that involve finding liquids in addtion to (or instead of) dry gas. Given the price for coal, natural gas and crude oil per unit of heat/energy humans would stop using oil and gasoline and use more natural gas instead. But in the real world, in which Michael and you and I live oil and natural gas are not frictionless substitutes. As the EIA shows, oil is primarily used for transportation whereas natural gas is used mostly by industry and to create electricity. As a result, there is no substitution effect pulling up natural gas prices, particularly as more natural gas is being found in shale plays. But for shale investors, there are liquids that can be found in shale plays that are worth a lot more than dry gas: shale oil, and natural gas liquids. Shale oil obviously is valued based on oil prices, and natural gas liquids are valued close to oil prices as well. Whether over time natural gas can displace coal or be exported successfully to 'correct' the demand-supply equation is the question that remains but for now it seems a long way off and along with the normal operating risks, there is of course a broader issues of fracking - and what operation safeguards will need to be put in place to allay concerns in the future. The point is that demand possibilities are there but seem far off and while broadly the energy sector has been on a positive ride the last few years, we remember the lost two decades of underperformance during the 80s and 90s but it would seem should we 'dip' again in the global economy that integrated oils, drilling/services will underperform from their elevated levels.

The 80s and 90s saw a lost two decades for relative energy stock performance. The 2000s was string but suffered during the Great Recession...and of course the integrated oils and drillers/servicers have massively outperformed the NatGas plays - as NG prices have collapsed.

The theoretical 'energy' cost (seen below) suggests all rational humans should substitute from Oil and Gasline to NatGas - but of course in reality the frictions are extreme.

However, there are pockets of advantage within the NatGas space as 'Wet Gas' is far better priced than 'Dry Gas'...

 

And finally the dominant usage of each of our various energy sources (Oil-Transportation and NatGas-more Industrial and resi heating) is clear and 'sticky'...

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Thu, 03/22/2012 - 16:29 | 2281739 EmileLargo
EmileLargo's picture

Amazing how low nat gas and coal prices are. When you factor in US Dollar debasement, the prices have probably never been this low in the entire history of mankind. 

Thu, 03/22/2012 - 17:18 | 2281764 Pinto Currency
Pinto Currency's picture

 

When oil prices spike as the Bernanke has now guaranteed - Iran or no Iran - there will be increasing demand for nat gas substitution for oil and higher nat gas prices.

 

http://www.westport-ld.com/automotive/applications/ford-f250-350

http://www.westport-ld.com/automotive/applications/volvo-v70/

http://www.cumminswestport.com/

http://finance.yahoo.com/news/chinas-first-engine-westport-tm-120000144.html

http://automobiles.honda.com/civic-natural-gas/

 

It will be necessary to get a nat gas distribution network set up as Clean Energy is in the process of doing - access is essential:  http://www.cleanenergyfuels.com/main.html

 

Finally, gas/diesel vs nat gas substitution are not frictionless and there is a lot of inertia to continue with oil-based energy, however we can see the distribution and technological pieces are actively being put in place to allow retail users to capitalize on the ~ $2.50 gasoline gallon equivalent price of LNG for transportation and the $1.50 per gasoline gallon equivalent price from direct generated automotive compressed nat gas from the residential nat gas distribution network http://www.autoobserver.com/2011/03/brc-fuelmaker-again-selling-phill-home-cng-fuel-station.html

 

This Zerohedge article (above) gives an excellent wall-of-worry perspective of nat gas substitution for oil.

Thu, 03/22/2012 - 17:20 | 2281866 mayhem_korner
mayhem_korner's picture

 

 

Where is the substitution going to happen?  Not in vehicles.  Not in residential heating.  Not in power gen.  Very little in industry. 

While both oil and gas can be measured in Btu content, the drivers of fuel choices are in the infrastructure, and the current decoupling shows that the infrastructure differences prevent substitution.  Oil is stored in tanks that stand alone; gas needs pipes and compressors.  Huge difference on the margin.

Thu, 03/22/2012 - 17:27 | 2281882 Pinto Currency
Pinto Currency's picture

 

Oil is delivered by trucks while compressed nat gas is locally generated by compressors from existing pipeline infrastructure.

Subsititution takes time and confirmation of the price and availability.

 

 

Thu, 03/22/2012 - 17:31 | 2281899 mayhem_korner
mayhem_korner's picture

 

 

The pipeline infrastructure sufficient to support natural gas as a vehicle fuel only exists in densely populated areas (i.e., not everywhere).  You cannot set up natural gas filling stations to enable transit from Chicago to Denver because there isn't sufficient infrastructure along the way.  That is THE hurdle to natural gas a vehicle fuel, and if you research the cost of developing that infrastructure, you'll realize why it hasn't happened despite 30+ years of trying and availability of the vehicle technology.

Thu, 03/22/2012 - 17:39 | 2281913 Pinto Currency
Pinto Currency's picture

 

As you can see in the above article, the huge energy price differential of nat gas vs oil is recent.

 

Hasn't happened?  It is happening:

http://www.cleanenergyfuels.com/

http://www.cleanenergyfuels.com/news/index.html

$2.50 per gasoline gallon equivalent for autromotive nat gas. 

Thu, 03/22/2012 - 17:42 | 2281920 mayhem_korner
mayhem_korner's picture

 

 

Ah yes.  Get back to me in five years and let me know how it worked out.

Fri, 03/23/2012 - 00:05 | 2282606 Pinto Currency
Pinto Currency's picture

Watch out for the nat gas freight train coming - and those can be run on nat gas too.

Thu, 03/22/2012 - 20:41 | 2282230 easypoints
easypoints's picture

there are dozens of gallons of oil in the tires, paint, plastic, and lubrication of every vehicle, not including the roads and oil-dependent infrastructure used to create natgas vehicles. Such a transition would take decades, and require a cooperative, debt free government. ive stopped hoping.

Thu, 03/22/2012 - 20:51 | 2282258 mayhem_korner
mayhem_korner's picture

 

 

I think that is the right assessment.  I'm not trying to rain on the parade - I'm just pointing out that the balloons have long since floated away in the deluge.  It certainly is possible to create the infrastructure, but as you articulate well, it would take a confluence of things that aren't in the cards.

+1

Fri, 03/23/2012 - 00:00 | 2282597 Pinto Currency
Pinto Currency's picture

 

As the price of oil holds and advances the transition will take place.

Nothing to prevent it from happening and as nat gas trucks (especially) start to gain a tremendous advantage over their competition, the transiition will accelerate.

Clean Energy has 270 refuelling installations across the country and is building-out another 150 by the end of next year.

http://www.cleanenergyfuels.com/index.html

Thu, 03/22/2012 - 22:49 | 2282465 sun tzu
sun tzu's picture

What happens to the price of NG when 50 million cars begin using it for fuel? I bet it won't stay at $2.50

Fri, 03/23/2012 - 00:03 | 2282603 Pinto Currency
Pinto Currency's picture

 

The price will rise somewhat and there will be more drilling and supply. The price differential vs. oil is too great to ignore and there is lots more nat gas available - much better than middle eastern oil.

Thu, 03/22/2012 - 20:10 | 2282171 Augustus
Augustus's picture

If the US Govt. really wanted to find useful investment in shovel ready jobs, it would find a way to build a NG pipeline to every one of the ~ 2000 truckstops in the nation.  The branch lines off of that system would be available for other local supply services.  The reason that parts of the country have no pipes is that historically no one lived there.  No population, no industry, no need for supply.

Thu, 03/22/2012 - 23:01 | 2282473 sun tzu
sun tzu's picture

If anything, it's for smaller cars and light busses that don't need much power or range. The smarter solution is to convert government and corporate fleets to NG and then move to using it for commuting. 

Thu, 03/22/2012 - 23:32 | 2282553 dark pools of soros
dark pools of soros's picture

Huh?  and rob fake college students of their birth control?   are you from the 50's?

Thu, 03/22/2012 - 20:45 | 2282239 alex_g
alex_g's picture

"The pipeline infrastructure sufficient to support natural gas as a vehicle fuel only exists in densely populated areas (i.e., not everywhere)."

 

Yes, there is only NatGas infrastructure where a majority of people live and drive...

The CNG fueling dilemma is like the last mile was for broadband in the '90's.  Look at Utah, you can drive from one end to the other and not worry about where to fill up.

Thu, 03/22/2012 - 21:17 | 2282311 blunderdog
blunderdog's picture

It's actually even worse than the last-mile broadband infrastructure, because in addition to putting capacity everywhere people LIVE, you have to put capacity in the areas people only DRIVE THROUGH.

Seems to me there could be opportunity to think about natgas fueled *trains,* but not sure what low-end torque performance is like.

Thu, 03/22/2012 - 22:55 | 2282478 sun tzu
sun tzu's picture

Heavy equipment will always run on diesel due to the torque, MPG and durability

Fri, 03/23/2012 - 10:01 | 2283189 alex_g
alex_g's picture

Blunder, trains are diesel electric, generator running electric motors.  LNG would be a perfect swap.

Thu, 03/22/2012 - 21:48 | 2282373 Omen IV
Omen IV's picture

I disagree - there is huge transport capacity for NG truck lines  - east-west / north south - the infrastructure deficiency issues are at the point of sale - if there was access for trucks only on the interstate only to begin with - I-70/75/80/25/40 etc etc

the truck conversion mandate would carry the weight of the capital cost and at $1.50 BTU equivalent would be major effect - on the price of oil   - since it would signal major change to middle east oil interests 

this is all about the oil companies preventing the change over -  nothing else  - the economics are all in place to make it work  

Thu, 03/22/2012 - 23:00 | 2282488 sun tzu
sun tzu's picture

You don't think NG prices will rise if 50 million vehicles start using it as fuel? Not only that, but as old coal powered generating plants close, they are replaced with NG plant. Then you have the green lobby trying to stop fracking, which would shut down half of the NG production in the US

Fri, 03/23/2012 - 08:18 | 2282907 Augustus
Augustus's picture

The point is not that NG prices will rise a bit.  The point is that the overall transport fuel costs will decline about 70%.

Fri, 03/23/2012 - 11:10 | 2283470 mayhem_korner
mayhem_korner's picture

all about the oil companies preventing the change over -  nothing else 

 

That might make sense if the major natural gas producers weren't also major oil producers.

Fri, 03/23/2012 - 10:23 | 2283250 DC Exile
DC Exile's picture

Funny, the USA is incapable of building even minimal infrastructure to support natural gas vehicles (NGVs) yet the rest of the world is leaving it in the dust -- or fumes -- as the case may be. Brazil, Argentina, parts of Asia, and hell, even Pakistan, now have millions of vehicles running on natural gas (CNG or LNG). The USA is paralyzed and full of bullshit excuses.

Thu, 03/22/2012 - 18:36 | 2282012 Sophist Economicus
Sophist Economicus's picture

I converted my pickup to natgas. Cost less than $1000. Did it myself

Thu, 03/22/2012 - 20:12 | 2282175 Augustus
Augustus's picture

If you did do it yourself, I would almost guarantee it is illegal.  The EPA process for approval of a conversion is complicated and expensive.

Keep it parked outside in the breeze.

Thu, 03/22/2012 - 20:48 | 2282248 alex_g
alex_g's picture

Not illegal.  You just don't get the tax credit.  The kit is around $600, plus tanks, takes about 6-8 hrs to install. 

Thu, 03/22/2012 - 21:12 | 2282301 Augustus
Augustus's picture

to to do it in an EPA approved way is not the same as doing it yur way.  It must be tested to pass all of the EPA requirements as if it is a new vehicle.

Now, if you are simply adding LPG as a fuel on a regular diesel engine it should not be much of a deal as all of the engine control and monitoring stuff should still work.  Converting to CNG cannot be done for $600 as the high pressure tank almost certainly has to cost more than that.  Additionally all of the engine controls should be changed out.

Converting from Gasoline to CNG is not a simple project.

Mon, 07/16/2012 - 23:37 | 2623058 rajonmestra
rajonmestra's picture

it is still different when the process was approved by EPA compared to doing it yourself. it may be not illegal but it's wrong. and about the expenses? i think it costs more than $600 for gas tank brands vary their prices depending on the quality of the brand. hence, it's not as easy as you imagine bro.

 

rajon

Thu, 03/22/2012 - 16:46 | 2281784 blu
blu's picture

Technically speaking, for most of the history of mankind the price of natgas (and oil too) were actually zero because they had no value whatsoever, while the value of wood (and maybe coal) was really high.

Yeah, humans have been doing things without that stuff for a very long time.

Thu, 03/22/2012 - 17:16 | 2281853 Population Bubble
Population Bubble's picture

Of course, back then there were only about a billion people and now there are seven billion, and their food production can't keep up with the population without the oil for operations and distribution and the natural gas for fertilizer.

Thu, 03/22/2012 - 18:46 | 2282027 blu
blu's picture

It's okay, I'm pretty sure we can get by with just a billion people.

Though I don't suppose AAPL's P/E ratio will have held up very well on the way back to that.

Thu, 03/22/2012 - 23:03 | 2282499 sun tzu
sun tzu's picture

Are you volunteering yourself and your family as part of the 6 billion to be culled? Probably not.

Thu, 03/22/2012 - 23:05 | 2282504 sun tzu
sun tzu's picture

Back in history people didn't have electricity, running water, computers, airplanes, and many other comforts of life that people like you enjoy. Why don't you move to the jungles of the Amazon or New Guinea  to find out how it was like back then?

Thu, 03/22/2012 - 23:18 | 2282531 easypoints
easypoints's picture

Dont worry. He will be finding out whether he likes it or not

 

Fri, 03/23/2012 - 08:41 | 2282956 IrritableBowels
IrritableBowels's picture

They're flaring the shit out of NW North Dakota.

Thu, 03/22/2012 - 16:42 | 2281773 Jason T
Jason T's picture

I'm building a solar water and space heater ..using the sun bitchez

Thu, 03/22/2012 - 16:47 | 2281787 blu
blu's picture

Commie terrorist ...

Thu, 03/22/2012 - 21:47 | 2282369 LetThemEatRand
LetThemEatRand's picture

If he buys a Volt, he can be taken out and summarily shot.

Thu, 03/22/2012 - 17:32 | 2281902 barroter
barroter's picture

Using the Supreme Court, Big Energy will have them rule that the Sun has, is and always will be owned by them.

Thu, 03/22/2012 - 19:45 | 2282124 UP Forester
UP Forester's picture

I heard Mr. Burns is going to erect a huge umbrella and charge everyone for sunlight.

Heh, heh, I said "erect"....

Thu, 03/22/2012 - 21:14 | 2282307 Augustus
Augustus's picture

That is colloquially referred to as a pond.  Obama would approve as it will also provide algae.

Thu, 03/22/2012 - 23:06 | 2282505 sun tzu
sun tzu's picture

When you need hot water in the winter and there is very little sun, what do you do? Perhaps you should built a solar powered A/C instead. 

Anyway, oil isn't used to generate electricity. It's mostly coal and NG.

Fri, 03/23/2012 - 02:50 | 2282738 geekgrrl
geekgrrl's picture

In most cases, it's just a matter of scale. Systems can be over-designed, or supplemental systems can be employed. For example, Bosch has a line of on-demand hot water heaters that accept solar pre-heated water. During the winter months it's true that more propane would be used, but there is a huge return on investment of preheating the water for 3/4 of the year. This is really low-lying fruit. I'm surprised to see an objection to collecting completely free energy.

As for your second point, oil is required to generate electricity locally when the larger grid goes down, things like critical facilities, hospitals, backup systems, generators, etc. Remember Fukushima? No local power. So even though only 1% of petroleum goes to generating electrical power, that 1% is much more important than the other 99%, which includes transportation.

The third point I would make is that it is much easier for us to adapt ourselves to the rhythms of nature than it is to impose our will upon her. Business might dictate that you take a morning shower at 7am, but nature seems to think it would be better if you showered in the mid-afternoon, when solar insolation is the highest.

Fri, 03/23/2012 - 02:15 | 2282712 geekgrrl
geekgrrl's picture

Good for you!

I don't know if you've seen it, but back in the '70s, there were a group of folks who designed a solar hot water collector out of easily obtainable low-cost materials and they created a guide for teaching other folks how to build them themselves. I think the group was called Ecotrope, and I have the guide if you're not able to find it. I can't seem to find the link anymore so it may not be out there.

The design used standard copper 3/4" pipe for the top and bottom feeders, and copper 1/2" pipe for the collector tubes. They used corrugated metal roofing behind the collector, and spaced the 1/2" collector tubes so that each collector tube sat in the bottom of the trough of the corrugated roofing. The whole thing gets painted flat black. Behind the roofing was an inch of foam insulation and the whole assembly sat in a frame. The frame is just 2x4's with a plywood back and two insulated holes for the pipes. Then the glass and flashing complete the panel.

It's actually pretty easy to build if you know how to sweat copper pipe; that's really the only "specialized" skill necessary. The other thing that's nice is that they used standard copper tubing, meaning it's repairable. An extruded aluminum flat-panel collector that springs a leak is not easily repairable, especially in the future when things like JB weld are harder to come by. The vacuum tubes are definitely not repairable.

Anyway, if you're into renewable systems, you should check out the New Alchemy Institute

Thu, 03/22/2012 - 16:43 | 2281774 imapopulistnow
imapopulistnow's picture

YOY - Domestic oil is up 250kbd, nat gas liquids up 300kbd and net imports down 1,300 kbd.  We are headed in the right direction - as long as the enviro-wackos do not mess it up.

Thu, 03/22/2012 - 16:46 | 2281785 FXPortent
FXPortent's picture

Gasoline is pretty cheap, in gold. Bitchez!

Take that Benny boy!

Thu, 03/22/2012 - 16:49 | 2281793 blu
blu's picture

Funny thing is the guy at the service station would not take your gold for a fillup, not even at twice the rate of pay. He'd probably call the cops on you, too.

We have a looooong way to fall yet.

Thu, 03/22/2012 - 23:08 | 2282510 sun tzu
sun tzu's picture

People in Europe won't take dollars for petro. There's this thing called exchange, where you trade for the local currency. 

Fri, 03/23/2012 - 08:45 | 2282977 ONO47
ONO47's picture

Of course, he would call the cops on you, Citizen. You would be a domestic terrorist undermining the currency of the USSA.

Thu, 03/22/2012 - 16:48 | 2281790 imapopulistnow
imapopulistnow's picture

Also, LNG/CNG can serve as substitutes for diesel in fixed-location operations (ie drilling pump operations) and eventually long haul transportation.  Will not happen overnight, but it will happen.

LNG-Powered Shale Drilling Reduces Fuel Costs, Encana Says

http://www.bloomberg.com/news/2012-03-22/lng-powered-shale-drilling-redu...

Thu, 03/22/2012 - 20:17 | 2282180 Augustus
Augustus's picture

The easiest application is for fueling local delivery vehicles.  Busses, garbage, UPS and FedEx are all getting it implemented.  Reasonably low daily mileage and all at a central depot for the refil.

Fri, 03/23/2012 - 08:47 | 2282982 ONO47
ONO47's picture

Thats the way we do it here at Mordor Gas and Light.

Thu, 03/22/2012 - 16:53 | 2281802 Winston Churchill
Winston Churchill's picture

Unless gas goes to European price  levels ,T.Boone will remain Don

Quixote, charging at windmills.

A friend of mine in the U.K. has been running his car(s) for over

30 years on LPG.He just transfers the tank when he upgrades

cars.The coversion is cheap and easy,and his cars seem to run well,

even on motorways.He has no problem filling up either,and yet I cannot

ever remember seeing a LPG station.

Also(because of taxes)the price differential is no where near as big as

currently in the US.My friend states that he saves several thousand

pounds every year,and vehicle maintainence is reduced as well.

Food for thought.

 

Thu, 03/22/2012 - 20:19 | 2282189 Augustus
Augustus's picture

LPG is not LNG or CNG.

LPG is Liquid Propane Gas and is widely available for heating and as a cooking fuel.  It is one of the heavy gas components stripped from the NG stream.

Thu, 03/22/2012 - 23:09 | 2282514 sun tzu
sun tzu's picture

That's fine when you have a few thousand cars using LPG. When you have a few million cars using LPG, your friend will be trading in his LPG tank for a gasoline or diesel tank. 

Thu, 03/22/2012 - 16:55 | 2281806 Fedaykinx
Fedaykinx's picture

the advantage to liquid rich plays is transitory, as is the out of whack oil/gas ratio.  nat gas producing states are building out new infrastructure that will serve us well in the future.

Thu, 03/22/2012 - 16:56 | 2281809 mayhem_korner
mayhem_korner's picture

 

 

There is very little remaining substitutability between natural gas and oil/distillates.  On the residential side, oil exists as a heating fuel largely in the Northeast and in places where it's not cost effective to build out the nat gas infrastructure (sparse population and/or rocky/ledge terrain).

On the vehicle side, as I pointed out previously, it is prohibitively expensive to develop the distribution infrastructure broadly enough to enable large-scale natural gas vehicles.  They are bound to be concentrated in discrete radii around owners of large fleets.  But you can't go cross country because the availability of at-pressure nat gas isn't widespread outside of major metro areas.  And for every $1.4 million it takes to site one, fast-fill nat gas station - and that is only where there is sufficient, existing pipeline capacity - you can site 10-15 gasoline stations.  So the infrastructure economics still eclipse the commodity savings.  (Plus, if you convert millions of cars to NGV, the gasoline/nat-gas differential will compress).

And, as the bottom chart shows, there is almost no substitutability of gas for oil in power gen.  Outside of Long Island, and a few select dogs left standing for reliability or property tax purposes, there is no oil-fired gen to speak of.  Industry is similar.  The major dual-fuel industries left the U.S. a decade ago, and the natural-gas intensive industries (like fertilizer manufacturers) relocated overseas after the price shocks of the early 2000s.

So the notion of a "premium" is nice for charts, but it doesn't mean a whole lot in reality.

Thu, 03/22/2012 - 17:19 | 2281861 the grateful un...
the grateful unemployed's picture

of course the infrastructure for oil refineries is more cost effective (like hell) and the political and transportation costs of importing oil, is all really nothing compared to getting Natgas across country, since most driving is done within a small radii, otherwise fracking electric cars would make no sense, (and they don't because of the electric grid expensive toxic batteries and long down time to recharge, - do you consider that a workable technology, the POTUS does), but lets not forget what sort of infrastructure costs go into an electric grid which may lose half its power going across country. no we've down this road with you, you're a player hater, no reason to repeat all these arguments, if the government thinks switchgrass and ethanol is effective then perhaps Natgas has some possibility, and while this article assumes NOTHING is happening a whole hell of a lot is HAPPENING as fleets of buses and trucks have already converted.

i do agree that the price spread will compress if Natgas becomes a primary fuel, which it will, just as soon as the lunatics in DC are replaced, (which is never according the history books) meanwhile the individual has plenty of opps here, because their stupidity means lower Natgas prices for some years ahead.

Thu, 03/22/2012 - 17:28 | 2281874 mayhem_korner
mayhem_korner's picture

 

 

No one has built an oil refinery in 30 years in the U.S.

You're imagining that I hate natural gas because you can't reconcile the reality of the economics.  Get the data and do the analysis for yourself.  I've done it a hundred times over.  Show us what it costs to site natural gas filling stations within 20 mile radius across the plains, central appalachia, and the mountain west.  (Don't forget to include the $6million cost of a gate station to regulate the 1400 psi down to distribution pressure, plus the hundreds of miles of million-dollar-per-mile transmission grade pipe to simply get gas to these remote places).  Once you get to real figures, you'll realize it ain't gonna happen anytime soon.

As I educated you on the last post on this stuff, retail natural gas technology - including for vehicles - has been around for decades.  So there is no technology barrier to the propagation of natural gas.  Yet there are hardly any refueling stations, and virtually all of them are in urban areas and sponsored by fleets.

Keep wishin' though. 

Thu, 03/22/2012 - 17:38 | 2281914 imapopulistnow
imapopulistnow's picture

1) Natural gas is one of the biggest production costs in refining oil.  Low natural gas prices likely are why we currently are a net exporter of refined fuels & why our refineries have survivied while many in Europe and the islands have closed.

2) New refineries - no.  Expanded existing refineries - yes.  Case in point is Movita in Port Arthur going from 225,000 to 600,000 bd - opening soon. 

Thu, 03/22/2012 - 20:33 | 2282220 mayhem_korner
mayhem_korner's picture

 

 

Agreed.  But nat gas is not universally a refinery feedstock.  One of the reasons U.S. refiners are so economic now is because there is indigenous natural gas available.  In Korea, for example, the only nat gas is imported LNG, so they often rely on C4, Naphtha or other options for refinery feedstocks.

Thu, 03/22/2012 - 21:15 | 2282309 CharlieSDT
CharlieSDT's picture

How about the huge public costs of protecting the oil supply with the most powerful army in the history of the world?  Those costs do figure in the infrastucture debate.

Thu, 03/22/2012 - 21:33 | 2282349 oldman
oldman's picture

Thanks, Charlie,

And, how many drops of SOMEONE ELSE'S BLOOD per gallon(SEB/gal)?

Oh, right----we don't pay for that!

Good comment, my friend    we sometimes forget the details                      om

Thu, 03/22/2012 - 23:14 | 2282524 sun tzu
sun tzu's picture

Which oilfields are we protecting? Saddam was willing to sell us the oil, we just wanted to take it. The same with Gaddhafi. You see, the Arabs really can't do anything with that oil except sell it. If they don't sell it, they don't have food or even any semblance of a modern civilization. They produce nothing of value but oil. 

Fri, 03/23/2012 - 00:18 | 2282622 the grateful un...
the grateful unemployed's picture

there are plenty of refueling stations they're just not public i have researched this, you throw around numbers like a politician, who wants to ignore what the current energy infratructure costs because the corporate structure is already embedded in the oil business. for starters natgas doesn't have to be the universal one size fits all that you think it should be. you don't need to do much research to see what is happening, behind the curtain. if every bus in LA was nuclear powered would you still be telling everyone nuclear power just isn't for everyone, and costs too much, and all the anti energy conversion rhetoric that socalled experts who are against natgas keep saying. the truth is going to surprise a lot of people. with all the other bullshit energy proposals, electric cars, biofuel, cooking oil, you can sit there and tell us natgas isn't feasible? just one question, what the hell energy source is?

Thu, 03/22/2012 - 17:31 | 2281898 imapopulistnow
imapopulistnow's picture

Yours points are all valid.  The low hanging fruit has been picked without much additional conversion in the immediate term.  But that said, with the btu price differential (here vs. oil & vs. global natural gas prices), Mr. Market is getting to work in many areas.  The apparent certainty that natural gas supplies are ample and prices will remain moderate will encourage above average growth of nat gas as an energy source.  Will be good for reindustriialization, global competitiveness, helping to keep a lid on inflation, etc.  For natural gas producers though, their margins should remain constrained for many years for the reasons you have laid out.

Thu, 03/22/2012 - 17:36 | 2281909 mayhem_korner
mayhem_korner's picture

 

 

Above average growth of natural gas as an energy source has been occurring for fifty years.  Somehow this point is missed on many here.  All through the 90s and 2000s there was enormous conversion of heat and hot water load to natural gas, and 99% of new homes built within reach of a gas main were gas-fired.

That ng is somehow going to "break out" all of a sudden misses the fact that it has been on a tear for decades.

Thu, 03/22/2012 - 17:46 | 2281929 imapopulistnow
imapopulistnow's picture

The btu differential - at current orders of magnitude - is a recent event, but appears to be a multi-decade event.  It will be interesting to see what Mr. Market does with this and how long it takes to develop. 

Thu, 03/22/2012 - 17:34 | 2281906 Evil Bugeyes
Evil Bugeyes's picture

There is an extensive natural gas distribution already in place. Lots of people are using NG to heat their homes, cook, and possibly run their dryers.

To fuel an automobile, you would very likely also need a compressor.

The real problem with NG seems to be that it is difficult to fit enough of it into a small enough volume to give the car a reasonable range. It might work for commuting where you drive the car to and from work and fill it up in your garage every night. But not many people want to buy a separate car just for commuting.

Thu, 03/22/2012 - 17:40 | 2281917 mayhem_korner
mayhem_korner's picture

 

 

There is NOT extensive natural gas distribution already in place...just where a lot of people live.  But when you DRIVE, you drive through places that not a lot of people live.  And THAT is where the economics of a ng filling station get crushed.  For $50K one can put all the infrastructure in place necessary for a gasoline station - underground tanks, pumps, and a cash register.  To do the equivalent with ng in say, central Kansas, you would need $5 - $8million for the interstate step-down station and filling station.  That's the problem.  And with no other reason to put natural gas in a sparsely populated place, you can see why the network of ng filling stations hasn't been built in the last several decades.

BTW, the vehicle technology is fully functional.  Can probably go 150-200 miles in with a CNG tank in a Honda civic ng.  You just have to make sure you can get back to the one filling station in the area.

Thu, 03/22/2012 - 18:03 | 2281957 riphowardkatz
riphowardkatz's picture

Very informative, thanks.

What about hybrid of gas and nat gas? 

Thu, 03/22/2012 - 18:41 | 2282020 mark mchugh
mark mchugh's picture

Turns out Iran is on the cutting edge of that technology.

http://en.wikipedia.org/wiki/IKCO_EF_Engines

Thu, 03/22/2012 - 19:08 | 2282061 riphowardkatz
riphowardkatz's picture

What say you  senor mayhem_korner

Looks like your full of it. 

Thu, 03/22/2012 - 20:30 | 2282188 mayhem_korner
mayhem_korner's picture

 

 

Yes.  The one person with 20+ years in the industry, including commissioning multiple natural gas filling stations, developing natural gas vehicle specific utility tariffs in 4 jurisdictions, testimony all over the world on ng rates and risk management...and who drove around in an NG Honda Civic for 9 months to build awareness is full of it.

Let me know WHEN this all goes viral.  You are focused on the vehicle.  As I've said over and over and over...that is NOT the impediment.  The impediment is the pipeline infrastructure.  Go figure.

BTW, can you tell me a little bit about Topock, Leidy, TZ6, Waddington, Dracut, and the Permian basin?  How about the null (physical) point on the Union system in Ontario?  How fast does natural gas move in a 1200 psi pipeline?  How much does an at-home compression unit cost, and how much does it step up the 60 psi coming in from the street?  How come you don't own a natural gas vehicle, or haven't opened up a station yet?  Who regulates utility tariffs - FERC or state commissions?  I really want to know what you - who claim I am full of it - know.  So please enlighten me, Jethro.

Thu, 03/22/2012 - 22:24 | 2282423 riphowardkatz
riphowardkatz's picture

And I guarantee Ben Bernanke knows more about the Great Depression than I do. A bunch of facts mean nothing when you can't look at common sense. Your whole premise is based on the assumption that natural gas can't work for vehicles simply because people cannot drive cross country. The fact is very few people drive cross country, ever. vast majority of miles are driven within a 50 mile radius. 

You could be right but reading through these comments you seem more like an academic/gov employee than a speculator, full of knowledge that can't help anyone predict the future with any degree of accuracy.

We will have to let reality be the judge.  

Thu, 03/22/2012 - 23:18 | 2282532 sun tzu
sun tzu's picture

Ummm...reality is on his side. Over 90% of vehicles using NG are fleets. You can't just use NG flowing into your house to pump into an NG car. You need a very expensive heavy-duty compressor. I agree that NG can work for daily commute. Also realize that prices will rise as demand rises and the NG industry is under attack by the green lobby.

Thu, 03/22/2012 - 20:25 | 2282202 mayhem_korner
mayhem_korner's picture

 

 

Of course.  Dual-fuel combustion engines are cutting edge.  Only been around in power gen for about 30 years.  Someone simply decided to shrink it to fit inside a car. 

Doesn't solve the primary issue, which is the lack of pipeline infrastructure across huge swaths of real estate in the U.S.

Thu, 03/22/2012 - 21:23 | 2282327 CharlieSDT
CharlieSDT's picture

Well it would solve the problem for many many people who do have access to NG.  Have a local filling station or compress at home off existing NG home service, and then use the NG for daily commuting.  Have to take the kids to Wally World?  Then use gas on your longer road trips when no NG filling station exists.  Seems like that would work for the majority of Americans.

 

http://205.254.135.7/pub/oil_gas/natural_gas/analysis_publications/ngpipeline/index.html

Thu, 03/22/2012 - 18:10 | 2281972 css1971
css1971's picture

NG conversions usually allow you to switch back to petrol (or Diesel). Some do it automatically when the NG runs out, so you don't get stuck.

Thu, 03/22/2012 - 20:23 | 2282197 Bicycle Repairman
Bicycle Repairman's picture

mayhem_korner

"On the residential side, oil exists as a heating fuel largely in the Northeast"

I live in the NE and almost everyone in my city uses natural gas to heat.

"On the vehicle side, as I pointed out previously, it is prohibitively expensive to develop the distribution infrastructure broadly enough to enable large-scale natural gas vehicles"

There is a natural gas filling station near you.  Look it up on the EPA's site.

Natural gas is the present for residential and could be the near term future for vehicles.

Most of America lives in cities, so no problemo, senor.

 

Fri, 03/23/2012 - 08:26 | 2282922 mayhem_korner
mayhem_korner's picture

 

 

45% of homes in the northeast don't use natural gas to heat.  It's the highest concentration of oil in any heating region of the U.S.

How many natural gas vehicles do you own?  And while you're at it, tell us how many of your neighbors own a natural gas vehicle.  Get back to me when your answer clears the zero line.  All those filling stations you reference are operated by fleet owners.  None on the corner next to Cumberland Farms open to the public, bub.

Fri, 03/23/2012 - 15:44 | 2284699 Bicycle Repairman
Bicycle Repairman's picture

Oil heat is the standard out in the suburbs and in older areas that predate the use of natural gas.  Anyone I've talked to would like to switch from oil to gas.  Any new building will feature natural gas.

As for natural gas filling stations you can find a local one here:

http://www.afdc.energy.gov/afdc/fuels/stations.html

Anyone can drive up and fill up.  Anyone.

Do I know any private citizen with a natural gas powered vehicle?  No.  Honda makes one, but for some reason they are not sold in this country.  And it isn't due to the lack of fuel availability.

If the US government spent the effort on natural gas that they spend on CAFE, they'd be plenty of natural gas powered vehicle

Thu, 03/22/2012 - 17:04 | 2281829 Kassandra
Kassandra's picture

T. Boone is seriously into water. Pay attention.
http://nebraska.statepaper.com/vnews/display.v/ART/4d79ede36d5b5

Thu, 03/22/2012 - 17:18 | 2281860 Panafrican Funk...
Panafrican Funktron Robot's picture

Water is the new commodity play.  Coming to an exchange near you!

Thu, 03/22/2012 - 17:36 | 2281910 barroter
barroter's picture

Problem with water...it rains.

Thu, 03/22/2012 - 18:07 | 2281966 NotApplicable
NotApplicable's picture

Problem with rain... it mixes with surface water and other ground-source pollution. Not to mention, it's already carrying Fukushima cesium.

Potable water != rain water anymore

Thu, 03/22/2012 - 21:55 | 2282382 Goldilocks
Goldilocks's picture

Nuclear Detonation Timeline "1945-1998"
http://www.youtube.com/watch?v=I9lquok4Pdk (10:00)

Thu, 03/22/2012 - 17:20 | 2281863 Population Bubble
Population Bubble's picture

We'd be best off saving all the natural gas for heating and cooking rather than transport, otherwise we are once again just kicking the can.

Thu, 03/22/2012 - 17:29 | 2281885 bankruptcylawyer
bankruptcylawyer's picture

Wow i didnt realize tha all this wet gas ive been having is so valuable.
Thanks!

On that noteoutside mt shared office. .m ----- there was a ditinct noise of a cat meow in the hallway, my officemate .dumbfoundendly asked me if that wasa cat so i resonded by saying it was just an unsual sounding fart. For some reason peole thought that was a riot

Thu, 03/22/2012 - 18:08 | 2281968 NotApplicable
NotApplicable's picture

Around here wet gas is known as a shart.

Thu, 03/22/2012 - 17:46 | 2281923 Pretorian
Pretorian's picture

Thats because Uncle Sam companies are extracting the shit all over the world. Not matter if it is in Iraq, Libya or US offshore.  Bernanke prints money out of thin air and then using them to buy  real assets to prop up inflation and coincidentally only assets that US exports are hitting higest prices, oil(not Lpg Gas) corn(not wheat) soybean etc.. Thats how US fund its liabilities and at the same time cause trouble for the rest of the world.

Thu, 03/22/2012 - 17:50 | 2281934 blu
blu's picture

There is a lot of cognitive dissonance in the comments here.

Folks, the oil play is over. Fini. The jig is up. In a few years we'll all recognize how badly it is over and we'll be able to look back in hind sight and know pretty much to the day when it was really over, but by then we'll be scrambling around trying to find other less-over ways to keep our asses in motion. By then it won't matter squat if a viable natgas infrastructure exists or not, it simply will have to. They'll mobilize the combined energy of the entire nation into building it, and converting all mass transit to run on natgas, and converting private vehicles as quickly as possible. Cost will not even enter into it. Feelings will not enter into it. Sunk costs will not enter into it. Nothing will matter, except keeping peoples' asses in motion.

The board is set and the pieces are moving. There is no room for error or hurt feelings. There is simply no more time.

Thu, 03/22/2012 - 17:50 | 2281935 kevinearick
kevinearick's picture

Apples, Horses, & the Hangman

Apple is just another parasitic corporation being employed to build hysteria across the event horizons. It’s a short, locking the system into financial fusion. Most enter the income horizons as a matter of course. Some enter with an exit plan, but lie to themselves when the exit door appears. Lies beget lies exponentially. How many times must you see hysteria before you recognize its characteristic deployment in the empire wave?

Apple is just the Trojan Horse, as is building a pipeline from Canada to the Gulf, to export non-viable economics. The hoarders always attempt to release their horde after it “suddenly” becomes irrelevant, just as the fascist denizens always get their necks broke, same sh**show, different dress. Funny, what’s happening over at FedEx, which is cannibalizing USPS. What does explicit job creation look like on the margin?

You can’t buy love, but you can buy the majority, which becomes addicted to its own lies the first time it passes the exit door, which is usually the entry door, to prisoners dilemma, the false assumption of its constitutional character, consumption redefined as investment, haters of haters learning to become the hated. Inside the empire, life is TV, a time wasteland that appears relevant until it doesn’t. What happens when the gravitron stops and there is no floor?

Apple is now the TBTF posterchild.

Thu, 03/22/2012 - 18:12 | 2281974 blu
blu's picture

whut wuz that lol

Thu, 03/22/2012 - 21:21 | 2282322 blunderdog
blunderdog's picture

kevin's work is not for everyone, but there's a point to what he says.  He's about 3 steps past most people's acceptable level of metaphor.

Fri, 03/23/2012 - 01:29 | 2282683 Nukular Freedum
Nukular Freedum's picture

Crack kicking in is it?

Thu, 03/22/2012 - 17:50 | 2281936 swissaustrian
swissaustrian's picture

If you wanna play NG buy SWN, they have the lowest cash cost of all primary NG producers in the US.

They're overvalued right now, though.

Also keep in mind that NG is currently trading below average production cost (finding + development + lifting, optimisticly arround $3.75), so prices will go up eventually.

NG prices are much higher in other parts of the world (Japan, Europe). That's why shipping rates have doubled in the last two years.

 

Thu, 03/22/2012 - 21:48 | 2282371 gasmiinder
gasmiinder's picture

$3.75 all in lifting cost is very optimistic.  What the companies report and what they actually spend have a tendency to be fudged.  In particular lease acquisition costs in any of the shale plays is astronomical and is very often ignored as sunk costs.  They also love to quote total reserves while they only get to sell 75-80% depending on the locale, while that total reserve estimate is based on a very optimistic projection of decline based on parameters that are questionable at best. Then they love to book a vast array of "proven non-producing" reserves to every successful well - this is the way they are actually hiding the real economics of shale plays from their wall street financiers.

I'm in the business - and I can tell you that a large percentage of engineers I speak to do not believe profits are being made in any dry gas shale play. 

A couple of things to consider: 1) There is a reason there was a big push a couple years ago to have the SEC change the definition of proven reserves to one where a statistical model of a region is used to book "proven non-producing". 2) Take a look at the biggest shale gas player in the country - they are utterly dependent on selling large pieces of their acreage to foreign companies with no shale experience at vastly inflated sums and driling carries to stay in business, and rumours abound regarding their actual position regardless.  Notice that no domestic company with shale experience in any trend has ever taken one of those deals...........

Point is - there is a lot of gas in shale but it is vastly overhyped at the moment and it will not be produced at current prices.  So convert everything to gas - I need the money.

Thu, 03/22/2012 - 17:55 | 2281948 swissaustrian
swissaustrian's picture

The real issue for NG as a fuel is the massive cost of NG tanks. A traditional Gasoline tank for a car costs about $150. The same tank for LNG costs about $4000. These NG need a pressure of arround 500 bar. So LNG only makes sense for industrial applications with high energy consumtion. You need to run these machines constantly in order to save money from cheaper fuel, because the tanks are so damn expensive.

Thu, 03/22/2012 - 18:21 | 2281987 blu
blu's picture

I think most vehicles are being fitted with CNG tanks, not LNG. LNG has more density of course, but it's hard to justify the hassle and expense just for a run-around.

Thu, 03/22/2012 - 18:09 | 2281970 Widowmaker
Widowmaker's picture

Natty-gas is a terrific long play for those that want to make money.   This Tyler is clearly in bed with crony-oil in the outhouse.

Thu, 03/22/2012 - 18:28 | 2282000 BobPaulson
BobPaulson's picture

If the price difference (between gasoline and oil+coal) gets too big, methane+coal=gasoline with some lost in the process due to heat.

Thu, 03/22/2012 - 20:36 | 2282226 mayhem_korner
mayhem_korner's picture

 

 

Don't forget the millions in environmental remediation lawsuits from the by-product soil that grows 60lb tomatoes and gives rise to 6-antlered deer.

Thu, 03/22/2012 - 18:33 | 2282009 Lmo Mutton
Lmo Mutton's picture

HHO conversion bitchezzzz.

Thu, 03/22/2012 - 18:36 | 2282013 css1971
css1971's picture

Lots of NG powered cars here in Germany. Many taxis.

Thu, 03/22/2012 - 18:48 | 2282030 mark mchugh
mark mchugh's picture

We are going to have to deal with energy because we can’t keep on borrowing from the Chinese and sending money to Saudi Arabia. We are mortgaging our children’s future. We’ve got to have a different energy plan.

~Barack Obama

Presidential debate, October 7, 2008


“The next time you hear some politician trotting out some three-point plan for $2 gas you let him know we know better. Tell him we’re tired of hearing phony election year promises that never come about.”

~President Barack Obama

March 7, 2012

Thu, 03/22/2012 - 20:31 | 2282214 Augustus
Augustus's picture

Barry bin Lie'n is on tour now trying to convince voters that he really could screw in a light bulb, if he really, really, really had to have light.  Of course, he never mentions that the bulb will be the government approved one costing $50.  Or that, after shutting down at least 100 paid for coal fired power plants, no one will be able to pay for the electricity.

Thu, 03/22/2012 - 18:55 | 2282040 A Lunatic
A Lunatic's picture

Use all of the Oil on the planet.........then we will work out a solution.

Thu, 03/22/2012 - 19:13 | 2282066 blu
blu's picture

That about sums it up. Silly apes.

Thu, 03/22/2012 - 20:33 | 2282219 Augustus
Augustus's picture

That will move the problem about 1,000 years into the future.

Surely the Iranians will have found a way to get the Mahdi to return before then.

Thu, 03/22/2012 - 21:23 | 2282328 blunderdog
blunderdog's picture

That cinches it.  I'm putting a gallon of gas in my fallout bunker so I can sell it for a BEEEEELLLLLION dollars when all the rest is gone.

Thu, 03/22/2012 - 19:30 | 2282100 jtlien
jtlien's picture

 

Why use natural gas?  Makes green house gas.  Run your car on ammonia.  Creates no greenhouse gas.  Make ammonia at home using electricity and air.   Make the electricity at a coal fired plant with CO2 sequestration or nuclear plant. 

http://eniornigan.blogspot.com/

Thu, 03/22/2012 - 21:01 | 2282283 Jim in MN
Jim in MN's picture

For long haul trucks the play is LNG not CNG.  Much more expensive filling stations and vehicle conversions, but better efficiency and range.

How about five 'alt fuel corridors' with ten stations per corridor, every 100 miles for 1,000 miles per corridor?  Cost, on the order of $50 million at $1 million per station.

That should get a good chunk of the heavy duty market into play.  What's $50 million to the right public-private partnership?

At the moment the LNG truck orders are coming in batches of up to a couple hundred, for fleets.  The Alberta tar sands folks are using them as 'enviro penance' among others.  UPS is into it, some others.

But to break out from dedicated, private fueling for fleets requires a big move.  A vision, if you will.  But, in the big picture it's not especially expensive.

Thu, 03/22/2012 - 22:32 | 2282431 Fedaykinx
Fedaykinx's picture

http://investors.cleanenergyfuels.com/common/mobile/iphone/releasedetail...

howsbout 150 million for 150 stations?

also, we's don't need no stinkin' gubment parnurships neither.

Thu, 03/22/2012 - 21:08 | 2282291 Lumberjack
Lumberjack's picture

Note: I saw something similar during the late 80's early 90's regarding Kenetec/US windpower... just before they went bankrupt.

 

http://www.nineoclock.ro/romanian-ambassador-to-bulgaria-land-claim-is-a...

 

[snip]

 

 

Bulgarian President, Rosen Plevneliev, took the stand yesterday on the Black Sea maritime border dispute between Bulgaria and Romania expressing confidence that the problem will be solved by April 15 “in a reasonable European manner”. “Romania is obviously seeking a quick solution to a problem that is not put on the table as a territorial claim. Romania’s Foreign Minister is talking about an ‘unresolved problem’, not about a territorial problem,” Plevneliev said, as cited by Novinite.com. In his turn, the Romanian Ambassador in Sofia, Anton Pacuretu said Romania has no territorial claims towards Bulgaria and labeled what happened a misunderstanding. Pacuretu met yesterday with Deputy Minister of Foreign Affairs Dimitar Tsanchev, as the press office of the Ministry of Foreign Affairs informs, according to the same source.

Southstream goes through the disputed area

The Black Sea territorial shelf that Romania and Bulgaria are disputing is located in an area through which the Southstream pipeline is designed to go through, diplomatic sources stated on Wednesday evening for Mediafax. The Southstream project seeks to build a natural gas pipeline from Russia to Bulgaria, through the Black Sea.

 

Thu, 03/22/2012 - 22:39 | 2282449 BalanceOrBust
BalanceOrBust's picture

Very interesting charts.  When you see the source versus use chart, it becomes clear why natural gas is so cheap.  While household uses remain strong, the downturn in manufacturing has hurt use.  Without the Pickens plan on transportation or larger scale electricity production use, natural gas will stay low.  But if I read the charts right, it is starting to be competitive with coal.  Now that would seem to be a no-brainer for the introduction of gas-fired plants to replace coal-fired ones.  Maybe there is hope for natural gas yet.

Fri, 03/23/2012 - 02:49 | 2282737 StockMarketBott...
StockMarketBottom.com's picture

How to Recognize When a Stock Market Bottom Is In Place

http://stockmarketbottom.com

Fri, 03/23/2012 - 07:12 | 2282828 CEOoftheSOFA
CEOoftheSOFA's picture

Risk of fracing? There is no significant risk of fracing. It's old technology. The water wells in PA are being polluted by shallow gas because Cabot isn't running enough surface casing.

Sat, 03/24/2012 - 09:42 | 2286387 Scrilla
Scrilla's picture

OMFG, why would ZH gloomify one of the few positive highlights facing US' future energy developments?

The world's two largest automakers, GM and Ford, are now manufacturing dual-fuel CNG compatible trucks and vans (CNG Silverados will go on sale next month). As the infrastructure around vehicular natural gas develops, natural gas will without doubt be a high growth transportation fuel. This process will in turn equilibrate the glut of low-price domestic shale and dry gas, and substitute the ever more costly liquid petroleum products. And to prove my point, telecommunication giant, AT&T, just renewed/purchased a fleet of 1,500 CNG-powered Chevy Express vans.

But in reality, the real growth in natural gas utilization will be from the industrial sector. Petrochemical plants, gas-fired power generation plants and liquid-natural gas export facilities will stand out as key areas. As for electricity generation, natural gas will continue to further substitute coal and nuclear power, as it's both cheaper and cleaner (in extraction and burning). As far as LNG exports goes, there is currently 100bcm/y of capacity on hold pending approval from the Department of Energy. The DOE also projects the United States will be a net gas exporter by 2022.

Assuming favourable legislation from US’ policymakers, this could really prove to be a great opportunity for United States to renew and improve its energy strategy (as far as sustainability, sufficiency, security and pollution go), taking advantage of the natural gas revolution.

I spoke to a senior gas analyst/advisor for Statoil ASA (Europe's second largest gas provider), and he supported all these views.

Do NOT follow this link or you will be banned from the site!