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The sinking price of natural gas

Cabot Oil and Gas natural gas drill stands at a hydraulic fracturing site on January 18, 2012 in South Montrose, Penn. Natural gas prices are at their lowest in a decade, with help from the fracking process.

Jeremy Hobson: Anyone who’s filled up a gas tank recently would probably conclude there’s not enough supply and there’s too much demand, that’s why it costs almost $4 on average a gallon nationwide to fill up your tank. But when it comes to natural gas the supply demand problem is just the opposite. Producers have been fracking like crazy -- that’s an industry term. And natural gas prices are now at their lowest level since 2002.

Juli Neimann is an analyst with Smith Moore & Company. She’s with us now from St. Louis. Good morning.

Juli Neimann: Good morning, Jeremy.

Hobson: Tell us why natural gas prices are falling so much. I thought that global energy demand was going up.

Neimann: Well the beauty about natural gas is -- demand is certainly up but the pricing is way down simply because of supply. We dropped below $2 per thousand cubic feet for the first time yesterday in ten years which is absolutely huge. The demand right now is really going more towards chemical companies, aluminum and steel companies, fertilizer companies, and heating your home. Now the kicker here is, natural gas supplies are 60 percent higher than normal after the last five years. This is a huge amount that they’ve got now in storage and there’s simply not much more room to put it in storage but they’re still continuing to producer.

Hobson: But we have demand for energy in general right so is it just that we don’t have the technology to get the natural gas into whatever we want to use to consume energy?

Neimann: Well natural gas has mostly industrial uses and heating uses. What we don’t use it for is driving. Does it make sense to use it, yes -- it’s very clean burning, very low emissions, it would certainly help with pollution but it’s quite expensive to convert a car over to compressed natural gas.

Hobson: Juli Neimann is an oil and gas analyst at Smith Moore & Company in St. Louis. Thanks a lot.

Neimann: Thank you.

About the author

Juli Niemann is executive vice-president for research and portfolio management with Smith, Moore and Company.
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It’s expensive to convert cars to take natural gas but if all vehicles were manufactured to take both kinds of gas then the costs could be incorporated into the overall price. Plenty of countries already have millions of natural gas-powered vehicles on their roads and there is no reason that the USA can’t follow suit and increase their numbers. In Australia many of the work trucks on the road run on green gas, compressed natural gas, and have been for years.
Mel Brandle
http://www.supercheapstorage.com.au/storage-facilities/adelaide/

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