20 January 2012

Invention as the Mother of Necessity

Natural gas prices have plummeted, due to an oversupply, and because gas is a also by-product of other commodities, the supply keeps growing, setting up a situation where concerns have been expressed about our ability to store all that gas. The figure above shows US storage of natural gas approaching capacity (data from the US EIA).
Weak demand for heating has raised the prospect that underground storage facilities will bulge with record stocks by the end of winter. Bentek Energy, a market analysis group, last week warned that some swollen storage facilities might be forced to let out gas to maintain operational integrity, causing “extreme downward pressure on prices in March”.

Even a hot summer that would force electric power plants to burn more gas may not keep inventories from straining proved storage capacity of 4.1tn cu ft when the gas “injection season” ends in October or November.

Drillers have endured low prices, pushing output above 60bn cu ft per day, because many wells also pump higher-value liquids and petroleum. “It’s like a guy mining for silver and he keeps running into gold,” said Vikas Dwivedi, energy analyst at Macquarie.
I don't know what it means to "let gas out to maintain operational integrity" but it sounds like both a bad idea and a big opportunity -- environmentally, economically, technologically and politically.  A reader points to this link on the basics of storage.


  1. There are huge opportunities. There are processes for converting natural gas into transportation fuels like gasoline and diesel. Since the price of crude (on a heat generation basis) is now approaching 5x the price for natural gas, there is a huge incentive to do this. Qatar, who has huge reserves of natural gas, recently completed a plant to do this.
    It is also important to look beyond prices in north America. Most gas travels via pipeline and a limited amount gets shipped via LNG tankers so the price varies tremendously on a regional basis. I'm sure there would be a lot of Europeans willing to take this off our hands.

  2. .

    "I'm sure there would be a lot of Europeans willing to take this off our hands."

    No doubt that is true. However, with Obama's refusal to allow carbon based infrastructure to be built, even planning for LNG plant and pipelines will have to wait for the 2012 election, or perhaps the 2016 election.


  3. Shale gas is a Ponzi scheme that will never produce significant amounts of product. The New York Times told me so.

  4. #1 Sean, Sasol is proposing to build a GTL plant in Lake Charles, LA. The dominate cut from GTL is distillate Diesel/ Jet fuel/heating. These are high demand globally. US is exporting gasoline its in such a glut.

  5. You said "I don't know what it means to 'let gas out to maintain operational integrity' but it sounds like both a bad idea and a big opportunity -- environmentally, economically, technologically and politically." Underground storage can be in depleted oil and gas fields, unused natural aquifers - converted to storage, and salt caverns or "domes". Detailed information on underground storage of gas is found at EIA http://www.eia.gov/pub/oil_gas/natural_gas/analysis_publications/storagebasics/storagebasics.html more than you want to know. Bentek Energy's statement about letting gas out because some of the facilities are becoming "swollen" implies that the storage facilities are getting chock full and gas must be let out (i.e., into the market) to maintain operational / mechanical integrity. The gas released into the market would temporarily increase supply thereby putting downward pressure on prices. Producers wouldn't be happy doing it v. holding and selling at higher prices later. It certainly does not mean releasing methane to the atmosphere if that's what you were thinking.

  6. -5-Danley Wolfe

    Thanks much, I was thinking more of flaring if the alternative is a floor with no bottom.

  7. Natural Gas Rig Count has dropped 13.9% year on year.


    Strange how those 'laws of economics' work..when the market price of natural gas drops below the extraction cost natural gas producers stop drilling.

  8. Many utilities are offering rebates for converting to natural gas appliances, including water heaters and clothes dryers. The bang for consumers is even greater now with the declining gas prices. What’s not generally known is that installation costs are considerably lower than they were a decade ago (when we converted to a gas dryer and water heater) because the flexible steel gas pipe is much easier to work with than the black iron pipe of days gone by, requiring about a third of the labor.

    There are few refilling stations on the east coast, and current pricing for a home natural gas fueling station in this area is $6,000. (It’s actually a small commercial model, but the cheapest one certified for use on our area.) I believe that the only OEM vehicle available is a Honda Civic, but conversions for many makes and models are available, whether the economics justify such or not.

    One big advantage of natural gas and conversions is that the modifications to muscle cars and other performance models of yesteryear are straightforward and do not detract from the performance of these wild rides. That’s really gonna upset the enviros if enough gearheads make the move and lay a patch of rubber with an environmentally responsible GTO.

    What’s still hazy is how the feds and states are going to enforce and collect transportation taxes on natural gas used for transportation.