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Natural Gas Glut: Shame on US

April 16, 2012

It wasn’t long ago that the United States realized that it had a huge problem: the amount of natural gas we used for utilities was too large for our production numbers to shoulder. We couldn’t produce enough Natural Gas to meet a growing demand so we were looking at importing natural gas at record high prices.

Prices trended upward long before Hurricanes Katrina and Rita ravaged the Gulf Coast. At the time before the storms, natural gas demand rose because of economical growth and the increase of electricity produced using natural gas.

2005 marked a rise in costs that made us sweat. Futures’ prices had risen from $6.00 per MMBtu to $9.00 per MMBtu. An increase of 50% was realized before August of the same year. Following the storms, which, in effect locked up GOM production, prices rose an additional 65%, eventually rising to the point where $6.00 per MMbtu reached $16.00 for the same volume in the same year. (The MMBtu equivalent to mcf is 1 MMBtu=0.9649 mcf…the equivalent price was $15.44 per mcf).

The equivalent would be if gasoline prices went from $3.90 in 2012 to $5.85 by August before rising to $15.56 per gallon, all in the same year.

According to this report from FERC (Federal Energy Regulatory Commission), we were scrambling. Part of FERC’s strategy included approving “applications for a substantial expansion of the Nation’s LNG terminals for overseas gas.”

We geared up for imports at sky high costs because there was no alternative that could effectively meet the demand. Such was the price of power and growth. According to FERC, natural gas prices had been “spiky” by nature and the upward sweeping trend was expected to grow throughout the winter when gas usage increased.

The prospect for natural gas and its relationship with the United States was terrible because we needed it as a supplier of power. Natural gas use seemed to be going the same path as oil: increased imports to feed our growing energy needs at high cost to the US.

Then, something unexpected and extraordinary happened: We learned that the fear associated with our growing need to import natural gas was for naught.

We discovered the equivalent of “two Saudi Arabia’s worth of natural gas” beneath our feet. We saw that there would be no need to import all of the expensive foreign fuel. We’d be enabled to produce all of the natural gas we needed and much, much more. Almost overnight, we had a method to extract massive quantities of natural gas. Instead of importing natural gas, we’d be capable of exporting out of the abundance of our native supply.

This meant energy, cheap energy. Our production caused our natural gas prices to be among the lowest on this earth.

So, we started producing natural gas in record volumes. Productions numbers repeatedly surpassed geological estimations. Natural gas became the largest contributor to the total primary energy (TPE) in the United States virtually overnight.

The industry specific growth created tens of thousands of new, high paying jobs; this amidst the devastating recession that came home to roost as a result of the housing bubble in 2008. Despite this recession, the natural gas industry continued to thrive. We were going to be able to meet our increasing demand for power and create new money when the economy was on the ropes.

All of this was the result of Hydraulic Fracturing. Things were looking great. We had a great answer to our great need and now, for the first time, we were more than capable of satisfying our growing need for cheap power. This was phenomenal news. The natural gas industry was a bright spot in a dismal world.

Then a film called GasLand came out showing flaming tap water and residents whose lives appeared to have been destroyed by water contamination. The NYT ran an entire series of stories penned by yellow journalist Ian Urbina. The press jumped on board a destructive train and began to malign the industry. They said we took advantage of land owners with our fast talking land men. They said we lacked accountability for our lax safety practices and that we were the environmental titan hell bent on profiteering at the cost of mother earth and her residents.

The EPA (a government agency) joined in and began its quest; not to neutrally assess the risks associated with Hydraulic Fracturing but to prove that Hydraulic Fracturing contaminated groundwater.

The industry was forced into a corner and stuck in a defensive posture.

Then BP spilled a bunch of oil in the Gulf of Mexico and natural gas producers were lumped in with the rest of the O&G industry. Our public persona was tainted even worse than it had been previously. Obama declared a moratorium in the GOM and the bar for penalty was set far too high.

The wonderful potential of natural gas was lost in the mire and the press and our government was to blame.

Instead of developing new ways to utilize this resource, create more jobs, lower fuel prices, and save money, we’ve instead chosen to ignore the potential of our resource.

Now, in 2012, natural gas prices have dipped to an ten year low. It is becoming financial suicide to continue producing natural gas. This is a hard pill to swallow considering that oil wells contribute to the glut by producing natural gas as well as oil.  We have so much natural gas that we are plugging wells, moving equipment off of production sites, and curbing our production.

Demand for power has never been higher, nor has the supply of natural gas.

Instead of creating outlets for this abundance, we are choosing to spend $3.907 per gallon for regular, $4.046 for mid-grade, $4.178 for premium, $4.147 for diesel, and $3.338 for E85.

We currently pay $4.13 per mcf of natural gas.

The equivalent of 1000 cubic feet to US liquid gallons is (1)mcf=7480.519 US liquid gallons.

7480.519 gallons of regular gasoline (at $3.90) costs $29,174.02.

7480.519 gallons of diesel (at $4.14) costs $ 30,969.34.

1000 cubic feet of natural gas costs $5.45.

Instead of changing the infrastructure to supply fleet vehicles and long range truck with fueling stations, we are sticking with gasoline and diesel. We are using coal fired power plants instead of a much cleaner fuel source. We keep investing billions in failing solar and wind companies. We pay farmers to grow corn to create a corrosive fuel in ethanol that destroys the engines in which it fires by gathering moisture and melting seals and rings.

We should not have a glut of natural gas.

With all of the need for power, we should be using this resource to meet that need. The economic benefits are tremendous.

A glut of natural gas is a tragedy. We have the means to provide the kind of power we’ve always dreamed of. Our desperate needs are capable of being met with our own resources and rather than using them, we are moving in a direction of forgetting they exist.

Shame on us.

Other countries like Japan and Spain hold natural gas so dear that they are willing to pay $18.00 per mcf. Rather than exporting this resource, (because we’ve refused to use it) we’re doing nothing pending more environmental impact studies. The nearest export facility could potentially come online no earlier than 2015 pending FERC’s approval.

Shame on us. Shame on the US.

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