People who ought to know better are now talking about whether the sudden rise of natural gas prices in the last month means that America ought to put on hold plans to export the fuel. For example, today CNBC is out with an article on that point. According to CNBC, cold weather has pushed prices about $5 for natural gas and this is higher than the experts had predicted. Accordingly, this indicates that export of natural gas will drive the price even higher and will give away the advantage that the USA gains with low energy prices resulting from abundant and low cost gas supplies.
This is the sort of ignorant nonsense that one would expect to find on a blog (other than this one, of course) and not from a large financial news organization that supposedly understands sophisticated subjects like energy supplies and prices. Sure, the price of natural gas has risen dramatically due to the cold that has afflicted much of America and drawn down supplies. Even so, the price is still in the mid $5 range, a level which is low by historic standards. Remember that the price was above $14 not all that long ago. More important, however, is a very simple fact: over the last five years, there has been such a persistent over supply of natural gas that prices have fallen and drilling activity has dried up. Just look at the approximate average number of drill rigs working across America to find natural gas in January of the last five years according to Baker Hughes: 2009 - 1200; 2010 - 900; 2011- 900; 2012 - 700; 2013 - 450; 2014 - 350. Right now there are less than 30% the numbers of rigs working than there were just five years ago. The end result of this drilling reduction is that much less new gas is being produced. Of course, if higher prices prevail, it will lead to an increase in drilling. That, in turn, will mean higher production with resulting lower prices. What CNBC has ignored in its discussion of the subject is that there are abundant supplies of gas all across the country which could be brought on line just by increased drilling efforts.
There is no reason to look at the effect of a transitory cold spell and let that determine the long term trajectory of an industry. Export of natural gas will be a major positive for America on a number of fronts: 1. It will provide jobs and income for a great many Americans. It will have a noticeable effect on the growth rate of the economy. 2. It will reduce the need for oil from the Middle East and other unstable or unfriendly countries. Every increase in the use of natural gas means that much less energy that has to come from Russia (gas) or Iran (oil). It will allow the USA and our trading partners in Europe and Japan to be less dependent on the other sources of energy and more able to act without feeling the pressure of energy blackmail. 3. It will reduce pollution world wide. Natural gas is much cleaner than coal or oil as a source of energy. Allowing a conversion to nat gas will have a salutary effect on the environment.
One last note: for those who worry that export of gas will destroy the current American advantage in energy costs, there is no reasonable fear of that development. It will still cost nearly $6 per unit to transport the fuel to Europe or Japan. That means that American factories will still have a major cost advantage moving forward which will not be destroyed by the export of gas.
This is the sort of ignorant nonsense that one would expect to find on a blog (other than this one, of course) and not from a large financial news organization that supposedly understands sophisticated subjects like energy supplies and prices. Sure, the price of natural gas has risen dramatically due to the cold that has afflicted much of America and drawn down supplies. Even so, the price is still in the mid $5 range, a level which is low by historic standards. Remember that the price was above $14 not all that long ago. More important, however, is a very simple fact: over the last five years, there has been such a persistent over supply of natural gas that prices have fallen and drilling activity has dried up. Just look at the approximate average number of drill rigs working across America to find natural gas in January of the last five years according to Baker Hughes: 2009 - 1200; 2010 - 900; 2011- 900; 2012 - 700; 2013 - 450; 2014 - 350. Right now there are less than 30% the numbers of rigs working than there were just five years ago. The end result of this drilling reduction is that much less new gas is being produced. Of course, if higher prices prevail, it will lead to an increase in drilling. That, in turn, will mean higher production with resulting lower prices. What CNBC has ignored in its discussion of the subject is that there are abundant supplies of gas all across the country which could be brought on line just by increased drilling efforts.
There is no reason to look at the effect of a transitory cold spell and let that determine the long term trajectory of an industry. Export of natural gas will be a major positive for America on a number of fronts: 1. It will provide jobs and income for a great many Americans. It will have a noticeable effect on the growth rate of the economy. 2. It will reduce the need for oil from the Middle East and other unstable or unfriendly countries. Every increase in the use of natural gas means that much less energy that has to come from Russia (gas) or Iran (oil). It will allow the USA and our trading partners in Europe and Japan to be less dependent on the other sources of energy and more able to act without feeling the pressure of energy blackmail. 3. It will reduce pollution world wide. Natural gas is much cleaner than coal or oil as a source of energy. Allowing a conversion to nat gas will have a salutary effect on the environment.
One last note: for those who worry that export of gas will destroy the current American advantage in energy costs, there is no reasonable fear of that development. It will still cost nearly $6 per unit to transport the fuel to Europe or Japan. That means that American factories will still have a major cost advantage moving forward which will not be destroyed by the export of gas.
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