JUNE VOL.78 NO.06
Editor's Note
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Keith Reid
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It's a gas
Keith Reid
D
id you hear about the day Britain
nearly ran out of natural gas? It
wasn't that long ago.
As Steve Robson of the U.K.'s Daily
Mail Online reported (among others)
on May 24, in March the country came
within six hours of having the burners go
out along with the lights, at least in some
areas. It was the clichéd "perfect storm" of
bitterly cold weather and pipeline failures
and ships too far from port and storage
capacity shortfalls.
What does that mean here in the
United States, specifically for oil? Well,
it's unlikely we'll face the same utility gas
crisis given our current domestic supply
capabilities. At the same time, the reality of
the UK crisis is instructive for the marketing of our domestic natural gas production
and likely natural gas prices.
It is certainly no secret in industries that
market competitive fuels that the heavily
expanded reserves made possible through
fracking technology have generated a glut
in domestic gas supply. Prices plummeted
to the point of not being worth continuing
production in many cases because there
was too much supply for the available
demand.
But, the U.S. glut, while not unique, is
not that common either internationally.
That turns us, according to many analysts
and if the reserves perform as expected,
into a Saudi Arabia of the natural gas
8
world. And that means that natural gas is
not going to stay within our borders.
Natural gas is currently exported by
pipeline to supply Canada and Mexico,
however, in mid-May approval was
granted to expand exports to countries not
in the NAFTA umbrella. That will impact
price upward, though more production
will certainly be bought back online as well
as the prices make it worthwhile.
Similarly, natural gas will continue to
displace coal domestically in energy generation, driven both from a price standpoint
and the slice of the environmental movement that sees natural gas as an acceptable
fossil fuel relative to coal and impractical "zero emission" solutions like wind
power. That demand should move prices
upward.
Some degree of diesel will increasingly
be displaced by natural gas in the transportation sector. The primary fleets will be
those that rest their trucks for the evening,
which allows for less expensive infrastructure and electricity costs using a slower
fill approach. But, that should still have a
notable impact in lowering prices.
So, you can expect natural gas prices
to go up, but likely not to excessive levels given the flexibility in production and
extent of the reserves. Good news for a fuel
oil dealer or marketer. The real question is
when will oil prices drop?
JUNE 2013 | FUEL OIL NEWS | www.fueloilnews.com
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