Monday, 21 November 2011 00:00

Liquefied Natural Gas May Beat Crude Oil

Have you ever got the feeling that you're overpaying for the energy you consume? The fuel you pump in your car, the power bill, heating and other energy-related hidden costs, are all of these overpriced? 

You can understand that energy prices are too high, however you have little space to move for cheaper alternatives. This sad situation is caused mainly by government intervention, by over-regulating the market, up to the point when one may compare it with the defunct Soviet-style planned economy. But a secondary factor is the well known "corporate greed" -- guess you've heard this phrase more than "government intervention and regulation." Yes, mainstream media is the long finger of the left. Pointing at you, fooling you with fantasies and utopias that can, and did so far, make things only worse. 

As about corporate greed, within a truly free market, this deviation is relatively easy to contain. The keyword is competition. Here are some digits: "A barrel of oil contains about six times the raw energy content of a thousand cubic feet (Mcf) of natural gas. So all things being equal, with oil prices about $99 per barrel, natural gas should fetch about one-sixth as much, or $16.50 per Mcf."

Newly implemented technologies, such as fracking and horizontal drilling, opened access to huge deposits of natural gas under the US soil. This energy resource is in surplus, which means that prices are collapsing for natural gas, roughly at about $3.80 per Mcf. Do the math and notice that it takes less than $25 for the energy equivalent of a barrel of crude oil. Yes, you may pay for natural gas four times lower (a 75 percent discount!) than what you pay for oil.  

Fleets of trucks and cars have their engines converted to burn compressed natural gas instead of diesel, or gasoline. The CNG sells for around $2 less than diesel or regular at the pump. Power plants burning natural gas fuel are estimated to cover "90% of the additional power-generating capacity scheduled to be built in the next two decades."

There's even more great news for investing in the energy industry: the US is close to become a major exporter of liquefied natural gas, or LNG. The volatility of natural gas at normal temperatures makes its transportation problematic. But at a temperature just over 100 Kelvin the liquefied gas can be shipped in large quantities to foreign markets. The surplus of natural gas, converted into LNG, can be distributed on external markets "where natural gas is scarcer and widely commands prices of $10 to $15 per Mcf, and in the case of Japan, nearly $20 per Mcf."

"As a result, global annual LNG production has spiked 60% since 2005. And with an estimated $200 billion in capital being poured into expansion projects worldwide, this trend isn't stopping anytime soon. Case in point: global giant Chevron (NYSE: CVX) recently pledged to put 40% of its investment capital into new LNG projects in the next decade."

Source: Forget Oil, This Could be the Biggest Story in Energy -- 

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