By Ken Root
Do you pay as much attention to the price of oil and natural gas as the price of corn? With corn going down and oil showing an uptrend, the economics of energy may be as important to you as any single element in your business.
Every year I get sensitized to energy issues at a conference I attend as the guest of U.S. Energy Services. I go as ?spouse? so I don?t interview the speakers but I do listen carefully to the presentations and fight to grasp the jargon and nuances of the energy business. Here?s what I learned this week:
The cost of producing a barrel of Shale Oil in the U.S. is now down to about $35.00. It was over $75.00 just a few years ago.
The supply of natural gas is huge. It is being flared off in the major drilling fields because natural gas requires containment from drilling to final use and the system (as sophisticated as we are in the United States) can only handle so much at one time. The result is atmospheric release because it is worth nothing at the well head.
The next step in selling natural gas is exports. Mexico is a major buyer of U.S. gas that is piped south. The Mexican government is going through a process of stripping monopoly away from its dominant gas company and trying to develop a competitive market. It could be lucrative for U.S. producers especially for Texas, the top gas producer to be sitting next door.
Other countries not contiguous with the U.S. can?t get their gas by pipeline so the next best means is to haul it by ship. However, to do so economically, it must be liquefied. That is a very expensive proposition. Projections are for one billion cubic feet per day to be exported in 2017 and maybe 2 billion by the end of 2019.
In a future solar energy economy, the most compatible base fuel to back up solar is natural gas. Coal pollutes and nuclear is feared so the huge volume of cheap natural gas may well become the ideal energy source to provide electricity when the sun doesn?t shine on solar cells.
Not much news this year on the Saudi?s long term goals for oil prices but there is still a lot of unrest in the Middle East and the Saudis are in opposition to Iran, the up and coming power in the region. There could be revolutions ahead and the balance of power could shift.
