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By Robert Rapier on Apr 19, 2012 with 19 responses

Natural Gas Prices & Canada’s Economy — R-Squared Energy TV Ep. 19

In this week’s episode of R-Squared Energy TV, I talk about the impact of natural gas in the U.S., and the Canadian economy.

Some of the topics discussed this week are:

  • How I think natural gas prices will behave over the next 10 years
  • Which industries will benefit the most from low natural gas prices
  • The link between hydraulic fracturing (fracking) and earthquakes
  • The relative strength of Canada’s economy

Readers who have specific questions can send them to ask [at] consumerenergyreport [dot] com or leave the question after this post (at the original source). Consider subscribing to our YouTube channel where you’ll be able to view past and future videos.

Link to Original Article: Natural Gas Prices & Canada’s Economy — R-Squared Energy TV Ep. 19

By Robert Rapier

  1. By Tom G. on April 19, 2012 at 12:31 pm

    As usual Robert, your weekly videos are very well done and provide an excellent basis for further discussion.  One point I would like to make.  When you were talking about how the low cost of natural gas is helping families deal with the higher price of gasoline, this thought crossed my mind.  

    Isn’t energy something that we should all have a larger view of?  For example, when electric rates began their relentless climb a few years ago, I started making energy efficiency improvements to my home.  Over the last 5 years I  have been able to reduce my electric bill every year even thou my utility rates increased 4 out of last 5 years.   When gasoline prices began their yearly increase, I purchased a more fuel efficient vehicle.  Buy the way that vehicle has saved me a bundle of money over the last couple of years.  

    I once viewed energy like a bundled TV, phone and internet service.  When one service went  up in price my overall cost of energy went up.  A few years ago my view of energy changed.  Now I think of all of the different types of energy I use as separate parts so I can work at reducing the cost of each one over time.  Maybe if more of us looked at energy like this and worked at reducing the cost of each individual service, we might be a little better off.  Maybe we should  be looking at our TOTAL energy bill instead of just – those darn high gas prices. 

     

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    • By Robert Rapier on April 19, 2012 at 2:35 pm

      Isn’t energy something that we should all have a larger view of?

      Many people don’t have a rational view of energy though. When gasoline prices are rising and oil companies are making big profits, they get angry. It doesn’t matter if they are paying ultra-low prices for natural gas; they feel like they are being robbed at the gasoline pump. So while I agree with your sentiment, we aren’t always rational creatures.

      RR

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      • By Tom G. on April 19, 2012 at 3:17 pm

        So true so true RR  

        Which leads me to believe that ‘Leadership’ is a very under appreciated talent.  I get the feeling that with the right leadership we could easily solve our energy woes.

        Excellent video and sound quality.  I really enjoy the site.

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  2. By Ed on April 19, 2012 at 4:05 pm

    Robert,

    The 4.4 magnitude earthquake in the Youngstown, OH area was caused by disposal injection of drilling fluid into an existing but unrecognized fault.

    There is concern that CO2 injection resulting from the application of CCS systems could produce similar results.

    Thorough analysis of the underlying structure is crucial.

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  3. By Raindog on April 19, 2012 at 8:30 pm

    Fluid injection can cause earthquakes by increasing the pore pressure in an existing critically stressed fault.   Increased pore pressure decreases the friction on the fault and allows it to slip. The Oklahoma earthquakes attributed to fracking occurred in an area that was already seismically active and this magnitude of earthquakes is already quite common there.  As you point out, injection of the wastewater into deeper formations is more likely to cause an earthquake because of the formation in which the fluids are injected.  Shale is a sedimentary rock and it is typically part of a thick package of sedimentary rocks that can be anywhere from 0 to 30,000 feet thick or more. Below the sedimentary rocks is what we call the “basement” rocks which are typically igneous or metamorphic rocks of some kind. These rocks are very hard and it is commonly in the “basement” rocks that stress is stored.  Injection wells like the one in Youngstown, OH are commonly drilled down the lowermost sedimentary rocks and the basement below that. They were injecting straight into a stressed fault in the basement and raised the pore pressure to the point where the fault slipped and caused an earthquake. Most injection wells that causes earthquakes are drilled into the basement. Fracking will only cause a felt earthquake in the rarest of circumstances – maybe 1 in every 100,000 wells.

    There are about 144,000 injection wells in the U.S. (both Class I and Class II); and there have been less than 20 incidents where you can show pretty good cause and effect of injection wells and seismic activity. None of the earthquakes have caused any damage on the surface. 

    This is much ado about a relatively minor issue. People panic over this but there isn’t much to it. 

     

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    • By armchair261 on April 20, 2012 at 3:32 am

      Raindog,

      What is the motivation for injecting water into the basement? Typically, by their crystalline nature, basement rocks are very impermeable (there are exceptions). Most operators would I expect prefer to inject water into a relatively permeable sand or other high perm zone, both because they can get more water away with less energy requirement (you need more horsepower to pump fluids into relatively impermeable rock), but also because it’s obviously cheaper to drill a shallow well than a deeper one.

      Also, I would think that any waste water injection program like this should have at least some seismic data available, so that significant faults could be mapped and avoided by future water disposal wells. 

      In some cases I’m aware of (depending on several factors of course), if production wells are drilled closely enough to a known fault plane, then the density of natural fractures increases as the fault is approached, such that fracking may not be necessary. The Monterey Formation in coastal California is an example of this.

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      • By mac on April 21, 2012 at 3:50 pm

        I sent this e-mail to an un-named friend of mine  (who is a Republican) (Mac)

         

        Gasoline is going up.  This is of course the Democrats fault.

        Wait a minute…..Maybe, it’s just because there is less “cheap, easily accessible” gasoline (oil) available.

        Sure, there’s lots of “oil” in N. America but it’s all expensive to extract. (Canada tar sands, not to mention the U.S. kerogen deposits that aren’t even liquids but are literally rock formations that must be pulverized and subjected to extreme heat/pressures to extract the hydrocarbons which in turn need further precessing to be made into   “gasoline”)

        Something to think about? 

        Sure. there are lots of ‘potential” oil resources in N. America, but they now cost much more to refine and deliver to market than the old-time oil that was literally bubbling out of the ground in Pennsylvania (Seneca Indians used it)

        That’s how they “discovered” oil in the first place

        Just stick a soda straw into the ground and get rich. like bygone days of old……………

        Sure, that was the early days of oil when many wells were literally dug with picks and shovels, by hand……

        But, not now.

        Diminishing oil resources. coupled with ever increasing discovery and refining costs, equals ever increasing pump prices.

        Since OPEC, (centered basically in the Middle East). has most of the easy oil, they are in the driver’s seat.  The well maintenance expenses for Saudi oil hover around 5 to 10 bucks a barrel.

        They are literally sitting on wells that were drilled decades ago for “pennies on the dollar”  compared to what a deep-water well in the Gulf costs today.

        Mac

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  4. By mac on April 21, 2012 at 7:58 pm

    Robert.

     

    You are of course correct in saying that oil prices follow the general classical

     supply/demand curve.

     

    The only problem or premise is that oil prices don’t always track reality (supply/demand)

     

    Of course there are speculators that drive up the eventual  pump price  and add a surtax to every gallon of gas .

    Were we born yesterday ?

    I realize this  is absolutely absurd.

     

    No………… no………….. no …………… you are  right…………Robert,  etc.

    The oil companies have absolutely nothing to do with oil prices.

     

    Thank you for this brilliant non-sense.

     

     

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    • By Robert Rapier on April 21, 2012 at 8:27 pm

      Of course there are speculators that drive up the eventual  pump price  and add a surtax to every gallon of gas.

      You mean the same speculators who have driven the price of natural gas down to 10 year lows?

      The oil companies have absolutely nothing to do with oil prices.

      Have you ever worked for an oil company, Mac? Have you seen up close how oil is priced? I have. It is nothing like you imagine. U.S. oil companies are price takers, not price makers. If you believe anything other than that, you are simply living in a fantasy world.

      RR

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  5. By mac on April 21, 2012 at 11:17 pm

    Take your  Meds.    Of all people, you need to go  on medication.

    Seriously ???  

    You are smarter than Carlos Ghosn  ???

    Send him an e-mail and tell him  where he is going wrong, the man that turned Nissan around from a bankrupt company to an all=star international performer in 18 months.

     

    Of course there is no one at home upstairs. on R=Squraed

    Forgone conclussion

     

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    • By Robert Rapier on April 21, 2012 at 11:26 pm

      Of all people, you need to go on medication.

      Really? Am I the one who comes on here and makes one nonsensical posting after another? I mean seriously, people scratch their heads and wonder what the heck you are talking about. I suggest that every time you feel the need to come on here and act like a jerk, you go to another board to let off the steam. Your occasional incoherent outbursts become tiresome and are nothing but disruptive. 

      RR

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  6. By Benny BND Cole on April 21, 2012 at 11:40 pm

    RR-

    There are some reasons to be dubious about oil futures markets.  To say that the oil futures market is manipulated, does not mean every market is manipulated.  There are too many players in natural gas–supply can rise suddenly to meet demand.

     

    As we know, demand for oil is price-inelastic in short run, and so is supply.  That makes it ripe for manipulation.  If I can game prices higher, supply does not boom and demand does not rapidly shrink.

    Right now, rates for oil tankers are falling.  Cushing is full to the brim, and they are trying to build more tanks.  Soon, we will have seagoing tankers full and nowhere to offload–the Malta 2008 situation, lite.  What is holding prices up?  Not supply and demand.  People said it was supply and demand that drove oil to $147 in 2008—and then down to $47.  Really? 

    Look for oil to crack 2013-4, maybe from $100 to $70 or so. 

    I would like to see much higher margin requirement in oil futures, and full transparency of large players.  If speculation and manipulation plays no role in prices, fine.  But let’s have above-board buying of contracts by organizations that can be tracked. Full disclosure. 

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    • By Robert Rapier on April 21, 2012 at 11:51 pm

      There are too many players in natural gas–supply can rise suddenly to meet demand.

      There are more contracts traded in the oil market. 

      Did you read James Hamilton’s latest? My own view is that a lot of new money can drive up oil prices — and I think that has happened in recent years. But I also believe that this is only possible because the underlying fundamentals are there. That’s why oil prices are high and gas prices are low — even though both are subject to a lot of speculation.

      RR

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  7. By Benny BND Cole on April 22, 2012 at 12:31 am

    RR-

    All I ask is that you keep an open mind.

    This fellow is adamant that oil futures are manipulated and he has a great deal of experience:

    PROFESSOR MICHAEL GREENBERGER

    Since July 2001, Michael Greenberger has been a professor at the University of Maryland School of Law, where he teaches a course entitled “Futures, Options and Derivatives.”

    Professor Greenberger was a partner for more than 20 years in the Washington, D.C. law firm of Shea & Gardner, where he served as lead litigation counsel before courts of law nationwide, including the United States Supreme Court.

    In 1997, Professor Greenberger left private practice to become the Director of the Division of Trading and Markets at the Commodity Futures Trading Commission (CFTC). In that capacity, he was responsible for supervising exchange traded futures and derivatives. He also served on the Steering Committee of the President’s Working Group on Financial Markets, and as a member of the International Organization of Securities Commissions’ Hedge Fund Task Force. After service at the CFTC, Professor Greenberger served as Counselor to the United States Attorney General in 1999, and then became the Justice Department’s Principal Deputy Associate Attorney General. 

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  8. By Benny BND Cole on April 22, 2012 at 12:43 am

    Also see this:

    McClatchy Newspapers documented in a series of reports last year how the futures markets – where contracts for future delivery of commodities ranging from oil to coffee to cotton are traded – have been overrun by financial speculators. Historically, end users of these products, who are hedging against price shifts, made up 70 percent of trading activity in these commodities. Speculators traditionally played an important but secondary role in what economists call “price discovery,” the market finding the rational price for a product based on supply-and-demand fundamentals.

    In recent years, the ratio flipped, with oil speculators who have no intent of taking delivery of oil now making up 70 percent or more of trading activity. Critics such as Michael Greenberger, the former head of the trading division of the Commodity Futures Trading Commission – which regulates the futures markets – contend that this flood of financial-sector speculation has pushed up the price of oil and is divorced from underlying market fundamentals of supply and demand.

    “People, including the administration and others, are coming to realize that money moves these markets, and money sloshing around in the crude oil market, or any other market, is going to move the price,” said Michael Masters, a hedge fund manager whose repeated testimony before Congress highlighted the “financialization” of oil markets.

    Researchers at the Federal Reserve Bank of St. Louis determined in a March 13 report that speculation was the second-largest contributor to rising oil prices, accounting for about 15 percent of the rise. Former Fed Chairman Alan Greenspan has said speculation is driving up oil prices, and Saudi Oil Minister Ali al-Naimi last month complained that current oil prices are “unjustifiable” given that there are not global supply shortages, a view he repeated last week.

    Read more here: http://www.kansascity.com/2012/04/17/3560877/obama-proposes-new-action-on-oil.html#storylink=cpy

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  9. By Benny BND Cole on April 22, 2012 at 12:48 am

    http://research.stlouisfed.org/publications/es/12/ES_2012-03-12.pdf

     

    Fairly conservative and sober Fed study says speculation drove oil prices up by 15 percent over norms and exacerbates swings.  I suspect it is more, and that Fed academic-types are a bit naive.

    That said, if a group like the St Louis Fed says speculators do move oil prices by 15 percent (meaning hundreds of billions of dollars leave the USA), why is it so controversial?  

     

     

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    • By Robert Rapier on April 22, 2012 at 12:57 am

      You aren’t disputing anything I have said. I have said many times that I think speculators move markets. But that is not the fundamental reason oil prices are high. That is a reason, but not the fundamental reason. In other words, if there were no speculators, oil prices would still be high. 

      RR

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  10. By Benny BND Cole on April 22, 2012 at 1:19 pm

    RR-

    Yes, but would they be at $147 or $70. At $100 or $70?

    In the meantime, hundreds of billions of dollars gets siphoned out of the US economy.

    Like I said, fine let;s have speculation.  But let’s have serious margin requirements, and let’s have transparency. We know ho buys and trades stocks,  We do not know who buys and trades commodities. 

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    • By Allan on June 25, 2012 at 8:28 pm

      Robert is definitely right on this one.  For every imaginary barrel of oil bought in the futures market, there is an imaginary barrel sold.  At the end of every month, all the imaginary contracts are cleared, and only physical oil is traded.  There is very little data indicating that any changes in futures prices affect the current price.  Generally, it is very much the other way around.

      Full tanks in Cushing are largely a product of too cheap oil in the U.S.  The persistent gap between Brent and WTI crude is due to a lack of export capacity from Cushing to the Gulf Coast and increased production capacity in Montana and the oil sands.  Brent is currently around $11 USD more expensive than WTI, when historically they are rarely more than $1 apart (the cost per barrel to send a tanker across the Atlantic).  If this isn’t evidence that the physical market determines supply and demand, what is?

      The oil majors are likely losing money on this deal, unable to sell oil produced in the US for higher prices abroad or forced to sell more expensive overseas crude to the US market for less due to transaction prices tied to WTI.  While there is no doubt that the composition of traders in the oil market has moved in the direction of more financial speculators, I don’t think that can be de facto translated into blaming speculators every time oil prices go up.

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