Someone PLEASE explain to me why natural gas prices...

[Enraged_Ape]

increase when petroleum prices do?

Maybe I'm a complete idiot, but last time I checked, the production of natural gas had little or nothing to do with the production of heating oil or gasoline. So why am I looking at at ~70% INCREASE in my heating bills this winter?

I suspect it's due to one of the following reasons:

1) We are being gouged by the energy companies like we can't believe. Dick Cheney and his top-secret "energy meetings" made this possible.

2) There is some technical reason for the price increase in natural gas that I'm not aware of.

3) It's best not to even ask these questions. I should just live with the reaming, or someone will have to come and kill me.

[Inland]

1. I have a coupla guesses

One, we were expecting a huge increase in the price of natural gas from last spring, I think, so it may be coincidental.

Two, some natural gas goes through the NOLA area from the Gulf, and Katrina may have, again, coincidentally, injured NG facilities.

[Enraged_Ape]

4. I might buy the Gulf explanation, if the high prices were predicted

after Katrina. But these have been forecasted for at least the last few weeks.

Here's my explanation: (Correct me if I'm wrong.):

Natural gas producers saw that there was a perceived shortage and subsequent increase in the price of heating oil. They then surmised that there would be a consequent rise in demand of natural gas to take the place of that heating oil, so they are raising the price of natural gas too. It's not that natural gas is more rare than it was last month or last week; it's just that they can make a LOT more money on it so they are going to take it out of the backs of all of us.

What do you think of that explanation?

[Inland]

9. Then there IS a market connection between NG and oil

They are substitute goods. For any rise in price of a good, the substitute good also rises in price, all other things being equal.

Why? Because it's presumed that some people are always at the margin, such as, the people who are thinking about squeezing one more year out of their oil boiler and replacing it with a NG furnance. A rise in the price of oil puts them in the "replace now" category, increasing demand for NG.

It's the same thing with a rise in the price of beef: all things being equal, the price of pork will rise, too.

[izzie]

5. I think I have been reading this for a few months now.

It has been on my mind as I have the gas tanks at my apt. and I keep a very cool house and I have been wondering how I could use less.

[LARED]

2. Some of the increased costs are from electric

producers switch their generation systems from oil to natural gas when oil prices move up. Naturally the demand on gas supplies increase and the prices go up.

This of course is only one factor.

[Pepperbelly]

19. but oil is no longer a very big part of electrical generation ...

The load from oil fired generation has been getting smaller and smaller.

I think it's because we still have SOME money left and these fucking ticks won't be happy until they've ridden this dog to its death.

Just my view. :D

[HamdenRice]

3. In economics, it's called the substitution effect

It's easier to explain under simplified conditions with two commodities -- eg coffee and tea. Let's say that there is a disaster in Colombia's coffee growing regions, like a drought. You would expect the price of coffee to increase because of reduced supply. Why does the price of tea also go up?

Because people who need cafine, and can't buy coffee, will switch to tea to get their fix. Although the tea growing regions of Kenya and Sri Lanka are not affected by the drought, the demand for tea will increase dramatically because of the influx of former coffee drinkers, buying tea.

Hence the price of tea will also rise.

This happens whenever there are substitutable commodities. In the case of gas, there are big consumers of oil and gas that can substitute natural gas for petroleum products, like power plants, municipal bus systems with both petroleum and natural gas fleets, and homeowners who can switch.

Even before many end users actually switch, speculators begin bidding up the price of natural gas in anticipation of the rise in price as more consumers purchase gas.

[Enraged_Ape]

7. That's what I thought (See my reply above).

I think this sucks. I think this should be illegal.

A lot of people are going to die because of this. Although I know that market forces may be behind the price increase, we are talking survival of people.

But I guess the Bush administration has shown that they don't care how many people die. So MANY people have died on their watch.

[eallen]

6. Oil and gas often come out of the very same well.

So I think you're just wrong, when you say their production has little to do with one another. Yes, many wells produce just one or the other. But the exploration and development process is similar. Reservoirs often have both, and they often are both produced from the same well.

Their prices don't move in lockstep. But there are common factors that cause some correlation. First, there are dual-fuel power plants that can use either as a fuel, depending on which is cheapest. That creates a degree of substitutivity in the market. Second, as others have pointed out, their supply sometimes is affected by common factors. Such as hurricanes in the gulf.

All that said, the NG market has not been globalized to the extent that the oil market has been. Shipping oil around the world is easy. Shipping NG requires special ports in exporting countries to liquify the gas, special tankers that keep the liquified gas pressurized and refridgerated, and special receiving terminals that regassify the shipments. There are only five regassification ports in the US, so for the foreseeable future, the US has to get most of its natural gas imports from geographically adjacent nations, meaning Canada.

Look for the Loonie to achieve parity with the greenback any year now.

:hippie:

[Enraged_Ape]

10. They often do, but many times they don't.

I know that in Idaho, at least, natural gas comes off the top of geothermal wells. They have a ton of that stuff. Its supply has NOTHING to do with what is being piped out of the Persian Gulf.

[Ediacara]

8. What do you think Natural Gas is?

It's petroleum. Natural Gas is usually found in association with crude oil. Petroleum in a rock is a mix of hundreds of different hydrocarbon molecules. The lighter molecules end up at the top of the "trap" and are gaseous at STP, hence the name "natural gas." The heavier molecules are liquid at STP and are below the natural gas in the petroleum trap and are known as "crude oil." From crude oil, we get things like gasoline, and kerosine (and well about 50 other things...). Below the petroleum in the trap is usually briney water.

Petroleum comes from a source rock, usually something high in organic content, and because it's lighter than groundwater, moves upward (it should be noted that the source rock has to be heated to a degree for this process to start). It often gets stored in a porous rock, such as sandstone, trapped under a lid of impermeable rock like limestone or shale.

Here's a diagram of how natural gas and crude oil are found together:

[Enraged_Ape]

11. Thanks for that

I'm still not convinced that, proportionally, it explains the proposed raise in price. I still believe it's due to greedy people knowing they have us by the short hairs on energy costs--mainly because we have mostly energy people in the White House.

[Ediacara]

14. Greed may have something to do with it

But I think at least 85% of it is that NG and oil are found in association, so when one is put out of commission, the other often is also.

[Double T]

15. bush, cheney and the Energy Producing Corporations are going....

to screw us all now that 'their' energy bill was passed by congress. Remember, Enron may be defunct, but there are still plenty of energy cartel people left to manipulate the energy markets for their own greedy gains.

[markam]

17. the condensed version of why we have a gas crisis

It's geology, not politics.

Since the hurricane, we have had 84.232 BCF of natural gas production shut in in the gulf. At this time of year, this gas would be pumped into underground salt domes for winter storage. During the winter, we cannot withdraw gas from the production wells to keep up with heating demand. The gas in storage is withdrawn to supplement production.

Even before the hurricane, they were pumping gas into storage at rates well below the five year average. Now, we have serious crisis in storing enough gas for the winter heating season.

If gas storage drops below a certain volume, the pressure in the distribution lines drops below the point at which home furnace pilot lights can stay lit. All of a sudden millions of homes go cold.

There is very high likelyhood that this will happen this winter. We came within 3-4 days of that happening in 2003. If it does happen, you will see a disaster spread throughout the northern half of the country.

We need high prices, because we HAVE to reduce demand this winter. If enough people decide to keep their thermostat on 60 this winter, we might be able to get through this winter without a disaster.

I won't even get into the fact that we have hit peak natural gas production in North America, and you will never see low gas prices again.

[Ediacara]

13. And a special situation in the Gulf of Mexico concerns salt

During the Mesozoic rifting of the Gulf of Mexico, the region periodically flooded and then completely dried, leaving huge amounts of salt. This salt was subsequently covered with sediment. Since salt is light and surprisingly plastic, it's formed into huge rising diapirs (columns). These diapirs cut through stratigraphic layers above them and trap petroleum along the side:



You'll remember that about 20% of our domestic refining and extraction capacity is shut down at the moment....

[notadmblnd]

12. they got away with Enron-ing California

so now they think they can get away with Enron-ing the entire country. The sad thing is.. they're probably right.

[Aviation Pro]

16. I have a guess....

...natural gas is not just the gas that comes as a byproduct of extracting oil. Refinery facilities mix the gas with additives and thus it becomes a refined product. Since some refineries have been shut down because of Katrina, they couldn't keep up the production run. Thus a percentage loss of supply coupled with demand causes the price to rise.

[Pepperbelly]

18. answer me ONE question, mr. smart guy...

Do you have ANY money left at the end of the month?

If you do, THAT is why the prices are going up.

[amandabeech]

20. The vast majority of newly built electrical generating capacity

here in the U.S. has been gas fired because back in the late '90s, the US Geological Service thought that there was oodles of gas in the U.S. that would be available, guaranteeing a great price. However, it turned out that the USGS made a large error in its calculation of the amount of natural gas resources left here, and the new gas generators started sucking up far too much gas.

In addition, many homeowners switched from oil to gas, and all the new housing, i.e. all those McMansions, was heated by gas. Gas is very good for heating because it burns very, very cleanly and very efficiently.

All in all, demand has increased tremendously. Meanwhile there haven't been that many new big finds and older fields have been declining. We import a lot of gas from Canada, but the Canadians are using a lot of their gas in the tar sands bitumen to oil project in Alberta.

As someone here pointed out, importing gas by ship is very complicated and expensive, and no one wants the plants near them. Of course we have stiff competition in seagoing imports with Japan, China and Korea.

Really, there is much more of a problem with natural gas here in the U.S. than there is with oil right now.

That doesn't excuse the price gouging that's going on now, however.

My advice to anyone is to investigate any and all methods of insulating your house this winter consistent with your budget.