Why Is Oil Trading at $53 When Supply and Demand Is So Bearish? 65 comments
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US Oil inventories are at or very near 20 year highs:
Meanwhile, US oil consumption has dropped significantly (7-8%) since last summer.
The question is then: why is oil trading over $53 today when the supply/demand picture is so bearish?
No doubt part of the reason is a jubilant market response to the fiscal policies unveiled by the Obama administration recently. That said, printing money to reflate the economy has its drawbacks. The US dollar index has dropped from 89 to 83.3 in two weeks (6.4%) and this supports oil and most other commodity prices.
Underpinning the rally in crude oil (which could falter as short covering abates) are memories of 2008. The fundamentals of peak oil are still in place. While unemployment, housing, and consumer spending will remain a problem as the US works through the recession, one must remember that OPEC is cutting production while worldwide E&P budgets are down as well. The next oil price spike could make 2008 look like child’s play. Don’t be surprised to see front month oil contracts trade at wider and wider discounts to oil futures as the US recovers from recession and governments the world over fiscally reflate the world economy. Traders will not forget the $145/barrel prices of 2008 any time soon. Neither will they forget that production at many US oil companies was actually down in 2008 despite those high prices.
On the natural gas front, new shale production has US nat gas weekly underground storage volumes trending higher.
This increased production in natural gas was met with slackening demand from electric power generators in 2008 (year over year). Residential demand was flat to down.
I like this last chart because it vividly portrays what Robert Hefner accurately pointed out in his book The GET. US natural gas consumption was organically growing until the disastrous energy legislation passed by Congress in the 1970’s. Since that time, coal usage has grown exponentially and natural gas demand has been basically flat. How sad is it that the US chose to burn toxic coal when clean and efficient natural gas resources were available all along? I wonder what the residents of the beautiful (and now thoroughly polluted) Tennessee Valley think about this as well…
The result of increased natural gas supply and slackening electrical, industrial, and residential demand has played havoc with natural gas prices. Yesterday natural gas closed at $4.33 MM BTU. As low as this price is, it’s a 3 week high! Some analysts are calling for natural gas to fall as low as $3 due to abundant new shale supplies. I’m not so sure. The Baker Hughes rig count was down -41 in the last week, and down a whopping -699 rigs from one year ago. Layoffs have been announced at ConocoPhilips (COP), Schlumberger (SLB) and other companies exposed to natural gas drilling. Natural gas producers are not going to drill new wells and give their product away. Shale well depletion rates are, generally, higher than “conventional” (forgive me Hef) wells. We’re setting up for another bull market in natural gas down the road. I bet next time, the natural gas boys will be a little less enthusiastic to over drill.
Life on foreign oil addiction is boom-and-bust. Our economy will continue to be on an ever more violent yo-yo as we head into peak oil until our policymakers take meaningful action to reduce foreign oil imports.
Bottom line: the US continues to be addicted to foreign oil for 65% of its supply while the realities of peak oil have not abated. ExxonMobil (XOM), Chevron (CVX), ConocoPhilips, BP, StatOil (STO), and Petrobras (PBR) can all be bought on weakness (and most have been weak). Yesterday’s rally withstanding, there will be opportunities to pick these stocks up on the cheap. Long term, these stocks are going to print money just like they did over the last oil price spike. On natural gas, I am not so optimistic in the short-term. Long term, if the Obama administration would simply grasp the notion that America can reduce foreign oil imports AND cut CO2 and particulate emissions by transitioning cars and trucks to run on natural gas, I would be very bullish on CHK, COP, and BP. Unfortunately, the economic, environmental, and national security advantages of such a natural gas transportation policy have yet to be understood in Washington, DC. No surprise there.
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This article has 65 comments:
Oil demand is ramping slowly around the world.
In India, the Tata car (priced at $2050) was officially launched today. The target market in India for this car is the middle class (currently numbering at 50 million people). This number is expecting to hit 583 million by 2025 according to McKinsey & Company. That is equivalent to adding two more United States size consumer groups in competition for the dwindling world's oil supply.
Next to India, China is taking advantage of the drop in resource prices and buying up everything from copper to oil. They have been signing long term deals with Russia, Brazil, Venezuela, Iran, etc. The loading up their SPR's feverishly with cheap oil. The Chinese are thinking long term.
On the homefront, the USA has put energy independence on the back burner and instead is investing trillions in bailouts. Obama has allocated a measly 43 billion on alternative energy and related infrastructure. The opportunity to make the USA the world leader (and exporter) in alternative energy technology is being squandered to help Obama's Wall street and UAW buddies instead.
On fundamental, I suggest reading the following:
For NG: 3/19/09 AP article entitled "Natural Gas: Weakness Borne of Strength". Interviewed J. Marshall Adkins, Director of Energy Research and Managing Director of Equity Research for Raymond James. He predicts a long term bull but near term disaster by this summer. $3 or even $2 he thinks is possible.
For Oil: a book entitled "Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy" by Matthew R. Simmons (Paperback - Jun 5, 2006). He makes a compelling case that the world misconceptions about the true amount of reserves in OPEC leave us vulnerable.
With all the natural resources in the US, we seem to be determined to screw ourselves. Unwillingness to drill for our oil, plus Obama's war on coal, it seems we are really screwed. Then add the building storm between Iran's nukes and Isreal's tenuous position. And for good measure Obama's blindfolding the US on the war on terror.
Eventually, we are really, really screwed. And we will have done most of it to ourselves. In the meantime, Da Boyz will decide prices.
Why the natural gas companies aren't cutting production is beyond me. We stockholders should be writing our management to insist they cut production to protect our investment. We are tired of giving our product away. No responsible management of any successful company operates like these natural gas companies.
I wondering also why anyone would operate a business at a loss. A while back, one of the posters gave a very good explanation for this in the oil and gas industry.
For example:
1) Let's say the price of natural gas is $5.00 /MMBTU
2) Fixed costs (e.g. long term debt for infrastructure ) are $3.00 /MMBTU
3) Variable costs (e.g. salaries) are $1.00 / MMBTU
On the surface, you are losing $1.00 / MMBTU. But cutting back on production is worse. You still have fixed costs that you have to pay regardless and your loss would be $3.00 / MMBTU if you did not sell anything. Furthermore, losses can be carried forward against taxes on future profits.
saildog: thanks for the specifics heh heh heh. your strategy excellent since its hard to debate thin air.
EDK: well, i suppose any commodity has speculators (i tend to call them investors). do you think the rise in oil prices in 2008 was all speculation? or, is there something to the fact that supply never got much over 86 million BPD and production at XOM, CVX, and COP was down year over year despite $145/barrel prices?
longoil: hey man, i see you have made the top 50 club, congradulations! i made a brief appearance, and then dropped out.
yup, the Nano will be a game-changer in india assuming their economy recovers enough for the middle class to retain purchasing power. you and i are in agreement on oil long-term oil fundamentals (even short term).
StoneFoxCapital: yes, i agree with you. i wrote an article on SA last year advising the Bush administration to restart filling the SPR once oil dropped under $50 (they did so shortly after, but even i am not vain enough to believe it was because of my article). the SPR is currently filled with 707 million barrels, its highest level ever. could this be a prelude to action on iran?
basehitz: fundamentals will drive long-term oil prices, just like all commodities. sure there are overshoots both high or low, but long term, supply and demand is still the first law of economics. as far as drilling, i'm all for it, but wouldn't we be foolish to think the US could produce the 20,000,000 barrels of oil we use every day when both saudi arabia and russia each produce only 10 million BPD? the fact is, the US cannot drill its way out of its foreign oil addiction unless it is drilling for natural gas to fuel natural gas transportation! then we CAN drill our way out using our huge shale resources. as far as coal goes, i WISH obama declared war on coal, unfortunately this is not the case. just see the article in yesterday's WSJ on the idiotic amounts of capital being spent on "clean coal", which i maintain is an oxymoron if ever there was one. if you don't believe me, visit the good folks in the Tennessee River Valley and ask them....
StoneFox: wrt your earlier comment, i forgot to mention how insightful it is to notice that while the US government was investing in financial fraudster bonuses, the chinese were snapping up oil reserves and deliveries in Brazil and Russia. sad, but is shows how much more economic power china currently has over the US. we go broke fighting idiotic oil wars and ignore our natural gas reserves. meantime, china simply buys oil reserves and deliveries.
Plus, there are lawsuits that have been successfully brought against the oil/gas companies where the royalty owner sued because the well was shut in. The lease is a contract shutting in the wells takes away revenue for the royalty owner. Those royalty owners don't pay operating costs or drilling costs. They get their 12-25% straight off the top. Shutting in a well can be deemed as not fully developing/producing their minerals and thus, a violation of the lease. These suits have been won in the past so a company must be careful.
I wonder if the same interests that restricted wider use of gas are also responsible for killing the IFR and other fast nuclear reactor development? It seems that vested interests are able to direct energy policy decisions to their benefit at the expense of the nation overall.
This was the situation when oil & natural gas prices were at record highs. Yes, we weren't drilling for our own resources. It's hard to drill when companies are stockpiling leases for the corporate bottom line.
In CA, we are initiative crazed, current one written by liberal Dems in state legislature with their allie Arney, raises state income tax to over 10%, sales taxes, even new taxes on tickets for the Sunday afternoon ball games, shameful.
But, initiatives only need signitures and then financial backing to be competitive. I think your material for NG fueled transportation systems is the place to start. As well, some form of drilling initiative for NG in CA with rebates to the people of CA, might have a chance. You might start with an initiative like ATT's, only sub state of CA, where you might mandate that 50% of all state vehicles be NG fueled over coming years.
I'm trying to dream about something good, given the essential collapse of our state and fed gov's.
stay with the NG theme, thanks.
Good article overall. Thanks. I'm a little early on some of the NG plays, such as DOM & SBR, but I agree that NG should play a bigger part in powering the nation before long.
Have you ever been to the TN Valley? I travel the area every summer and I've not seen all the pollution you mentioned. If it's there and you've been there, point me to it. I'd like to see it myself.
I'm not a hater of CO2 as you and so many are. We need more of it in my opinion. It is after all part of the all-important to all life photosynthesis.
Thus, I go along with the view that because we've created more of it burning natural fuels, trees are more plentiful, more healthy, and humans and animals are as healthy as they are because of it.
Keep up the good work. I like your writing in respect to investing, but I'd like to see you leave your ideology out of it. Besides, you're preaching to the choir on this site in respect to shutting down the use of natural fuels for power.
ripskii: another good post, and you're right - many companies have disclosed significant hedging (smart guys!) going forward. as far as your last statement, coal and oil lobbyist are spending gobs of cash to ensure anything but coal and oil are used. they have successfully done so since the 1970's.
User28397" hey hey. plz note my earlier post in which i explained that SA editors changed the original title of this article. and yes, i agree with your weak dollar point and said so in the article. one thing that has really really (really!) surprised me is how the strength of the dollar has held up through this "financial crisis". that said, the chinese could pop that balloon whenever they want. note they are speaking much more bluntly in the last few weeks on US dollar issues. wow, top20!? how do you do it man? i barely get into top100 and then drop out! ha. i am a "borderline" performer :)
SteveB: yes, you're exactly right to point this out. the truth that nobody wants to admit is this: oil companies are going to invest in properties where the risk/reward and economic variables are in their favor. the fact is: this is mostly NOT in the US. now, there are certainly some fields in alaska, the GOM, and offshore california that are very interesting to them, but over all, they can make more money and a better return in nigeria, the caspian sea, and now they hope in iraq. what the oil companies are clamoring for in the US is access to the *most* promising properties near existing infrastructure at very nice royalty rates (imho). good post - thanks.
jack kreg: well, i guess the good news in your state of CA is that you:
1) can easily buy a honda civic GX
2) can easily buy a Phill to refuel it in your garage
3) have a multitude of public CNG refueling stations
4) are currently filling up CNG at around $1.80 and were paying $2 when we were paying $4.50 for gasoline.
what's not to like? awesome! wish i could say that about my state. meanwhile, yeah, i have written so much about natural gas transportation and policy i think i am boring people to death. i keep looking for something else to get as passionate about, but i can't find anything.
SHARK$BUCKS: i don't know what "cl" is....
ArtfulDodger: wow, a top20..i am paying attention :) and yes, i live 20 minutes from the TN valley. i was referring to the coal spill disaster at TVA"s kingston plant. it was the biggest coal plant in the world when built back in the 1950's. alot of the toxic coal ash and sludge went into the emory river. then it rained, and more went in. the emory dumps into the clinch, which dumps into the tennessee river, which goes all the way down to chattanooga and beyond. i predict you will see a huge rise in cancer cases in that valley with 10 years. it is arguably one of the worst environmental disasters in US history. but you won't read much about it in the papers (oh, what a surprise). just google "Kingston coal spill" and you can read all about it. erin brokovich went down there, and you can bet she is gonna litigate that spill for hundreds of millions of dollars. we need more CO2?? well, you'll have your wish. the US burns 390,000,000 gallons of gas every day, and each gallon produces 19 lbs of CO2. so, you should be a very happy guy. i think its miserable. thanks for the nice comments, but as far as my "ideology" (of course i believe it is science and refer to rush L. and bush as ideologists, but i am sure you will not agree), as long as folks like you think producing more CO2 makes more healthy humans and animals. i'll persist.
Yes, roughly 25% of all public land under lease in producing and the remaining 75% is not. However, that does not account for the large amount of acreage that is currently under exploration/appraisal, and the large amount of acreage that is in areas where getting a permit to drill and/or produce can take as long as 10 years when you account for the lawsuits and other delaying tactics of certain groups. Offshore it can take over 3-5 years to conduct seismic surveys, get a rig, drill the exploration well. Then you have to drill follow up appraisal wells to determine the size/scope of the discovery, assuming you were lucky enough to make a discovery. Over 65% of the exploration wells are unsuccessful. Then, it takes from 3-5 years to design, build, commission and start up the production operation.
So, a lot of the acreage is in the process of being evaluated, contruction, installation, etc.
And, in our industry we lease a lot of land knowing that only a small percentage will actually be prospective. But, we have some federal leases that are 10 years in term. So after drilling an unsuccessful well, why turn the acreage back when you still ahve time on the lease? you hang on with the hope that technology or other development will change the evaluation and make the lease drillable.
This article and posts has been very informative and good reading.
Keep up the good work.
The simple fact is the world couldn't afford $147 oil last year so how on earth are we supposed to afford it next year and beyond? We can't, so the supply and demand lines will move accordingly. Remember, the solution to high prices is high prices.
On Mar 24 08:22 AM longoil wrote:
> $145 oil will look like a bargain by the middle of the next decade.
>
> Oil demand is ramping slowly around the world.
>
> In India, the Tata car (priced at $2050) was officially launched
> today. The target market in India for this car is the middle class
> (currently numbering at 50 million people). This number is expecting
> to hit 583 million by 2025 according to McKinsey & Company. That
> is equivalent to adding two more United States size consumer groups
> in competition for the dwindling world's oil supply.
>
> Next to India, China is taking advantage of the drop in resource
> prices and buying up everything from copper to oil. They have been
> signing long term deals with Russia, Brazil, Venezuela, Iran, etc.
> The loading up their SPR's feverishly with cheap oil. The Chinese
> are thinking long term.
>
>
On Mar 24 01:31 PM ArtfulDodger wrote:
> Fitz:
>
> Good article overall. Thanks. I'm a little early on some of the NG
> plays, such as DOM & SBR, but I agree that NG should play a bigger
> part in powering the nation before long.
>
> Have you ever been to the TN Valley? I travel the area every summer
> and I've not seen all the pollution you mentioned. If it's there
> and you've been there, point me to it. I'd like to see it myself.
>
>
> I'm not a hater of CO2 as you and so many are. We need more of it
> in my opinion. It is after all part of the all-important to all life
> photosynthesis.
>
> Thus, I go along with the view that because we've created more of
> it burning natural fuels, trees are more plentiful, more healthy,
> and humans and animals are as healthy as they are because of it.
>
>
> Keep up the good work. I like your writing in respect to investing,
> but I'd like to see you leave your ideology out of it. Besides, you're
> preaching to the choir on this site in respect to shutting down the
> use of natural fuels for power.
Ah, I see. You're speaking of an accident in the Valley. That's a different annimal all together, because I know the land in the area is not generally polluted.
But sadly, our rivers and lakes are in sad shape. I support a group in Florida that fights for cleaner lakes, rivers, and streams, but the radical eco-maniacs won't do that because they have a bigger agenda to accomplish with getting "global warming" legislation passed.
Hey Fitz, why don't you get on the subject of cleaning up our highways and rivers, et al. I'll be with you on that, but just don't do it on this site. This is an investing site, you know?
By the way, who was it that created the TN Valley Power system? One of your heroes, no doubt.
I'll agree with you that cancer will continue to increase (as it has for the last eighty years), but I don't agree with you at all that CO2 or accidental spills is what's causing it. That's a tunnel-vision view if I've ever heard it.
As far as Bush and Rush are concerned, I think Bush was a bad president, but we've had a line up of them since his dad took office in the 1980s (can you remember back that far?); and I know that you leftists are very jealous of Rush, because he's rich and he has your number, and that's a sad thing; but I've not listened to the man since the 1980s. I have no idea where he's coming from nowadays.
Again, I think you'd be an asset to this site as a writer if you'd keep your eco-maniac, global-warming ideology to yourself and report and reason on investing ideas and companies. That might help someone. You're going to get the restrictive legislation you want passed. Don't worry.
But as I've told you before, I've dealt with people who have ingrained themselves with your mindset all my life, and no amount of reason, truth, or proof will change their minds.
Therefore, as you noted, you'll continue using this site as a sounding board for the Global Warming Hoax that you've bought into.
Oh yes, here's a quotation for you that someone recently sent me. I'm sure you've been worried about those melting polar caps killing off the polar bears. Well, maybe you ought to sleep better after this, but I doubt it.
"Polar bears are definitely not disappearing; their numbers are holding steady at about 24,000. That's more than there were forty years ago." (Ph.D. polar bear biologist Dr. Mitchell Taylor, speaking at the Heartland International Conference on the science of "Global Warming")
And Here Are Two New Books That Further Expose the Global Warming Hoax
One
"Red Hot Lies: How Global Warming Alarmists Use Threats, Fraud and Deception to Keep You Misinformed" ~ by Christopher Horner
Two
"Blue Planet in Green Shackles -- What is Endangered: Climate or Freedom?" ~ by Czech Republic President and rotating President of the European Union Vaclav Klaus
The best to you and yours, Fitz. Continue writing. You have the potential to be a decent one, if you keep cutting down on the info and sticking closer to the subject, as I must say you're doing a better job of doing at this point.
Strike out a little more of that leftist nonsense you have to toss in here and there in your articles, and you and all the rest of us will be the better for it.
It's called discipline, Fitzy me boy, discipline.
It's good to see someone else who comments on this site that agrees with me (and thousands of scientists and climatologists) that "global warming" is a pure and utter hoax.
You and I must be about the only two from what I've read. No author writes against it that I know of, and every commentator is ready to hang anyone who stands against this great hoax.
I wouldn't call them "fools," though, but they are definitely deceived. Most leftists when given the choice will always choose the negative of a proposition, as I'm sure you know.
In case you haven't seen it, 680 of the world's leading scientists met March 8-10 in New York City for the second Heartland International Conference, and all have concluded that there is no such thing as "global warming."
The title of the conference expressed their views: "Global Warming: Was It Ever Really a Crisis?" The group also concluded that, if anything, planet temperatures have been cooling "at a rate equivalent to 11 Fahrenheit degrees per century" since 2001.
It's still snowing across the nation in late March, yet the Warmers still persist with their nightmare scenario.
Last winter was the coolest since 1979, but of course, none of this matters to the Warmers. They continue blasting away with Al Snore's silly unscientific nonsense, and condemning anyone who disagrees with them as paid off by "Big Oil," or as "rightwing bigots."
Stand firm! And thanks mentioning your agreement.
long_on_oil: wow, if CHK was indeed hedged at $7-8 i am surprised they had such a cash crunch recently and had to sell so much property. they must have really extended their drilling budget.
Valueinvestor: i'm not sure about this car in india. i do know this: there are many highly educated indians that desparatly want to improve their lives and a car and personal mobility is high on the list of the things they want. time will tell. regardelss, i am sure we would agree if the car is a success indian oil demand will grow in-line with that success.
Bobco23: honestly, i simply cannot believe some people still want to debate the CO2 issue.
ArtfulDodger: oh, i see where you get your screen-name, you want to discuss global warming and CO2 but you don't want me to respond on here? haha, nice tactic, but unfair and i don't play that way. of course i was talking about the coal ash spill: 4.2 million cubic feet of toxic ash containing mercury, cadmium, chromium, lead, barium, arsenic and a host of other goodies. you say TN is not "gnerally polluted"? have you ever looked at the number of lakes and rivers in which the government itself admits it is not safe to eat any fish out of? further, you don't think that the spillage of the above chemicals into the rivers of the Tennessee Valley where drinking water for many towns and cities originate won't increase cancer rates? it's simply my "tunnel-vision"? my god man, have you lost your mind? further, i am jealous of rush because he is rich? he is rich because the people in power use him to fool folks like you who lap up his BS while they steal you blind and take over your country right beneath your feet. i'm not even going to read the rest of your post, i can easily predict the content. you're a perfect example of what happens when ideology trumps science.
on climate change debate, I'm absolutely enthralled that people want to debate it. That's what scientists do. They come up with theories/hypothesis, gather date, analyze, debate, gather more data, revise theory, etc. The fact that 680 SCIENTISTS still have rational, scientific doubt is an inidcation that its not a slam dunk. We need to keep debating it at a scientific level, not a political one. And last I checked, Al Gore is not a scientist and he's no longer a politician (thank the Lord). He's an investor and is positioned well for the upcoming rape/pillage. Others are invested on the other side.
Beautiful, man. I have noted elsewhere that I am impressed with China's ability to multi-task while America goes ADD for shiny objects in today's headline. Priorities and perspective. China has 30 year plans. America has 2 year plans (I'm being generous).
Please don't spread too much info on China's actions. I need more time to position my assets to take advantage!
Oil really is black gold, just like Jed said. Now if I can only figure out how to buy Texas tea.
What about producers that require cash flow to cover debt service, retirement obligations, and operating expenses? Especially if they have just been expanding rapidly and taking on debt, which a lot of firms have. What if they can't refi their debt (a familiar situation, especially for juniors)? The project starts with profit as an end, but you're ignoring the financing of these projects. I agree with the spirit of your statement however, the business cycle is frustrating.
On Mar 24 09:14 AM long_on_oil wrote:
> When the price of oil was high the oil companies tried to maximize
> profits by drilling new wells and increasing supply. Now that the
> price is low the opposite will be the rule. The stockholders must
> demand profit maximization irregardless of the price of oil. This
> is just business 101.
> Why the natural gas companies aren't cutting production is beyond
> me. We stockholders should be writing our management to insist they
> cut production to protect our investment. We are tired of giving
> our product away. No responsible management of any successful company
> operates like these natural gas companies.
Remember though, by the summer of 2008 demand for oil dived. So yes, oil production was down for the entire year but oil did not trade for $145 the whole year either.
Currently oil is pushing the envelope to see how far they can go before Congress steps in. As long as Congress and the President are occupied with Stimulus and Budget issues, they won't be looking at oil. If oil gets to $2.50 at the pump, look for action, especially if it happens before summer.
If Congress starts making noises, the price will again fall to under $2.00 at the pump. Even Republican voters buy gas.
In many production industries like oil and natural gas there are cost efficiencies to be gained by running at full tilt all the time. More money is made in different areas of some companies at different times depending on their business model and market price levels.
My question to Mr. Fusion ...
When you say "oil pushing the envelope to see how far THEY can go" who are you referring to? The price at the pump fell back from it's highs at the end of 2008 yes, but congress dragging the oil company CEO's up to DC isn't what did it. I'm trying however, not to assume that's what you meant ... so we'll say for now that you meant congress would step in to make some ill advised market alterations or perhaps on the positive side, step up domestic supply.
On Mar 24 09:29 AM longoil wrote:
> Long_on_oil,
>
> I wondering also why anyone would operate a business at a loss. A
> while back, one of the posters gave a very good explanation for this
> in the oil and gas industry.
>
> For example:
> 1) Let's say the price of natural gas is $5.00 /MMBTU
> 2) Fixed costs (e.g. long term debt for infrastructure ) are $3.00
> /MMBTU
> 3) Variable costs (e.g. salaries) are $1.00 / MMBTU
>
> On the surface, you are losing $1.00 / MMBTU. But cutting back on
> production is worse. You still have fixed costs that you have to
> pay regardless and your loss would be $3.00 / MMBTU if you did not
> sell anything. Furthermore, losses can be carried forward against
> taxes on future profits.
<i>When you say "oil pushing the envelope to see how far THEY can go" who are you referring to?</i>
Good question. I would have to say the speculators (or investors as you will).
Last spring as the price kept rising and Congress was looking for election issues, many Americans were looking at the gas pump. Very few Americans understood the "why" and those that did were complicit in the rising prices. When the decreased demand finally hit home through unsold inventories, the price dropped.
It is less than a year later and American minds still vividly remember the shock of such steep prices in such a short time along with such huge profits. If speculators want to push the price up too hard they do so at their own risk.
North American oil should not be much above $50 bbl. That is the cost of recovery from the Tar Sands with a healthy profit thrown in. Venezuelan oil costs a little less. Using these two sources of heavy crude should leave a pump price of about $2.00, again with a healthy profit for the refiners and delivery.
Many Americans are out of work, working part time, or underemployed. They are plenty peeved with the financial giants at the moment. History shows that Big Oil is not a favorite either and they could also quickly find themselves before Congress with legislation this time. It will be best if they keep a low profile at least until America gets out of the recession.
Looking at oil, the absolute return outlook is better than that of gold. What is the probability of oil hitting $150 or higher in the next 5-7 years? We were just in the high $140's nine months ago. With oil trading between $35 and $50 in the past two weeks, investors are seeking to get a high IRR by possibly getting an absolute 5x on their investment with an exit in 5-7 years.
Gold, on the other hand, is trading around $850 to $1000. To get the same return, gold would have to trade up between $4000 and $5000 an ounce. The likelihood of that happening is less than that of oil because energy is more volatile than gold.
This oil rally is about opportunity for speculators in the long-term, not the true supply/demand characteristics of the oil industry.
On Mar 24 07:10 AM Saildog wrote:
> The article would have been better had the author learned something
> about energy.
Thanks, good answer. I don't necessarily argue that oil should be much more than what you said at this point but OPEC's cuts are eventually going to filter more strongly into our prices, especially when the summer driving season starts. I would also say that I think the Canadian Sands need a little more value to make them profitable enough for real production but I'm sure that's debatable in both directions. While the bubble last summer did have a lot to do with speculation, the demand drop and subsequent price dive shows that there were also relevant supply and demand issues being represented.
In the end, let's face it, this government is LIKELY going to take any opportunity to deamonize the oil / gas industry. I expect that the normal demand boost in the summer will be enough to garner a response from politicians no matter the situation. I guess we'll know in a couple of months.
People there are used to crowded trains and buses and will drive to work in Nanos using carpools of 4 people or more, achieving like 50-80 miles on a dollar per person. They will use the expensive resources much more efficiently than people in the developed countries.
On Mar 24 05:26 PM ValueInvestor wrote:
> Do you really think a country like India, where people need the cheapest
> car in the world just to afford one will be able to afford $145 oil.
> I don't think so. They'll all have Nano's in the driveway and still
> be walking to work.
>
> The simple fact is the world couldn't afford $147 oil last year so
> how on earth are we supposed to afford it next year and beyond?
> We can't, so the supply and demand lines will move accordingly.
> Remember, the solution to high prices is high prices.
Not convinced that the equities or real estate markets have bottomed.
Bailout stimulus is bound to boost the economy for a quarter or two, however, long term organic growth is something that seems hard to envision over the next few years. I'm also not sure how much burden the average middle class person can absorb, check out how NY is raising all the tolls on subways and commuting, it is stunning how our pathetic leaders keep going after the average guy.
We will witness a major collapse in our country, and we are all well on the way to witnessing it. We are in the third or fourth inning.
On Mar 25 05:40 PM Pink Panther wrote:
> Yes, even "poor" countries can afford $150 or even $250 oil:
> People there are used to crowded trains and buses and will drive
> to work in Nanos using carpools of 4 people or more, achieving like
> 50-80 miles on a dollar per person. They will use the expensive resources
> much more efficiently than people in the developed countries.
>
> On Mar 24 05:26 PM ValueInvestor wrote:
1) Markets were in a big contango and spot prices had to rise to create a no-arbitrage market. OPEC tightening and speculators renting super-tankers helped push spot prices back into the no-arb zone.
2) I believe crude oil stocks don't necessarily have to represent excess supply. I think inventories can be accounted for by purchases, but still be held in inventory. Not sure.
Also...oil has an intrinsic economic value that is dirt cheap and deserves a higher price:
www.planbeconomics.com.../
>> Oil will become less expensive to developing countries as the US dollar crashes. At $150 a barrel to us.....but the dollar was 35% lower just last year....which means $97.50 a barrel to them.
>> India and China will not be sadled by the CO2 cap and trade bullshit! If any enviro-idiot wants to speak at this point, please post a link to relevant data that shows an increase in global temperature. I have been waiting to see that since 1990!!!
>> Since AC power can not be stored like DC power, what are we supposed to with our solar panels and windmills when it is cloudy or calm outside?? We might as well build a moonbase.
I am bullish for selected nat gas companies but unfortunately, a glut of Nat gas is inevitable for the next 9-18 months given the huge supply of LNGs hitting the market. CHK has hedged very prudently (I think the company is heavily underrated by the market) while many others have not. MCF is a low-cost producer that will survive and then thrive as well. But i expect no short-term catalyst for nat gas stocks.
On Mar 24 09:14 AM long_on_oil wrote:
> When the price of oil was high the oil companies tried to maximize
> profits by drilling new wells and increasing supply. Now that the
> price is low the opposite will be the rule. The stockholders must
> demand profit maximization irregardless of the price of oil. This
> is just business 101.
> Why the natural gas companies aren't cutting production is beyond
> me. We stockholders should be writing our management to insist they
> cut production to protect our investment. We are tired of giving
> our product away. No responsible management of any successful company
> operates like these natural gas companies.
Did anyone see Bernanke on 60 minutes recently? I guess you did. Anyway, he made it clear that his 3 trillion(ouch!) infusion of new money in the system was bound to cause inflation down the road (and a massive one, I think, with towering interest rates.. ). If the US is going to be the most aggressive country in the world in loosening money-supply, it would totally undermine the dollars strength(and support oil, in dollars). EU and China is not following suit, although Japan has stuck to this policy for years.
Right now it seems the Fed is entangled in shortterm problems. AIG was giving Bernanke the creeps. Like everyone else, the FED have to focus on immanent problems, although the solutions may cause double havoc in the future..
On Mar 24 10:09 AM Michael Fitzsimmons wrote:
> long_on_oil: sorry, i missed your comment as i got your name confused
> with longoil. wrt natural gas production, the nat gas E&P guys
> are cutting back on production if the baker hughes rig count is any
> indication (and it is). it will take awhile for natural gas supplies
> to come down, but as i mentioned in the article, the depletion rates
> on the new shale discovery wells, are, in general higher than past
> more "conventional" gas wells. therefore, once natural gas production
> starts to decline, it will do so more rapidly in the past. when this
> decline will begin to any significant extent is a big question, but
> it will certainly be this year and from the trendlines i follow,
> may well be early summer. if the economic stimulus works, we could
> see an abrupt rise in natural gas prices on the NYMEX.
>
> StoneFox: wrt your earlier comment, i forgot to mention how insightful
> it is to notice that while the US government was investing in financial
> fraudster bonuses, the chinese were snapping up oil reserves and
> deliveries in Brazil and Russia. sad, but is shows how much more
> economic power china currently has over the US. we go broke fighting
> idiotic oil wars and ignore our natural gas reserves. meantime, china
> simply buys oil reserves and deliveries.
However, I feel like commodities show a slightly more accurate picture than equities if for no other reason than who is trading them regularly, stakeholders. Equities markets can often be populated by people with no skin in the game. When this phenomenon hit the oil market we have summer 08 (to a point).
With the government putting it's hand even farther into the private sector, markets are becoming less and less efficient. It's almost impossible for markets to move as they should right now because of big brother.
On Mar 26 08:39 AM dcb wrote:
> It is often a mistake to assume markets are acting for rational reasons.
> I have found that I get the largest insight when I assume the opposite.
On Mar 24 09:09 PM ArtfulDodger wrote:
> My Dear Fitz:
>
> Ah, I see. You're speaking of an accident in the Valley. That's a
> different annimal all together, because I know the land in the area
> is not generally polluted.
>
> But sadly, our rivers and lakes are in sad shape. I support a group
> in Florida that fights for cleaner lakes, rivers, and streams, but
> the radical eco-maniacs won't do that because they have a bigger
> agenda to accomplish with getting "global warming" legislation passed.
>
>
> Hey Fitz, why don't you get on the subject of cleaning up our highways
> and rivers, et al. I'll be with you on that, but just don't do it
> on this site. This is an investing site, you know?
>
> By the way, who was it that created the TN Valley Power system? One
> of your heroes, no doubt.
>
> I'll agree with you that cancer will continue to increase (as it
> has for the last eighty years), but I don't agree with you at all
> that CO2 or accidental spills is what's causing it. That's a tunnel-vision
> view if I've ever heard it.
>
> As far as Bush and Rush are concerned, I think Bush was a bad president,
> but we've had a line up of them since his dad took office in the
> 1980s (can you remember back that far?); and I know that you leftists
> are very jealous of Rush, because he's rich and he has your number,
> and that's a sad thing; but I've not listened to the man since the
> 1980s. I have no idea where he's coming from nowadays.
>
> Again, I think you'd be an asset to this site as a writer if you'd
> keep your eco-maniac, global-warming ideology to yourself and report
> and reason on investing ideas and companies. That might help someone.
> You're going to get the restrictive legislation you want passed.
> Don't worry.
>
> But as I've told you before, I've dealt with people who have ingrained
> themselves with your mindset all my life, and no amount of reason,
> truth, or proof will change their minds.
>
> Therefore, as you noted, you'll continue using this site as a sounding
> board for the Global Warming Hoax that you've bought into.
>
> Oh yes, here's a quotation for you that someone recently sent me.
> I'm sure you've been worried about those melting polar caps killing
> off the polar bears. Well, maybe you ought to sleep better after
> this, but I doubt it.
>
> "Polar bears are definitely not disappearing; their numbers are holding
> steady at about 24,000. That's more than there were forty years ago."
> (Ph.D. polar bear biologist Dr. Mitchell Taylor, speaking at the
> Heartland International Conference on the science of "Global Warming")
>
>
> And Here Are Two New Books That Further Expose the Global Warming
> Hoax
> One
> "Red Hot Lies: How Global Warming Alarmists Use Threats, Fraud and
> Deception to Keep You Misinformed" ~ by Christopher Horner
>
> Two
> "Blue Planet in Green Shackles -- What is Endangered: Climate or
> Freedom?" ~ by Czech Republic President and rotating President of
> the European Union Vaclav Klaus
>
> The best to you and yours, Fitz. Continue writing. You have the potential
> to be a decent one, if you keep cutting down on the info and sticking
> closer to the subject, as I must say you're doing a better job of
> doing at this point.
>
> Strike out a little more of that leftist nonsense you have to toss
> in here and there in your articles, and you and all the rest of us
> will be the better for it.
>
> It's called discipline, Fitzy me boy, discipline.
Now this comes to mind from Artful dodger;
[quote]it's good to see someone else who comments on this site that agrees with me (and thousands of scientists and climatologists) that "global warming" is a pure and utter hoax.[/quote]
Hoax it is,I know that,but the people of Australia are being forced to accept that it is true,and anyone silly enough to argue the point is instantly labeled a "climate change sceptic". Say it in the same tone as 'holocaust denier' or 'nazi sympathiser' or 'antisemitic' and you will understand the venom with which Australia's senator Penny Wong delivers it in the press constantly. And this from a government hell bent of giving away a further 48 billion dollars( they intend to borrow) for the purpose of 'fiscal stimulus' and yet we depend on oil and coal exports .
After Copenhagen ,we need not worry,we won't be able to afford anything anyway. And,anyway if carbon is so bad, will some one please explain how it is that even we humans are comprised of carbon atoms? The old song put it well..."we are star dust,we are golden".
Cheers!
On Mar 24 09:57 PM ArtfulDodger wrote:
> Dear Bobco23:
>
> It's good to see someone else who comments on this site that agrees
> with me (and thousands of scientists and climatologists) that "global
> warming" is a pure and utter hoax.
>
> You and I must be about the only two from what I've read. No author
> writes against it that I know of, and every commentator is ready
> to hang anyone who stands against this great hoax.
>
> I wouldn't call them "fools," though, but they are definitely deceived.
> Most leftists when given the choice will always choose the negative
> of a proposition, as I'm sure you know.
>
> In case you haven't seen it, 680 of the world's leading scientists
> met March 8-10 in New York City for the second Heartland International
> Conference, and all have concluded that there is no such thing as
> "global warming."
>
> The title of the conference expressed their views: "Global Warming:
> Was It Ever Really a Crisis?" The group also concluded that, if anything,
> planet temperatures have been cooling "at a rate equivalent to 11
> Fahrenheit degrees per century" since 2001.
>
> It's still snowing across the nation in late March, yet the Warmers
> still persist with their nightmare scenario.
>
> Last winter was the coolest since 1979, but of course, none of this
> matters to the Warmers. They continue blasting away with Al Snore's
> silly unscientific nonsense, and condemning anyone who disagrees
> with them as paid off by "Big Oil," or as "rightwing bigots."
>
> Stand firm! And thanks mentioning your agreement.
On Mar 26 08:39 AM dcb wrote:
> It is often a mistake to assume markets are acting for rational reasons.
> I have found that I get the largest insight when I assume the opposite.
1) they kicked big oil's butts in the nat gas shale plays
2) nice nat gas prices as a result of hurricanes and a juiced economy
that said, CHK has reacted very pragmatically and will be fine in the long term. if the US enacted a plan to reindustrialize and reinvigorate the economy based on natural gas transportation, CHK would be THE stock to own. unfortunately, every day i turn on the TV and all the policymakers are talking about is more financial hijinx. what ever happened to the USA that was built on industry, real production, and national security concerns? i can't believe climate change is still being debated either (for different reasons).
hot richard: boy you said it all: the chinese have long-term planning (their government is run mostly by engineers) and the US is all short-term financial hijinx (what else can you expect when professional politicians run things). unfortunately, actual "texas tea" peaked in the 1970's....
mr fusion: yes, and i believe i pointed that out that year over year production at US majors was down in 2008, didn't i? as far as government action goes, the stimulus plan already has some items that take away many existing big oil subsidies.
wrt the comments on windrall profits on oil companies - if done, it would be a disaster. oil companies would respond by reducing E&P expenditures to protect their shareholders. that would mean less oil and gas, and much higher prices down the road. one aspect of our addiction to foreign oil is that US oil companies are in the cat-bird seat. thus, my recommendations to own them, collect the dividends, and wait for the next peak oil spike.
pink panther: i tend to agree with you. i think the Nano will be much more successful (in terms of sales) than most people think. now, whether tata can make money on slim margins is quite another question.
scotty1560: i tend to agree with you. and yes, the war on the middle class has been going on for years now and despite all the rhetoric, i don't think things have changed all that much with obama (not my previous article critical of the shapiro appt and lack of natural gas transportation policies). i also see powerful forces attempting to bring the country down - one reason why nat gas transortation isn't being pushed: it would be too good for the middle class (i.e would maintain their economic and mobility freedom). what better way for "the powers that be" to control the middle class than by keeping them addicted to gasoline when they know damn well peak oil is here today.
planB: yup, oil has intrinsic value. i sure wish i had a big tank in my backyard and could trade some US paper dollars for a 10,000 barrels of oil. i'd do it in a heartbeat. which will be worth more in 10 years?
Hmm?!: ok, as long as everyone understands those weren't my comments...
User305589: i think the key is going to be what the depletion rates of the relatively new shale wells are going to be. i haven't seen conclusive data, but some private email exchanges i have had indicate shale well depletion is substantially higher than historical "conventional" nat gas wells. so, as rig counts continue to fall (and they have been and will continue until prices recover), it will be interesting to see when the supply inflection point is reached. it's kind of new territory for the natural gas market due to the nature of the shale plays and the new technology employed just recently. at least it's new to me.
georgian: yes, i agree. long term, US financial policy combined with peak oil realities will drive an inflation higher. oil stocks are a protection agains this scenario, as is gold (bullion, not "paper gold")
dcb: i am beginning to think obama is in bed with coal since illinois is a coal state. he mentions "clean coal" alot (an oxymoron) and i have never once heard him utter "natural gas transportation" or mention one of the biggest environmental disasters in US history in the tennessee river valley. i'm very disappointed in obama.
User269125: saying that carbon is good because humans are made of carbon is classic rush L. logic. how you can say something like that, and then quote a classic band like CSNY in the same post is quite astounding to me.
User357469: i have learned not to debate witt these folks any longer. their powers of logic, deduction, and observation are surely limited. therefore, trying to persuade them by rational debate will fail. it's an ideology they hold onto to like a child with a fuzzy bear in the crib. i love it when they say "it's snowing, how can their be global warming!" hahaha, cracks me up.
Also, one thing not reflected in the drilling rig counts, there are a lot of operators who are under contract to keep the rig drilling. or they have to pay for the rig anyway. So, they are drilling the wells but not completing the wells, putting in the frac jobs and getting them ready to produce. So, we have a lot of rigs drilling wells that are just going into a "non-producing inventory". so the rig rate drop is actually worse than it appears!!
One issue I would be severely concerned with as a nat gas investor is LNG imports. There is a huge wave of LNG that is going to hit the shores of the US by late this year. Many people are discounting it for all the wrong reasons, saying the LNG will be attracted to higher priced European markets or the cost of LNG is much higher than the US price right now. Fundamentally, these folks don't know much about the commercial side of the LNG biz. Gas prices in Europe are declining and their storage will be topped up by early summer. That storage won't be tapped until later in the winter unless the Ruskies do something stupid. The only place for the LNG to go is the US as we have built a lot of spare import re-gas faciliities. Also, while LNG facilities are very expensive, once they are built and the money is invested, the owners have a vested interest to run these facilities, even at very low prices. Incremental operating cost to run the plants, ship the LNG and regas it into the pipelines is around $2. A long way under current gas prices in North America. Plus these owners have large loan payments to make on multi billion dollar LNG investments. They have to produce and ship to help cover those loan payments, even at low prices.
With all due respect, how can you "assure" me that global warming is not a hoax when your only argument is that you are assuring me.
The statement you advance as fact ... that the only ones who believe it's a hoax are ... ... ... is pure opinion and in no way defends your position.
I'm not saying I believe one way or the other simply because the expression of my opinion in general isn't going to effect anyone one way or the other. I'm sure you're a very nice person ... but I need a little more than your "assurance" that you're inherently right.
On Mar 26 11:00 AM User 357469 wrote:
> I can assure you that "global warming" is not a hoax. In fact the
> only ones who claim it is a "hoax" are those with a vested interest
> in current technologies, or else don't know any better.
>
> On Mar 24 09:57 PM ArtfulDodger wrote:
debating the climate change issue is healthy as long as its done at a scientific level. politicians debating climate change is comical at best, disastrous at worst. Let the scientists debate. Unfortunately, any scientist who expresses a dissenting opinion is quickly villified and dismissed. The 600 or so who oppose all of this can't just all be whacko's or guys paid off by the evil industrial complex. might some of them have a valid point?
Of course, there will be something done about carbon footprints. How its done is important as it does have the scale and scope to bring the world economy to its knees. Prudent, low impact steps would be nice, but I don't see those. And I don't see the Chinese, the Indians, etc. giving a rat's butt. Look at their situations over there...is global warming really all that bad compared to the state of over half their populations?
-Matt
there are two LNG import facilities on the Gulf Coast which were put in service last year and have been starved for product so they should be almost 100% available. Also, there is one on the Baha coast that has a large percentage of availability.
Also, LNG tanker capacity has been increasing along with the LNG liquifaction plant construction. So that shouldn't be a bottleneck either. I'll try and get some volumes/capacities for you.
ArtfulDodger will come across all smiley and courteous while stabbing you in the back. Disagree with him and watch out for all the thumbs downs. Longoil is another such person but at least with Longoil its a little more obvious where he stands.
On Mar 24 02:29 PM Michael Fitzsimmons wrote:
> ArtfulDodger: wow, a top20..i am paying attention :) and yes, i live
> 20 minutes from the TN valley. i was referring to the coal spill
> disaster at TVA"s kingston plant. it was the biggest coal plant in
> the world when built back in the 1950's. alot of the toxic coal ash
> and sludge went into the emory river. then it rained, and more went
> in. the emory dumps into the clinch, which dumps into the tennessee
> river, which goes all the way down to chattanooga and beyond. i predict
> you will see a huge rise in cancer cases in that valley with 10 years.
> it is arguably one of the worst environmental disasters in US history.
> but you won't read much about it in the papers (oh, what a surprise).
> just google "Kingston coal spill" and you can read all about it.
> erin brokovich went down there, and you can bet she is gonna litigate
> that spill for hundreds of millions of dollars. we need more CO2??
> well, you'll have your wish. the US burns 390,000,000 gallons of
> gas every day, and each gallon produces 19 lbs of CO2. so, you should
> be a very happy guy. i think its miserable. thanks for the nice comments,
> but as far as my "ideology" (of course i believe it is science and
> refer to rush L. and bush as ideologists, but i am sure you will
> not agree), as long as folks like you think producing more CO2 makes
> more healthy humans and animals. i'll persist.
On Mar 26 08:46 AM dcb wrote:
> The us goverment is investing in the industry that is paying them
> the most to do so. Unfortunately the bankers are smart enough to
> have made friends with both the dems and the republicans. Therefore,
> we are screwed.
FE812: well, all i can say is it was proven by scientistS in the 1800's that carbon dioxide heats the atmostphere. that was before gasoline, and before the big global warming debate. scientists accepted this fact back then as it was proven via the accepted scientific method. fast forward to today: the US alone burns 390,000,000 gallons of gasoline everyDAY (EIA) and each gallon produces 19 lbs of CO2. now, simply put the two facts together, use a calcualtor, figure the big number your calculator doesn't even include coal emissions, and then ask yourself a simple question: question: what is the most likely reason the ice caps and glaciers have started melting at an historically accelerated rate since the dawn of the industrial revolution? it's really very simple.
Mmarrkk: agree on nat gas transpo! wrt china, you better hope they give a rats ass and make the same transition to natural gas that i am pushing for the US or the world as we know it will not be a pleasant place for our kids for a number of reasons i wont go into.
ripski: if you are correct on those cost numbers (and i don't know either way), it is just another huge reason the US should transition to nat gas transportation. however, if those numbers are true, it makes me wonder if instead of the alaskan/canadian natural gas pipeline, why we just don't build more LNG ports. i'd love to be a fly on the wall when BP and COP are discussing that topic.
User357469: i've learned it's impossible to write freely if you worry about the thumbs. i get alot of negative thumbs for stuff i write and it's like, what was wrong with that? so, my policy is to just think and write and let the thumbs fall where they may. i used to think the "top100" or whatever was based on thumbs, but i think it's just based on the number of articles written.
anyhow, i can't believe no one mentioned my chinese quote. i really like that quote...but i guess there are no wood-splitters in the audience.
well, thanks all for the comments. i'll give you guys a break on all the natural gas articles and search for something else to write about. maybe i'll read john peterson for awhile and learn about battery technology.
I find that getting a thumbs up or a thumbs down has more to do with the position taken by the commentor rather than being based on the quality or accuracy of the comment made. Unfortunately some article authors appear to use other accounts to significantly down-rate commentors who disagree with their articles in the hopes it would seem of discouraging such comments against their long or short positions in the stocks they write about. I could name names but I'm sure those who really care already know who they are.
On Mar 27 07:20 PM Michael Fitzsimmons wrote:
> User357469: i've learned it's impossible to write freely if you worry
> about the thumbs. i get alot of negative thumbs for stuff i write
> and it's like, what was wrong with that? so, my policy is to just
> think and write and let the thumbs fall where they may. i used to
> think the "top100" or whatever was based on thumbs, but i think it's
> just based on the number of articles written.
On Mar 27 07:22 PM Michael Fitzsimmons wrote:
> User: 357469: true that (oil & banking). i was foolish to think
> obama would be different on that issue. he has not been.
In response to your statement towards me. Your evidence is irrelevant. I honestly don't give a flying crap in this case because my comment had nothing to do with whether global warming is or is not a hoax ...
My comment was directed only at the person I was replying to and if you read it more carefully I'm sure you'll find that I was simply making light of the fact that, that particular user "assured" me that it was not a hoax ... ... ... and then moved on with no further comment. If said user had continued on to write, I don't know, a version of what you did, then I would not have posted about it. Unfortunately they didn't, and to me it made them look like a bit of a joke.
You came to the table with whatever facts you felt you needed ... touche to you sir. The user I was replying to did not ... I apologize for asking relevant thought of my criticizers. Poor user ... I wanted him/her to think. Forgive me ...
I believe Ripskii posted some LNG costs that were in line with my thinking. Yes, the cost to liquify, transport and re-gas LNG is very low. The one variable is the cost to produce the gas out of the ground that will then be liquified. In places like Qatar, it is almost ZERO!! They are the Saudi's of the nat gas world. Do the LNG can hit the shore of the US at much less than the current $3.50. Also, all of these LNG import facilities are already hooked up to current pipeline infrastructure.
And the plants I referred to (in terms of having to pay the debt to construct) are the liquifaction plants, not the re-gas plants.
In a later reply, you ask whether we should build Alaska gas pipeline or look to more re-gas import plants. I think the strategic answer is: do you want to be held hostage by imported foreign nat gas like we are on imported foreign crude oil? Its worth the price premium because these big natural gas countries (the top three are Iran, Russia, Qatar) are really not our friends!!! Once they get us hooked, they will jack us around just like OPEC does and control price by restricting volumes.