dieuwer, How long do these $7 contracts last? In other words, when will they have to be renegotiated at a lower rate, if the spot rate is lower then? If the rate is lower when it comes time to renegotiate and the spot price is below $5, do the producers just walk away and stop producing new wells?
Joseph L. Shaefer said, "I, too, believe there will be a reversion to the mean between natural gas and oil.".
Why do you believe oil and natural gas prices will converge? By what means do you see this happening? Oil is mostly used for transportation, where natural gas has only a token presence? Do you see vehicles converting to natural gas? I believe this can only be a marginal effort, at best, because natural gas vehicles have limited range. Do you see plug-in electric vehicles coming on strong? Even if plug-in vehicles are a big success, it will take at least 10 years to start to reduce demand for gasoline. This is why I see this very large gap (4x in equivalent energy terms) between oil and natural gas continuing for years, though it will eventually happen. It's very difficult to replace oil with natural gas.
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Why do you believe oil and natural gas prices will converge? By what means do you see this happening? Oil is mostly used for transportation, where natural gas has only a token presence? Do you see vehicles converting to natural gas? I believe this can only be a marginal effort, at best, because natural gas vehicles have limited range. Do you see plug-in electric vehicles coming on strong? Even if plug-in vehicles are a big success, it will take at least 10 years to start to reduce demand for gasoline.
This is why I see this very large gap (4x in equivalent energy terms) between oil and natural gas continuing for years, though it will eventually happen. It's very difficult to replace oil with natural gas.