Widening Spread Between Nat Gas and Crude Oil

Monday, November 12, 2007 | 01:30 PM

Apropos of our earlier post this morn, see this chart porn for energy traders from Floyd Norris' Saturday NYT column:

1110bizwebcharts

Graphic courtesy of the NYT

A quick Ubiq-cerpt:™

Oil and gas prices have never moved in lock step, in part because each has different users. But the bigger reason is that one is part of a global market and the other is not.

Tankers can move oil or refined products to anywhere from anywhere, and will do so if prices rise in one region relative to those in another. Growing demand for oil in Asia, as well as fears of instability in the Middle East, have helped to raise oil prices.

Natural gas, on the other hand, has limited worldwide transportation. The market for liquefied natural gas is growing, and is a significant part of energy planning in China and other countries. But there is little capacity to move L.N.G. out of the United States if prices here fail to keep up with those in other parts of the world, as they have this year. While some power plants can shift between oil and natural gas, most users cannot, no matter how much prices get out of line.

And they are out of line now. Oil costs about 60 percent more than it did two years ago, but natural gas is selling for about a third less than it was during the winter of 2005-6, when there were fears of natural gas shortages. It has been more than a decade since the United States headed into a winter with natural gas this cheap relative to oil.


Source:

As Oil Soars, Natural Gas Is a Bargain
FLOYD NORRIS
NYT,  November 10,
http://www.nytimes.com/2007/11/10/business/10charts.html

Monday, November 12, 2007 | 01:30 PM | Permalink | Comments (11) | TrackBack (0)
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Comments

How about some basic stats to help mull over the question...

http://www.ngsa.org/images/ngsa_gas_facts_glance3.jpg

Major takeaways:

1. Origin:

Lots of domestic production = protection from weak dollar.

2. Usage:

- Industry(we still have industry in the US?)
- Residential(mostly southern homes, yanks use oil...no?...well, it ain't cold yet in the south)
- Electrical generation(I've read that Nattie Gas is an supplementary source for pwer generation, winter is not really peak season for electrical demand-no a/c's)

Having said all of this...I'm not saying that NG can't be the next speculative play. People can rationalize anything if they try hard enough.

Posted by: KP | Nov 12, 2007 2:06:10 PM

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