Thursday, April 08, 2010

Natural Gas Bonanza Hits Energy Markets

Natural gas prices began to tumble today, in a collision course with rising oil prices. In fact, the natural gas to oil price ratio hit an unprecedented 1 to 21 ratio ($4.12 per mcf of gas to $86.60 per barrel crude).

The gas price collapse was partially the result of the US doubling its gas reserves. And the US Geological Survey plans to help at least 10 other countries to develop their unconventional gas reserves. Something tells me that this is only the beginning.

Russia has refused to cut its own natural gas output, making some gas-producing countries in the Arab world unhappy. But what can Russia do? Russia needs oil prices of at least $100 a barrel, preferably above $120 a barrel. Putin must take what energy income he can get to prevent a total collapse of his government.

US gas producers are slowly shifting to oil exploration and development -- given the slumping profits in the gas sector, and the bubble-inflated profits in the oil sector.
[Oil] Supply should continue to creep upward, likely at a faster pace than still sluggish demand. Oil production is rising slowly, OPEC continues to provide more supply, albeit at higher prices, and Russian output is at a recent peak. While prices can diverge significantly from oil market fundamentals, in the long term a number of new sources should be available, including offshore oil in Africa and Brazil, and the oil sands--though the economic viability of these sources depends on the price of crude. _Forbes

The Obama - Pelosi regime's EPA is naturally trying to find ways to shut down the US gas bonanza -- using any means necessary. But Obama - Pelosi have used up a great deal of political capital in a very short time, with very little to show for it. From now on, every grand offbeat crusade of the O - P reich will be facing increasingly stiff opposition at all levels.

Oil production and supplies are likely to continue to rise, as long as oil prices remain artifically inflated and supported by the easy money policies of the US Fed -- which drive much of current speculation on oil markets. Eventually, the bubble will burst and the US government will once again be called upon to bail out the best-connected operators of hedge funds, pension funds, and other commodities investors who have lost their shirts. Again.

Update 9 April: One example of USGS investigation of gas reserves over seas, is its investigation of the Levant Basin Province in the Eastern Med.
An estimated 122 trillion cubic feet (tcf) (mean estimate) of undiscovered, technically recoverable natural gas are in the Levant Basin Province, located in the Eastern Mediterranean region. _SD

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