It’s a Gas!
Natural gas prices jumped more than 2% on data that showed producers added less gas than expected to stockpiles. ..Gas for June delivery jumped 2.3% on the N Y Mercantile Exchange.
Wall Street Journal Friday May 16, 2014 Light Stockpiles Pump Gas Futures
The logical conclusion is that more supply raised prices by the percentage increase in gas. That is the literal definition of a bull market when greater supply raises prices.
We are in a minor energy supply transition. By minor I mean that we are transitioning from one carbon source to another, from oil based fuels to gaseous based fuels. Let’s put that in perspective by reviewing the major transitions in energy history.
The first occurred in ancient Rome. The transition was from human or slave power, to wind power. Recall the scene of Ben-Hur as a galley slave? The second transition spawned the legend of Robin Hood stealing not only the King’s deer, but his wood from Sherwood Forrest. Widely available soft coal known as peat displaced wood. The third transition was from whale oil for lighting to petroleum from 1848-1858. The world has run on petroleum based distillates namely gasoline and diesel since the arrival of the internal combustion engine. Coal has been significant for powering first locomotives and then electric plants until the recent War on Coal.
Now we have a transition from petroleum distillates to a first cousin of fossil fuel, forms of natural gas. Natural Gas burns cleaner and is now in abundant supply thanks for fracturing. Several significant events are occurring perhaps off the radar screen that is hastening the move to natural gas.
John Deere and Caterpillar are offering what were formerly diesel engines now powered by compressed natural gas known as CNG. This past week industry group America’s Natural Gas Alliance announced a new CNG refueling station on the East Side of San Antonio. This completes the triangle of DFW, Houston, and San Antonio with CNG now available at truck stops on the interstate. Natural gas emits about half the amount of nitrogen oxide, as a diesel engine
For the first time the Texas Commission on Environmental Quality is offering a $2,500 incentive for drivers purchasing smaller alternative-fuel vehicles. Railroad Commissioner David Porter (originally a CPA from Midland by the way!) notes ‘Texas continues to lead the nation in job creation in the oil and gas sector.’
So we have more engines created or converted to CNG and now we see the beginning of a realistic CNG re-fueling network connecting Texas’ largest Metropolitan areas. Next on our list is a break through in storage of CNG for smaller vehicle. Enter Rush Enterprises and 3M.
From their press release - 3M and Rush Enterprises today announce an agreement to pursue the design, manufacture and installation of a portfolio of compressed natural gas (CNG) tanks and fuel systems for use in Class 6-8 vehicles in North America. The Agreement allows for 3M to supply tanks with proprietary technology, and for Rush Enterprises to provide enhanced fuel systems, distribution and service support. The tanks are 30% lighter and store 10% more CNG.
One of the hindrances in fitting smaller vehicles like light pickups and cars with CNG systems have been the size and weight of a tank that can safely transport the compressed gas. This is perhaps the start of a breakthrough in that area.
And don’t forget that natural gas accounted for 25% of power generation in the US from November 2012 to March2013 according to the Center for Climate and Energy Solutions C2ES.
Amy Myers Jaffe, Executive Director of Energy and Sustainability at UC Davis expects the administration to lift the ban on oil exports as a way to shield itself from criticism as it delays making a decision on the Keystone Pipeline. Recall that the Panama Canal expansion has been delayed but is still due to come available perhaps in 2015. All this means an easier way to ship petroleum or refined petroleum from the Texas Gulf Coast Refineries.
So, we are coming full circle in the transition. CNG re-fueling stations will hasten the switch to CNG engines. Improved storage will mean offering smaller vehicles running on CNG.
The price of BRENT and West Texas Intermediate has been converging. Each has seen lower chart price highs. This re-enforces my belief that crude oil prices are likely to fall further.
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