I'm not saying it doesn't matter. I'm saying it only matters within the context of the amount of money that can be made. A more expensive process doesn't necessarily mean less money back from a transaction if the ultimate margin is large enough. In energy I damn well expect this is the case.
This is exactly my point.
I'm not familiar with how energy companies do this, but there is also the fact that there may be pressure to produce less than full capacity until you see a price increase or a greater ability to ship it overseas. If I have a product I can make much more profit on by waiting 5 years to sell I would imagine the pressure for me to sell less of that product in the near term would be strong. This is pure speculation on my part, however.
Manny, I am not against solar. I am, in fact, installing PV panels on my house before the CPS rebates expire. I am against grid based solar. It's a TERRIBLE application.
The market price ceiling is the upper arm of the vise. The production/shipping costs is the lower arm. Squeezed in the middle are the profits. Right now, that vise caps profit.
In the crude oil markets, this isn't the case as there are infinitely more transportation and processing options than are available for nat gas.
Thats not the point I'm arguing. I'm generally in favor of distributed solar as a great supplement to grid power but that doesn't mean I'm fully against large solar installations completely. But like I said thats not my point.
My point is that using the historical average of NG as some sort of upper limit on the price is a really bad idea. Up until fairly recently the long term historical average of oil and other forms of energy production was very low. That has change and one only needs to look at South and East Asia as to the incoming tide of even further increase. We should not be trying to lie to ourselves about future energy costs from NG or any other non renewable form of energy.
And while NG is lower in emissions than coal, it still emits quite a bit of CO2 into the atmosphere when burned. Many want to act as though this is not a real issue but I am positive that line of thinking is going to come to an end in the next 10-15 years.
I'm not even considering the historical average. I'm looking at the current $10 range for nat gas. That price approaches export profitability. Approaches.
Then why are exports increasing as EN pointed out?
See approaching.
Also, not all exports are equal. Exporting nat gas to South America <> to exporting nat gas to Russia.
Russia is a net nat gas producer and one of the main sources of nat gas for europe. However, their own demand is increasing and so they're making US nat gas exports attractive. See: US exports to the UK and Spain the last two years.
BTW, for those that are interested, a 5 KW system costs about $23,000. CPS currently rebates 33% of the total cost (that will end when they shoot their wad on solar farms). Here's how the math works.
Total cost for 5KW system $23,000
Less 30% tax credit $ 6,900
subtotal $16,100
minus CPS rebate $7,590.
Total out of pocket $8,510 financed 10 years at 6% would be $95 month
It will generate about $68 dollars of electricity per month at current rates. I would negative cash flow $27 a month for the first 10 years, then positive cash flow $70 a month (at current rates) for the next 15 years after that.
There's a country a little south of Russian on a series of islands that may prove to be a huge place to export NG to.
-we don't want them using Iranian oil
-they need to make up a shortage due to the nuclear disaster
Most people can't afford that even if it is a net gain in the future.
Also it doesn't matter where the gas goes. If its going somewhere other than the US that is raising demand and thereby the price.
$27 dollars a month?
Transportation and cryogenic costs say "Hi!".
Will they be afford to pay their utility bill after CPS marks up that 11 cent KW solar energy to 16 cents KW and their utility bill goes up 60%?
I used Russia as an example of implied disparate transportation distances. I guess I didn't imply that well enough.
Raising exports say hi. If exports increase, it doesn't matter by what manner they are processed, demand has gone up.
Sure, i completely acknowledge that the US faces transportation hurdles that Russia does not. That still really doesn't do much to my point.
Demand has already shot up. US nat gas is still 2 bucks and change.
I was trying to illustrate that the larger the distance, the greater the cost. We ship nat gas to Australia, which on the surface makes about zero sense. Do you believe we make as much money on a 100 mcf shipment to Australia as we do on a 100mcf shipment to the Dominican Republic?
The answer would be no. We don't. Transportation costs eat at the margins.
There is some spec buy activity that delivers cost anomalies....the Australia purchase might be one of these.
Thats a fair point but all signs point to much more demand growth in the future.
I think that in the future
- costs for moving it will come down
-prices for the product will go up
I didn't stay at a holiday inn express last night though and I don't work in the industry so take my opinion for what its worth: very little.
Totally agree with the demand growth. If/when the growth pushes prices farther north, exports will start to really roll I suspect. But it's not a binary solution set. Gas will sell domestically less than export market pricing.
Those are fair predictions, imo.
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