North American Natural Gas Crisis 101

While the U.S. imports over 60% of the liquid fuels (oil and NGPL's) it requires, the U.S. only imports 1% to 2% of the Natural Gas ("NG") it requires in the form of LNG. Yes, the U.S. imports a good deal more NG from Canada by PIPELINE, but that export partner is unable to increase its NG exports to the U.S. because, it appears, from data supplied by the U.S. Department of Energy that both U.S. production and Canadian production of NG peaked in 2001.

It follows that if the U.S. wants to increase its use of NG it will have to buy it in the International markets in the form of LNG as there are no pipelines stretching under the Atlantic and Pacific oceans.

Electricity is generated from Coal, NG, Nuclear, and Hydro power (and a very small amount of Oil). If the U.S. wants to increase its electricity generation, then the U.S. must increase the use of at least one of these energy sources.

Folks, it has been years since the U.S. added a nuclear power plant, and it has been years since the U.S. has constructed significant coal fired power capacity (there have been some, but total MegaWatt capacity was insignificant). There has been a conspicuous lack of Hoover Dam projects... That leaves NG. Substantially all of the new electricity generating capacity added in the U.S. since 1996 has been NG fired.

Now, let's add it up...

No new non-NG power plants + Declining NG production in North America = Less electricity generation capacity OR an increase in LNG imports.

Any Questions? (Please! Don't confuse the distant future with the present. Of course we will build nuclear power plants - some might even come on line by 2020. Wind and Solar? Too little, too late for this round. But what do we do in the mean time?)

The problem is that in order to get the LNG tankers to land on our soil we will need:

A. The capacity in the form of LNG re-gasification terminals, and;

B. To be willing to pay a premium over other LNG importers to entice the tanker to the U.S.

Here comes "The Rub".

With Oil at $94 per barrel (that is the front month WTI as I write this, Louisiana Light is more like $98 in the spot market, so the $1.175 Billion figure is somewhat understating the issue), and importing a net figure of roughly 12.5 million barrels of oil per day, the U.S. BORROWS $1.175 BILLION each and every day of the year to fund its oil purchases.

This borrowing of money, and printing of dollars, is what is laying low the U.S. currency. Since I have laid out the case why, if anything, the U.S. will try to become MORE ENERGY DEPENDENT by increasing imports of LNG, further increasing U.S. borrowing to fund its International energy purchases, just how is it that the U.S. Dollar avoids a collapse?

Here comes the really good part...

It is the price of the marginal supply that sets the price in the market. The U.S. will have to compete with the Asian nations for the LNG and LNG is trading, right now, in some markets north of $15 per mcf. Prices in the U.S. as we speak are $8.35 (Henry Hub Spot).

While the world watches breathlessly the oil supply problem, it is at least as likely that the knock out punch, at least as far as the U.S. is concerned, will come from NG.

My associate at the Sleepy Hollow Funds, Dr. Lalani, likes to point out that the U.S. wastes tremendous amounts of electricity and could conserve greatly to ameliorate the electricity issue...

Great. Like shutting off the lights at the Empire State Building? Turning off street lights? Shutting businesses earlier? All of which WILL happen eventually.

Why not just stand the U.S. dollar up in front of a firing squad at dawn tomorrow?

Yours for a - better views of the night sky without all that pesky light pollution - world,

Mentatt (at) yahoo (d0t) com