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Gold/Mining/Energy : Big Dog's Boom Boom Room -- Ignore unavailable to you. Want to Upgrade?

To: Sam who wrote (174590)	12/5/2012 8:20:09 PM
From: Dennis Roth	Read Replies (1) \| Respond to of 206176

Since you asked The first point that I would like to make is that , IMHO, the the author's claim the energy conversion ratio of 5.8 mcf of natural gas to one barrel of oil has some bearing on what the price of gas should be belongs on the ash heap of history. It's based of the the theory that gas and oil are readily substitutable goods. But that hasn't been true for years. Gas has been cheaper than oil for so many years that there exists very few remaining utility or industrial boilers that can be switched from gas to oil. Oil's is too important as the base for transportation fuels to be wasted as boiler fuel while less than 1% of gas is used as transportation fuel. The two goods are no longer good substitutes for each other and trade on the basis of their own individual supply/demand curves in separate unlinked markets. Where you do see the substitution-effect is between thermal coal and gas. If gas prices rise, coal will too. The energy conversion ratio between PRB coal and nat gas is more germane than gas to oil. Utilities can quickly alter their generation mix between coal fired generation and gas fired generation in response to changing fuel prices. I believe that there is still a good inventory of gas wells that have been completed but not connected up as the owners wait for better prices before putting them into production. If the gas price gets up to $5 or $6 dollars, a lot of held back production will come into the market. Switching from gas to coal on a price rise is likely, switching from gas to oil is very unlikely as utilities no longer have any significant oil fired generation capacity. The author is right that the biggest determinant of natural gas usage is the weather. I don't try to guess at that other than to observe that so far it's been a relatively mild start to winter.