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Natural gas prices need to be closely watched

By Jeff Berman, Group News Editor
May 21, 2012

Natural gas as a potential long-term energy source is a topic that has received a good amount of attention in the pages of LM and on this Web site.

In reviewing some of our coverage, it really does appear natural gas has a lot going for it at the end of the day, whether it be an attractive price point, a very strong domestic surplus, and, as observed by no less an authority than T. Boone Pickens, it switching to natural gas as a transportation fuel and for power generation can replace more than one-third of U.S. foreign oil imports in ten years.

Those points—individually and collectively—present a very compelling case for natural gas usage. Of course, a mainstream switch to natural gas requires a very significant investment for all involved, especially when it comes to getting significant infrastructure in place i.e. fueling stations, natural gas-powered trucks, and other things, too.

That said, this leads me to a recent report about natural gas and its role in transportation I came across in the Financial Times (FT) last week.

The FT report leads off by explaining that Royal Dutch Shell expects U.S. natural gas prices to double by 2015, as they rebound from the ten-year lows due to the shale gas boom at a time when U.S.-based demand for natural gas continues to rise.

Prices doubling? That would put it above current prices for diesel for sure, given that most estimates peg natural gas at about 40 percent less than regular fuel. Suddenly, it is not looking like much of a bargain.

Royal Dutch Shell CEO Peter Voser told the FT gas demand in the US would rise “as coal is replaced by gas in electricity generation, and gas in transportation takes off”. He added that the low price would push some producers to curtail output, allowing the price to rise.

It goes without saying that nobody knows for certain how this natural gas thing will play out. We can try to answer that in a few years.

All we can go off of—for now—is that prices remain low and attractive. And while prices are low, it is not like people are running out o switch over right this second. But even with prices being expected to increase, as noted in the FT report, there is more to like than not, when gauging the market outlook.

About the Author

Jeff Berman headshot
Jeff Berman
Group News Editor

Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. .(JavaScript must be enabled to view this email address).


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