May 17, 2011

No World Market for Natural Gas

This chart from the Post Carbon Institute shows that the price paid for liquid national gas from Indonesia in Japan, and the price for Russian gas in Europe, is over twice that of the levels recently existing in the United States (the Henry Hub gas price in the chart). Unlike oil and coal, for which there is a world market and something of a world price, natural gas prices have tremendous regional variation. US domestic producers would be living in the lap of luxury were they to receive $10 per mcf, but many are unprofitable at $4 per mcf. A period of low prices, in fact, is most likely to cause, at some point, a sharp spike upward, as producers give up on uneconomic plays, and demand grows to take advantage of the relative cheapness of gas.

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