Making the Connections

I own a small woodlot in Cumberland County; it's a small island of forest in a sea of clearcuts. Most of the clearcut land around me is owned by the Irving forestry interests or the Crown, and other parts are owned by non-resident and dis-interested folk who probably have never visited their woodlot more than once in their lives.

There are two big pressures on the forests in my neighbourhood: one is government policy, and the other is energy prices.

This blog explores the intersection of those two pressures.

Saturday, July 7, 2018

Our Natural Gas Curse (2)

From Encana Corp
Until very recently, the market for natural gas was pretty much the continent on which the gas was found. The market for crude oil is the whole world because the oil can be poured into tankers and shipped anywhere, but natural gas mostly travels by pipeline and so is much more restricted. Gas can be liquefied and shipped around the world but that becomes a whole different market.

The price for natural gas on continental North America is most often set at Henry, Louisiana - the Henry Hub. Many pipelines meet here, and many contracts for gas are settled here, either by taking delivery of the gas or rolling the contract over for another month. The price of gas has been settling lately between $2.50 and $3 per thousand cubic feet. Natural gas is considered fungible - one bit of gas is as good as another - so the gas that a producer puts into the pipeline system may not be the same molecules that the customer takes out at the other end. Of course, standards are maintained - the gas must be free of contaminants and must have a Btu content within a specified range.

Gas in North America is most often sold in quantities of 1,000 cu. ft. (Mcf), which contains approximately 1 million Btu's  (MMBtu's)     Another useful approximation is that 6,000 cu.ft. of gas has the same theoretical  energy  content as a barrel of crude oil. So, when natural gas is selling for $3 per Mcf it means that the gas is about equal to crude oil selling for $18. Crude oil has been selling in the $60 to $70 range this spring.