Shale gas drives oil / gas spread to a new record

On January 13, 1994 the ratio(*) of the price of oil to the price of natural gas was 1.14.   Today it hit a record high over this period of 5.26.   Gas traded at $3.28 today, just 21% of the $15.38 / mmBtu it traded for on December 13, 2005.   Shale gas is providing gas in volume at moderate cost driving this record high price disparity.

IMO, the impact of moderately priced gas hasn’t been factored into energy policy to any great extent.   Nor has the balance of the energy market had time to react.  And the media hasn’t realized this is happening.

But there should be many winners – combined cycle generation, CNG vehicles, chemical processing that uses gas, and gas consumers.  Why isn’t there a stamped into new fleet conversions to CNG….it’s way cheaper than gasoline?

The will also be disruption, – coal, climate change strategies, and renewable generation will be impacted.   Why sequester carbon when you can replace a coal plant with a super efficient, super clean, combined cycle plant and emit 50% less CO2?

My prediction for 2012 – electric generation clean tech feels some competitive heat.

(*) The energy price ratio is the price of crude on a $/mmBtu basis divided by the price of natural gas on a $/mmBtu.  The crude prices used are the front month NYMEX contract for WTI crude at Cushing Oklahoma.  The $ per barrel price is converted to $/mmBtu using 5.8 mmBtu / bbl.   The gas price used is the front month NYMEX contract for natural gas at Henry Hub Louisiana.

Originally posted here

Sometimes Small Things Are A Big Deal

Gas-fired combined cycle powerplants have been around for decades.  In fact, they were almost ubiquitous in the 1990s, sprouting up across America like weeds. 

The only reason they lost favor in the early 2000s is that, because so many were built, natural gas prices spiked from about $2/mmBtu to over $10/mmBtu, making the variable cost of these powerplants too high to economically run as anticipated — and ruining the finances of many independent power producers such as Dynegy (NYSE: DYN) and Calpine (NYSE: CPN).

Of course, with the recent boom in shale gas, coupled with the likely pressures to retire old coal-fired powerplants due to tightening mercury emissions limits, great expectations are once again being heaped on combined cycles to increasingly power the U.S. utility grid.

Now comes word from Technology Review that GE (NYSE: GE) is refining its standard combined cycle design to start-up and spin-up to full power much more quickly, while achieving considerably higher combustion efficiency (61%!).  These improvements are being enabled by advanced materials (nickel-based super alloys) and more sophisticated controls systems.

The benefits of these seemingly incremental and innocuous changes are very important.  The faster “ramp-rate” is especially critical to enable grid operators to better cope with the variability in output from solar and wind energy sources — which, of course, naturally goes up and down in fairly rapid and often unpredictable patterns.  The title of the article sums it up nicely:  “A Gas Power Plant to Make Renewables More Practical”.

As Jim Watson of the University of Sussex says succinctly in the article, “it’s not a low-carbon technology, but it could be part of a low-carbon system.”  Put another way, every little bit helps, and we don’t have to wait for near-free solar energy and energy storage to have a big impact. 

It’s a pity that North America will not be the initial market for roll-out when introduced later this decade.  Another instance in which the U.S. will be a late beneficiary of cleantech innovation.