Inputs Monitor Editor Davis Michaelsen adds his perspective into the happenings of the inputs markets.
Much Ado About Natural Gas
Oct 23, 2012
Someone asked me the other day, "why does the Monitor spend so much time reporting on natural gas?" There are a number of reasons why growers and retailers want to stay current on natural gas pricing action. Natural gas is quickly becoming the go-to resource in the United States. Natural gas is pressed into service as the parent product of the most popular fertilizers worldwide, the number one source of America's wintertime home heat and as a clean burning automotive fuel.
Hydraulic fracturing or 'fracking' has allowed domestic supplies of crude oil and natural gas to suppress the prices of gasoline, home heat and fertilizer by making it easier and safer to collect resources from under the soil.
This practice is not new. The possibilities of fracturing shale to release crude oil and natural gas were first considered at the Civil War battle of Fredericksburg in December of 1862. After the war, Col. Edward Roberts introduced his 'Roberts Torpedo' which was little more than a steel cylindrical vessel packed with gunpowder. When lowered into the shale and detonated, the resulting subterranean blast fractured the surrounding rock, allowing oil and natural gas to flow freely. At that point, harvesting the fluids was as easy as running a pump and suctioning off the precious liquids.
Techniques have since been refined. After gunpowder, nitroglycerin was used to provide the firepower, but nitro proved much too volatile for regular use. Plant explosions in 1979 and 1989 punctuated the need for a new blast element. The last use of nitroglycerin for fracturing was May 5, 1990.
The first time hydraulic fracturing was attempted was in an Oklahoma oilfield by a team of production experts on March 17, 1949. Company workers from Halliburton and Stanolind Companies used similar methods later that day in Texas, and modern hydraulic fracturing was born (read more fracking history from the American Oil and Gas Historical Society here).
Nitrogen-based fertilizers begin with reacting natural gas-based hydrogen gas and atmospheric nitrogen. From that point, nitrogen-containing fertilizer products like Urea, the world's most popular fertilizer, and ammonia can be produced. If the price of collecting natural gas weren't so low thanks to fracking, fertilizer prices would be much higher and potentially reliant on foreign sources.
Home Heat -
According to EIA reports, residential heating oil is nearly thirty cents higher this year than the same time last year. Residential propane, however, is forty-three cents lower than last year at this time. This is where the savings can really be seen. The U.S. might get lucky this winter as many experts have forecast balmy temperatures. If demand for home heat rises, pressure on natural gas in domestic storage may push nattie to the high side, but with so much natural gas being fracked, any dip in supply will quickly be remedied.
Propane Autogas -
Propane autogas has a ways to go in getting the attention of the general public, but In fact, estimates have up to 15 million vehicles using propane autogas worldwide putting it third behind gasoline and diesel fuel. The cleaner burning fuel is slowly gaining traction in the United States. Autogas is lighter than gasoline, costs 30-40% less than gasoline, diminishes our reliance on foreign oil, and promises to keep motorists rolling with a fuel that may actually prove to be better for automotive engine parts than gasoline or diesel fuel. Users today include Pittsburgh’s Yellow Cab, West Coast Sears delivery fleets, Rousch Racing, the Sandy Hills Georgia Police Department and others.
Currently, there are only 2500 Propane Autogas fueling stations in the U.S., but with a little popular support, the new fuel could catch on like wildfire. (click here to read more about propane autogas)
Natural gas can be difficult to figure. The technicals on the front-month contract include dramatic jumps to both the high and low sides, but little of that action immediately figures into retail product pricing. As the U.S. moves forward, the pursuit of affordable, sustainable energy in the face of increasing world tumult finds a champion in natural gas.
Domestic natural gas comes with a litany of benefits for the American public. The advent of hydraulic fracking has suppressed prices in key consumer markets and with a robust domestic supply, it's time for America to get comfortable with natural gas.
As of now...
Front-month November natural gas moved higher today -- up $0.07 to end the day today, October 23, at $3.52.