This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

The Natural Gas Market Can't Save Itself, Let Alone Europe

NEW YORK (TheStreet) -- Politicians seeking something to preen over have seized on natural gas as their issue.

A Texas representative has introduced a bill he claims will expedite exports of natural gas. The Republican leadership has jumped on board, saying slow approvals of export terminals represent a "de facto ban."

But before gas can be exported, it has to get to market. And a lot of U.S. natural gas is being flared in the field. Yes, the gas is burned up in an open flame on site.

A record volume of gas was flared in 2012, according to the Department of Energy - 212,848 million cubic feet (mcf). The big increase was in North Dakota's Bakken field, which flared more than one-third of the U.S. total that year, and one-third of its own production.

So much gas is being burned you can see it from space, notes Producers say small oil wells don't deliver enough gas to make running a pipeline to the wells profitable. They flare gas to get at the more-profitable oil.

There are alternatives. If some money is invested in conditioning the gas it can power drilling rigs. If trucks are converted to run on this gas it can power a driller's truck fleet. Small plants can be built near wellheads to make fertilizer. The North Dakota Petroleum Council says it will capture and use 85% of its production within two years.

That will cut flaring in half. It won't eliminate it. Most of that reduction in waste won't go directly into pipelines, and even if it did the volume would have little impact on the market price.

Texas, which is crisscrossed with pipelines, flared 47,530 mcf of gas in 2012. The one Texas company running all its equipment on natural gas filed for bankruptcy within two months of announcing its claim.

Meanwhile, cold weather is pushing the spot price of gas to $4.71 per mcf, up from $3.43 last August. Low prices provide a tailwind to U.S. manufacturers who depend on gas for fuel, and an incentive to switch truck fleets to gas.

But before that gas can be exported, it has to be frozen, or liquefied, then transported and unfrozen again at another terminal, a process that can cost about $6 per mcf. Terminals can cost billions of dollars to build, and that cost has to be recouped.

The result is that the cost of exported U.S. gas, even at current domestic prices, would be higher than what Europeans now pay, according to a Brookings Institution analysis, and $4 per mcf below the market price in Asia.

The Asian price is still attractive for companies like Cheniere Energy (LNG - Get Report), which is building two export terminals, one at the Texas-Louisiana line and another near Corpus Christi, Texas. Cheniere stock is up 23% so far in 2014, but its first terminal is not expected to open until the fourth quarter of next year.

Natural gas pipes can be turned on-and-off with the flick of a switch, but natural gas markets, whether here or abroad, can't be.

The U.S. is going to maintain its price advantage on natural gas for years to come, and higher prices could reduce flaring, but those who see gas as the solution to our foreign policy challenges, like the Heritage Foundation, are dealing in politics, not economics.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
LNG $36.11 0.73%
AAPL $93.24 -0.41%
FB $117.81 -0.21%
GOOG $701.43 0.82%
TSLA $211.53 -4.96%


Chart of I:DJI
DOW 17,660.71 +9.45 0.05%
S&P 500 2,050.63 -0.49 -0.02%
NASDAQ 4,717.0940 -8.5450 -0.18%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs