<DrumBeat: July 9, 2008 The Oil Drum DrumBeat: July 10, 2008>

206 comments on Why isn't the price of gasoline even higher?

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Gail the Actuary on July 9, 2008 - 4:41pm Permalink | Subthread | Parent | Comments top

I should write a post about the US natural gas situation. Our supply is up a bit, but demand is up even more. One part is electric utilities using more natural gas; another is other kinds of uses, such as private autos making use of the fact that natural gas is presently cheaper than oil in terms of its energy content.

What I see as happening is various uses sending the natural gas price up to close to parity with the oil price. The amount of natural gas produced will go up a bit, but not a lot, because it takes a long time to put in pipelines. Also, we are close to maxed out on drilling rigs. Unconventional gas will be hard to ramp up much, because so much drilling is required.

At the higher natural gas prices, people with the new NG cars will find they don't save much money relative to gas engine cars. The fuel will not be widely available, because at current NG production levels, there isn't much NG available for cars. The price of electricity will soar in places that depend on natural gas, like much of the Northeast, California, Texas, and Florida. Homeowners will be up in arms.

About this time, natural gas supply will peak, and production will begin to decline. Then we will have all of the new users competing with the utilities, the ethanol plants, the plants making low sulfur diesel, the fertilizer plants, homeowners heating their homes, and regular manufacturing plants for NG. There will be a lot of unhappy former NG users.

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hugho on July 9, 2008 - 6:52pm Permalink | Subthread | Parent | Comments top

Excuse me Gail if I missed your answer to research24 in which he asked your opinion about T Boone Pickens' proposal. Perhaps you missed it but yesterday on Nightly Business Report on PBS he gave some details. His idea is to use the windy corridor in the middle of the country to generate electricity and use natural gas as transport fuel. He would use electricity for transportation where possible and use LNG for auto and truck transport fuel by adding natural gas filling units to existing gas stations at a cost of about 400K per station(yikes!). He would use the grid to heat residences and run industry more.You of course will see lots of problems with adding all this capacity to a grid which is old and creaky and which couldn't absorb all the new input without a massive build out. Your post was very good and explained a lot about the refining business. I would be interested in seeing a list of the various refiners including what their capability is vis a vis coking and cracking equipment on site, output capacity etc. I have also read that some products like asphalt may become increasingly expensive because some of the newer refineries with the new coking units can squeeze more distillate out of their crude and don't have to sell off the residual asphalt cheaply.

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Gail the Actuary on July 9, 2008 - 11:20pm Permalink | Subthread | Parent | Comments top

You are right. I didn't see the details of T Boone Pickens' proposal. I think a major hold-up to Pickens proposal is that it would need a huge overhaul of the grid. I don't see that happening within 10 years, even if Congress appropriated money tomorrow, and started work on getting contractors to first design the upgraded grid, then actually get the parts and build it. By 10 years from now, US natural gas will be past peak, as will oil. It is hard to see anything major happening at that point.

I am afraid I don't have a list of who has what in terms of coking and cracking equipment on site. Perhaps one of the readers knows of such a list.

I know that asphalt and residual oil are already disappearing, as refineries with crackers and cokers refine them into higher-priced products. The oil companies see this is a way of getting maximum profit from the crude oil, but it is leading to a lot less asphalt.

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206 comments on Why isn't the price of gasoline even higher?

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