<Today's reading assignmentThe Oil DrumSeeing is really believing>

64 comments on GoM progress over the weekend

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Stuart Staniford on October 11, 2005 - 4:27pm Permalink | Subthread | Parent | Comments top
I agree the effect is twice as big as a proportion of winter use and that's relevant. Fortunately, stocks are high going in:

Thus we can probably scrape the barrel for 500bcf or so of the shortfall. So I don't see dramatic shortages as a result of this, unless we have an exceptionally cold winter. But certainly prices will be high, because demand will be so inelastic, and it really sucks for lower income folks and NG intensive industries. There's a nice piece about the impact here (it's a NYT piece, but I'm giving this link to avoid the registration hassle for folks).

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ab3 on October 11, 2005 - 5:23pm Permalink | Subthread | Parent | Comments top
Yes, stocks are high relative to their normal range (though not as high as last year). Why is that? Is it because last winter was warmer and we didn't bottom out as low as other years? Or is it because some more NG-based industry has moved overseas? Something else?

But high stocks at the beginning may not be enough. Enkidu's worst case calculation below shows NG in storage dropping to 283 BCF, which is almost certainly well into the danger zone where they start shutting off pipelines. That's using 517 BCF missing production, your low number.

I still believe that a normal winter could cause shortages.

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Stuart Staniford on October 11, 2005 - 5:36pm Permalink | Subthread | Parent | Comments top
There'll be demand destruction first IMO. That's what prices are telling us needs to happen, and it will.
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ab3 on October 11, 2005 - 5:52pm Permalink | Subthread | Parent | Comments top
Yes, of course. My business is getting a lot of calls from people who are suddenly finding the initiative to prepare their homes for winter. And, as mentioned below and in this article, Katrina and Rita destroyed a lot of demand already in the plastics industry.

But will it be enough? I don't know. I wish I could be as optimistic as you seem to be about this.

Thanks for instigating this discussion, btw. It's the best post-Rita coverage I've seen about NG so far at TOD.

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Stuart Staniford on October 11, 2005 - 6:41pm Permalink | Subthread | Parent | Comments top
Well, the energy markets are full of hungry traders waiting with bated breath for every stock report - which will be showing up each week all through the winter. I'm sure one can track the number of degree-days so far this winter many times a day somewhere. If stocks start to deplete too much, traders will bid the price higher and higher until the right number of households and companies have folded and figured out how to save some NG. The amount of political jawboning and education efforts will go up in line with prices. Thermostats will be lowered, rooms will be closed up, woodstoves will be installed, industrial production will close down and be replaced with imports from competitors, etc, etc. Again, we only need to save a few percent. If we had to save 10-15%, that would be a true crisis. I don't believe this is (unless something else happens). Let's save some of our rhetorical range for the true crises when they come.

It looks like a crisis to the CEO of Dow Chemical because he needs to move most of his operations to somewhere with more NG, which is understandably very inconvenient for him and even more so for his employees. He'd like to persuade the rest of us to conserve more so he doesn't have to do that. But I'm not panicked by his rhetoric yet. "Peak North American Disposable Diapers" -- oh the horror of it -- I believe we can survive with nothing worse than a faint smell (albeit it will be a few more notches on the trade deficit which seems like it's going to keep getting worse).

The very good thing is it's raising awareness a little bit ahead of the NG depletion curve.

The big worry, to me, is there might be just as many bad hurricanes in the GoM in the next few years as there have been in the last few.

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