The next energy shock for Americans: natural gas

Posted Apr 18th 2008 10:37AM by Joseph Lazzaro
Filed under: International Markets, Other Issues, Commodities, Oil

American citizens and corporations, already stung by the more than 200% increase in oil and gasoline prices since 1999, most likely will be confronted with another energy shock in the months and quarters ahead: natural gas.

U.S. natural gas prices have risen an astounding 93% since August 2007 -- this despite a mild winter in much of the nation -- as rising demand from energy-hungry Asian buyers, such as South Korea and Japan, have forced up natural gas' price, The Wall Street Journal reported Friday. (Subscription required.)

Natural gas, which traded Friday morning in the United States at $10.22 per million BTUs, heats 50% of U.S. homes, generates 20% of the nation's electricity, and is intrinsic to making everything from fertilizer to plastic bags.

International natural gas demand rises

Further, with solid international demand, and a U.S. price that's roughly one-half the global price, many analysts argue U.S. natural gas prices are likely to increase substantially, moving forward. That would create another "core inflation" price accelerator to a U.S. economy already experiencing rising core/retail inflation from oil's enormous rise from $25 per barrel in 1999 to more than $110 today.

But not all economists and analysts agree. Economist Glen Langan told BloggingStocks Friday natural gas' price in the U.S. will depend on a number of factors, including regional use, conversions from coal-fired electric plants to natural gas (which is a cleaner energy form), diesel (particularly buses) conversion to natural gas, new household formation, the expansion of the natural gas transport grid, the price of oil, and the weather, among other factors.

"We're not likely to see a straight vector up to the global natural gas price, but Americans should be prepared to pay more, considerably more, for natural gas in years ahead," Langan said. "Probably the biggest factor will be electric power conversions and electric demand. If gas-fired plants totally displace coal for environmental reasons, natural gas will register double-digit increases for at least the next 3-5 years."

Beyond that time period it's difficult to predict energy prices, due to the development / discovery of substitute energy forms and alternative energy sources, Langan said. "And with oil and natural gas marching to stratospheric heights, there are going to be substitutes," Langan added.

Tags: Asia, coal, emerging markets, energy, global economy, inthenews, Japan, natural gas, oil, South Korea