Cheap natural gas is a big topic of discussion, particularly in the US. Serious consideration is being given to natural gas as a transportation fuel. GE (www.ge.com) and Chesapeake Energy Corporation (www.chk.com), two heavyweights in the energy arena, recently announced plans to collaborate on infrastructure solutions that will accelerate the adoption of natural gas as a transportation fuel.
(See p. 14.) In this article, we look at natural gas from the perspective of the industrial gas industry, where the price of natural gas represents both an applications opportunity (gas extraction, liquefaction, petroleum refining, etc.) and a cost (power).
Could cheap natural gas create demand in one area (i.e., petrochemicals) and destroy demand in another (i.e., coal)? How, when, and where natural gas is used is dependent on the ratio of the price of oil to the price of natural gas (NG). Over the past 25 years, the price ratio of oil to natural gas has been roughly 10x, that is, oil at $100/bbl and natural gas at $10/MMBTU. Today, the oil to gas ratio is an astounding 40x, with oil at $120/bbl and natural gas at $3/MMBTU. In this kind of market, we believe the global industrial gas industry can be a modest winner in terms of a healthier customer base, GTL (gas to liquids), and refinery hydrogen.
As recently as mid-2008, natural gas spiked to $10/MMBTU. The US petrochemical industry was thought to be in its sunset phase—extracting resources from diminishing oil and gas fields. Essentially all global petrochemical investment was going to the Middle East (cheap gas) or to China and India, where economic growth was centered. Today, Dow Chemical is once again investing in the Texas Gulf Coast. Shell has tentative plans to build an olefins-based petrochemical plant in Pennsylvania to take direct advantage of ethane produced in the nearby Marcellus shale-gas formation. The Marcellus is just one of the areas in the US that represents a tremendous new resource for NG (see map on p. 3). Industry sources suggest that Shell also is considering a GTL plant in Louisiana.
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