10 minute read
Natural Gas Markets in the 21st Century
By: Thomas Tunstall, Ph.D.
After the introduction of unconventional extraction techniques in the 1990s with the Barnett Shale near Fort Worth, Texas, natural gas production began to rise significantly in the U.S. Prior to the widespread use of unconventional methods — specifically during the early period of deregulation from 1990 to 2010 — natural gas prices in the U.S. fluctuated widely from under $2 to nearly $14 per thousand cubic feet due to uncertain supply and demand patterns. This volatility — principally to the high side — elicited concern by groups opposing the export of natural gas from the U.S. because they believed that such activities would cause prices to rise significantly. However, our analysis — or alternative narrative — at UTSA’s Institute for Economic Development demonstrated significant flaws in the reasoning of such claims.
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During that period, European buyers were paying $12 per thousand cubic feet; those in Japan paid $16-17 per thousand cubic feet. As a result, both markets did and still do represent attractive prospects for the sale of U.S. natural gas. The process of cooling/liquefaction, transport, and re-gasifying natural gas from supplier to the customer adds approximately $5-7 per thousand cubic feet to the cost of the product (shipment to Europe is less expensive than Japan due to its proximity to the Gulf Coast ports). After subtracting this cost from the selling price in Europe and Japan, we demonstrated that the business case for export would cease to exist if natural gas prices in the U.S. reached $7-8 per thousand cubic feet, far below the peak of $13.42 hit in October 2005 — with the lower price range thus acting as a ceiling by dampening foreign demand at that level.
Notably, around 2010, a now-bankrupt exploration and production company’s internal economists forecast that natural gas prices would soon return to $10-12 per thousand cubic feet or higher in the U.S. By employing backwardlooking forecasting methodologies based on the 1990-2010 data rather than recognizing the emergent properties of new natural gas market fundamentals (as elaborated in a 2013 TED Talk: www.youtube.com/watch?v=KsbNYbLBkhA), the exploration and production company in question bet big and lost. The publicly traded firm decided to invest heavily in new rig operations in the expectation of increased natural gas prices that never materialized and eventually forced the company into bankruptcy in 2020.
Details regarding the UTSA analysis of natural gas markets were published as an op-ed in the Wall Street Journal on May 29, 2013, entitled “Exporting Natural Gas Will Stabilize U.S. Prices.” (www.wsj.com/articles/SB10001424127887 323611604578396441358002584)
Despite concerns regarding severe price increases resulting from the export of natural gas — which began in 2016, with five terminals now operating along the Gulf Coast — natural gas prices in the U.S. have not exceeded $5 per thousand cubic feet since February 2010 with the recent and anomalous exception of the weeklong Winter Storm Uri spike from February 11-18, 2021. Even the Electric Reliability Council of Texas (ERCOT), the entity charged with managing the Texas electric grid, did not sufficiently understand its own supply chain. By shutting down natural gas transporting facilities to save power — among other missteps — ERCOT actually exacerbated power outages.
Yet, though record cold temperatures drove near-unprecedented energy use, Henry Hub prices fluctuated only briefly. On February 11, they shot up to $6.50, eventually reaching $23.86 on February 17 for a single day, then dropped to $8.56 the next day, and finally fell back under the $5.00 per thousand cubic feet (tcf) ceiling (currently selling around $3-4 per tcf) where it remains once again.
Winter Storm Uri notwithstanding, natural gas production in the U.S. continues at or near alltime highs, with records dating back to 1900, a far cry from the once-feared scenario of regular and frequent shortages translating into sustained high prices. As market environments and the behavior of their participants evolves, a relevant analysis must reflect the changes.
About the author: Thomas Tunstall, Ph.D. is the senior research director at the Institute for Economic Development at the University of Texas at San Antonio. He is the principal investigator for numerous economic and community development studies and has published extensively. Dr. Tunstall recently completed a novel entitled “The Entropy Model.”
Trying Times
By: Kelly Warren Moore
Much has been written about how the COVID-19 pandemic and our response to it has changed our everyday lives. We could all name things that were either unheard of or perceived to be unnecessary services and technology before COVID that are now commonplace, and in some cases, indispensable parts of our daily routine.
Zoom meetings were seen not so long ago as cutting-edge technology, and now they are part of everyone’s daily lives, from our youngest students to grandparents and everyone in between. In addition to countless Zoom meetings for work, I’ve attended family gatherings, meetings with friends, wine tastings, cooking classes and job interviews via Zoom in the past 18 months. While there remains no substitute for real-life, face-to-face human interaction, Zoom (or Hangouts or Facebook Live or whatever form virtual get-togethers may take) will now be a standard tool that has fundamentally changed business interactions, education, and social interactions forever.
Attitudes about grocery shopping, as another example, seem to fall into two categories. There are those who dread grocery shopping and view it as a necessary evil to feed one’s family and those of us who actually enjoy the process of selecting produce, comparing different varieties of olives, pickles, salad dressings and the like, and picking what looks like the very best steak, chicken or shrimp available.
Regardless of which outlook is yours, odds are that prior to the pandemic, very few of us utilized “order ahead” or “curbside” grocery delivery. In the early days of 2020, when so much uncertainty existed around the virus and its transmission and virulence, what may have once been a typical relaxed Saturday morning visit to the grocery store felt like a search and rescue exercise that needed to be executed with pinpoint accuracy and maximum speed, followed by a shower and dousing every inch of oneself in hand sanitizer. With so much stress in the experience, ordering online and selecting the time when one could pull up, open the trunk, and wait for the items we’d ordered to be deposited into our car without any need for human contact felt like a relief.
Some of this change is positive. More robust technology that makes everyday life easier is a wonderful thing. Personally, while I do miss meeting my colleagues and customers face to face and would prefer that to more impersonal virtual meetings, I don’t miss 4 a.m. wakeup calls to catch 6 a.m. flights or sleeping in so many different hotel rooms in a week that waking up and having to remember what city I was in was normal, as was trying to remember what kind of rental car I had been assigned the night before when I was trying to find it in the parking lot the next morning. My dry-cleaning bills have all but evaporated, and so have pet boarding costs. I definitely don’t miss complicated expense reports and travel planning challenges.
By these measures, it seems like everyday life should be greatly improved. It’s easier! It’s less hassle! My dogs love having us home all day, every day!
No doubt, those of us who have been able to remain employed, our incomes largely unchanged, and able to work remotely should consider ourselves extremely fortunate. I’m endlessly appreciative of those who have been deemed essential and the services they have provided to us without interruption since all of this started.
Cable and utility technicians, grocery stockers and clerks, healthcare workers, and tradespeople of all kinds have continued providing their services to us, masked up and uncomfortable. They have brought light, heat, air conditioning and, more critical than ever, reliable internet and cable connectivity to the rest of us. They haven’t had the luxury of living in yoga pants for the past year and a half. They haven’t had the luxury of choosing which places were comfortable to work and which places to avoid.
Knowing this, it’s been easy to be grateful for them and appreciative of the services they have provided, particularly when there have been others in their positions who no doubt have chosen to stay home and collect the benefits afforded them by the U.S. taxpayer
rather than continuing to provide the services otherwise expected from them. In turn, their workload has been transferred to the folks who have chosen to show up. Most of the time, in these conditions, it’s been easy to be more forgiving, to try to extend grace or to choose not to be bothered by inconveniences or behavior that might have otherwise been seen as unacceptable or un-
pleasant in the times before Covid-19. There are longer wait times, supply shortages, and service in restaurants or stores is harder or nonexistent because fewer people are working and more people are consuming all of it. Most of us have just been doing the best we can.
At a certain point, though, is all of this going to result in lowering the overall bar for service in our country? Will supply chain disruptions and fewer choices of products because of those disruptions result in fewer choices and lower expectations overall? I sure hope not, but it’s hard to see how it turns around.
The fact is, getting anyone to show up for a job interview, much less to then show up (almost) on time and ready to stand behind a cash register or stock shelves, is harder and
harder to do. Workers are scarce, wages for workers are rising, and anyone with even a rudimentary understanding of economics knows that this is not a situation that is going to result in better service or lower prices. It’s hard to focus on quality when what is most urgent is finding someone who is alive enough to fog a mirror being available to semi-reliably answer the phone or help keep the doors to your business open.
It’s a difficult place to be. It’s frustrating to be a business owner, and it’s frustrating to be a paying customer. We all know how things used to be, and we want to just go back. But, like anything in life, looking back longingly at anything doesn’t bring it back today.
So, what to do? I’ve spent an inordinate amount of time on endless hold for various service providers, and I’ve lost my temper more than once at delivery times that have been pushed back multiple times. The ubiquitous excuse for everything these days is “covid, covid, covid.” Sometimes, I’m sure that’s valid. But more and more, I’m thinking it’s becoming just that — an excuse.
Despite all of the challenges of the past year and a half, there are still people who are showing up, on time, with a smile on their faces and a determination to do their best every day. There are business owners who have worked tirelessly to create a welcoming and friendly environment for customers, even if it means that in addition to signing checks and managing staff, they find themselves cleaning bathrooms and sweeping floors rather than making excuses for why these things can’t be done.
We can only look to those shining stars and try to be and follow similar good examples, not just for our own happiness but for the future of our young people — many of whom, let’s face it, have seen their parents at home in their workout clothes all day, taking advantage of a crisis. Whether it’s collecting enhanced unemployment benefits when they are perfectly able to work or, even more insidious, “working from home” without really giving things the same rigor and dignity of “normal times” that used to include daily showers, coiffed hair, clean collared shirts and pants that didn’t have elastic waistbands.
At some point this “new” normal is going to be, simply, the normal. We live with and accept what we allow, and we will be treated as we allow ourselves to be treated. It’s time to stop making and accepting excuses for why things can’t and don’t need to be done better, and just do them.
The ripple effect of that might not extend beyond our own family, community or team at work, but it needs to start with us. Praise those people who are showing up for you, support the businesses that you know are doing far more than just what’s necessary. Wake up 30 minutes earlier, get a workout in, and put on the “hard pants,” as one of my colleagues calls them.
We can’t expect more of others if we don’t expect more of ourselves.
