266 R TREE ARCHIVE (74.105.214.2) papaFi ( 2012-11-14 20:51:46 )
Here's the other key chart. It shows how gas prices have diverged substantially for the world's major markets – U.S., Europe, and Asia.
Today in Asia, natural gas is still selling for more than $17 per thousand cubic feet (mcf), while the price in the U.S. is still down around $4 per mcf.
Economics dictates that these huge price discrepancies for a commodity – like energy – shouldn't exist. Normally, energy prices in the world's major markets are close to the same. That's because the supplies of these commodities are normally roughly the same.
But something changed in the mid-2000s with natural gas. And now you know what happened: Fracking and horizontal drilling unleashed a tidal wave of new supply in the U.S. These supplies couldn't reach foreign markets, because the U.S. doesn't have the infrastructure in place to export natural gas… at least not yet. The result was a huge glut of natural gas in the U.S. market. The price of natural gas in the U.S. collapsed.
The same thing is happening today, right now, with oil. Prices for domestic WTI oil have “de-linked” from international prices (called “Brent crude”).
This shows that oil is now much cheaper in the U.S. than it is in the rest of the world. That's a startling development. That hasn't happened in more than 40 years. And just as international price discrepancies foreshadowed a glut of natural gas, supplies of oil are building in the U.S. market to record levels.
In June 2012, according to the U.S. Energy Information Agency, U.S. crude oil inventories hit an all-time high for that month. Furthermore, crude oil inventories have almost never been larger since 1983, which was just before the historic collapse in oil prices that saw gas selling for $0.55 per gallon.
You can look at the inventory chart yourself… I've never seen anything like this before:
This is another sign – perhaps the best yet – that the shale oil boom is real. America's surging oil production is going to change everything we think we know about energy.
Right now, the price of natural gas in the U.S. is roughly 75% cheaper than the international price. Such a dramatic difference in price in the same commodity – energy – won't exist for long. Likewise, the huge discrepancy between the price of energy in the form of natural gas compared to energy in the form of oil won't last for long either.
Two things are happening, which will cause prices for energy to equalize.
First, traders will find ways to export U.S. natural gas, moving supplies into foreign countries where the price is higher. And secondly, domestic consumers of energy will shift from using expensive sources (like diesel and coal) to vastly cheaper sources, like natural gas.
That's exactly what's happening – right now – with the U.S.'s biggest energy consumers.
They're making the switch from diesel to natural gas right now in America. Take Waste Management, for example. It is North America's largest commercial waste company. It recently added its 1,000th natural gas truck to its fleet last summer. It is committed to converting its entire fleet of 18,000 trucks from diesel to natural gas.
For every truck that's converted to natural gas, an average of 8,000 gallons of diesel fuel will be saved a year per vehicle. That's a savings of over $19,000 in savings per truck. You don't need a mandate from Congress to make these kinds of changes when the economics are so compelling. And so, as you'd expect, Waste Management isn't the only big company making the switch. Wal-Mart, AT&T, United Parcel Service, FedEx, PepsiCo, and Verizon are just a handful of the names converting.
Eric Marsh, executive vice president for Encana (leading North American energy producer) says, “Today, there are more than 12 million natural gas vehicles worldwide but less than 1% of them are in North America. Yet our continent has the most to gain, economically and environmentally from fueling its vehicles with natural gas.”
Replacing 3.5 million heavy-duty vehicles with natural gas would save more than 1.2 million barrels of oil per day. This is more than the U.S. imported from either Venezuela or Saudi Arabia in 2009.
Here's what T. Boone Pickens has to say. I'm sure you know his name. The legendary oilman and investor has probably been the most outspoken advocate for natural gas over the past decade. He knows what's happening with shale production is real. It's the biggest change in the energy market he's ever seen.
“I've been in the energy business my entire career and I can assure you this 81-year-old has chased down more deals than anyone you'll ever meet. A lot of those deals didn't pan out -- that's just how the game is played – but every now and then a big kahuna comes along. When it does, you'd better jump on it. Right now… that sort of game changer has landed right in our lap.”
For the first time in 16 years, U.S. oil rigs now outnumber natural gas rigs. Take a look at the chart below.
In 2005, just 11% of the drill rigs in North American were drilling for oil. But today, it's more than 75%.
My friends… this isn't rocket science. Less drilling for gas means less gas… just as demand for gas is soaring. Power plants are converting to natural gas from coal. Trucking companies are moving from diesel to natural gas, too. And consumers of every variety are substituting natural gas for electricity everywhere they can – like putting natural gas dryers in their homes, instead of electric.
Very soon, there will be a supply/demand shortage. And that means the price of natural gas will start to go up.
There's another, even more important reason natural gas prices are going to go up.
Beginning in 2015, the first large-scale natural gas export facilities are scheduled to open on the Texas coast. I believe by the end of 2016, the U.S. will be among the world's largest suppliers of natural gas, around the world.
Imagine the boost this will give to Obama's second administration. By the end of 2015, America will be the Saudi Arabia of natural gas. We will dominate the global market for natural gas. Obama will be able to pick and choose which of our allies get our natural gas… and how much they have to pay.
Do you think he'll support Israel? Or maybe lend a hand to his friends in Cuba?
Whomever he picks, one thing is certain: Having this much oil and natural gas will make his administration the most powerful America has ever seen. Who knows what he might do?
One thing we're certain he will do is run for a third term…
Whether by changing the Constitution or by simply running his wife, Michele, in his place we can't predict. We only know Obama will never give up the amount of power he will garner in his second term. Look at his entire career. Obama has never shied away from taking power… or taking credit. Like any good Chicago politician, he knows how to use influence. He will capitalize on this energy revolution to become the most powerful president in modern history. Like other energy-backed demagogues around the world (Putin, Chavez, the Kirstners in Argentina), he will not willingly give up his power.
He will use oil and natural gas to transform America into a modern petro-socialist state. And he will use oil to stay in power… for as long as possible…
These predictions might surprise you. But when this comes to pass, what will shock you is how millions of Americans will applaud these changes. Your neighbors don't want freedom. They don't want lower taxes. They don't want more opportunity.
You know what they want? More handouts.
They want their president telling other people what to do, all over the world… just because he'll create the illusion that he's helping them. Like with his cell phone giveaways and his mortgage reduction schemes, he'll continue to punish and tax those who work hard. Just like the Roosevelts, he will excoriate and attack the people and the companies who h