$30-a-Barrel Oil? Analysis Predicts Crude Price Crash Based on Natural Gas Pricing
By Scott Doggett December 21, 2009
An analysis published in Ground Report suggests that oil prices are ready to crash to as low as $30 a barrel, undercutting the floor of first-generation biofuels pricing and putting advanced biofuels parity pricing in jeopardy.
Is the analysis flawed? Could it be spot-on accurate? The analytic framework, which focuses on the differential between oil and nat-gas prices, is compelling.
"To get a sense of where the future energy price equilibrium will be," the report predicts, "consider that natural gas is selling for $5.09 MMBtu at the Henry Hub in Oklahoma. This compares with a global price for natural gas of about $13.00 MMBtu, according to the Energy Information Administration, Department of Energy.
"$13.00 per MMBtu only makes sense as an energy equivalent of crude oil, which currently sells for $76.00 per barrel. [The energy content of a barrel of crude oil is estimated at 5.8 MMBtu; 76 divided by 5.8 = $13.10.] Based on the spot price at the Henry Hub, crude oil is headed back toward $30.00 per barrel."
There is no known case of an advanced biofuels operation that is competitive with $30 oil, although several have $40 oil in their sights and most aim to be competitive in the long term with $100 oil.
"If any of us thought for a minute," said Wes Bolsen at the Platts Ethanol Summit, "that $100 oil was completely out of the question in the long term, we probably wouldn't be in this business."
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Who pays these guys to sit around all day and invent this Sh#t?
The price of domestically sourced natural gas has about as much relation to the price of imported oil as the price of Coal from the Powder River Basin.
In his third paragraph he's arguing that residential heat pumps don?t bode well for expensive renewal resources like solar and wind. What has any of that got to do with oil hitting $30?? Total BS!
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