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Report: Natural gas prices to surpass wood pellets in 8 years

By Luke Geiver | June 05, 2012

A new report issued by FutureMetrics LLC predicts that the price of natural gas will be higher than that of wood pellet fuel within the next three to eight years.

“We believe that well before 2020 we will see the end of cheap natural gas,” the report noted. “Rapidly increasing global demand in the transportation and power sectors and the rapid growth of LNG export capacity will force domestic users to bid for gas against users in sectors and locations that are willing to pay much higher prices than we pay today.”

The report, “An Analysis of the Future of Natural Gas Prices and Wood Pellet Prices: Natural gas will become much more costly than wood pellets,” uses the common reference of the U.S. as “the Saudi Arabia of natural gas,” to help explain the pricing future of natural gas. From 2010 to 2011 alone, the report notes, the U.S. Energy Information Agency’s estimates of total dry gas reserves increased from 1,950 trillion cubic feet (tcf) to roughly 2,550 tcf. That increase came from shale gas reserves that increased from 350 tcf to 825 tcf from 2010 to 2011. According to the report, common wisdom shows that with even more shale gas reserve increases expected, the price for natural gas will remain low.

“Just as the real Saudi Arabia has a strong interest in seeing shiploads of petroleum transit the Atlantic, domestic producers of natural gas have a very strong interest in opening up to the world market and seeing shiploads of LNG heading to hungry markets like Japan, India, China, South Korea and Brazil,” the report said. Natural Gas producers will benefit financially from exporting products like Liquefied Natural Gas (LNG), the report points out, but not without consequences to domestic users. Because exporting will remove the constraint on domestic producers to match their supply with real time demand, helping avoid excess production, those producers will be able to seek out other markets for their excess product. In many cases, the report said, those other, non-domestic markets will be willing to pay a higher price for that product, which in turn raises the prices of domestic natural gas. 

That exporting influence that could potentially raise fuel prices is also present for wood pellets. Although it is possible that European demand for wood pellets sourced from North America could raise pellet prices, it depends on how carbon emissions are penalized. Current economics show that domestically used wood pellets generate more profit than those shipped overseas because many overseas pellets are cofired with coal, requiring finer particle size, which in turn increases pellet production costs, based on the electricity necessary to pulverize the pellets.

To view the report, click here

 

6 Responses

  1. Bruno

    2012-06-05

    1

    I'll be 50 bucks that isn't the case!

  2. Ron Wagner

    2012-06-05

    2

    Natural gas is being found in most areas of the world. Don't count on growth in pellets. Wait and sea. Natural gas is much easier to ship and burn. Focus on areas without natural gas service.

  3. David

    2012-06-06

    3

    What is this guy smoking ? Between that amounts of gas we already have in stock and the grass roots effort to eliminate logging in the US, pellets are "dead men walking"....

  4. Mickg

    2012-06-06

    4

    The US has a 40 year lead in fracking. Other countries will start developing their shale gas deposits. The predicted price rise will just not occur due to worldwide availability of new drilling and extraction techniques which will produce a glut of gas into the global market.

  5. Raj Khimesra

    2012-06-10

    5

    Noted from above responses that wood pellets will not be able to compete against natural gas due to availability of new technologies like fracking which may spread all over world and boost production of natural gas. It is eye opening and have forced us to review our proposed capacity of world scale wood pellet plant. Thanks PFI for publishing above responses

  6. Tom M

    2012-06-21

    6

    Everything is being powered by natural gas in Japan since the reactors are down.

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