Page 24 - Oil and Energy-February 2013

24 • OIL&ENERGY
Natural Gas Talking Points
Facts Suggest Fuel Conversion Doesn’t Pay
Dealers can share these talking points to discourage switching
ENTICE
Oilheat customers to switch fuels,
Oilheat dealers need to fight back and
protect the base. To defend Oilheat
effectively, companies need to educate
themselves about the downsides of
natural gas and proactively present
convincing information to customers.
To provide ammunition for an effec-
tive fuel comparison, Oil & Energy has
sifted through recent energy industry
news and developed four talking points
that dealers can use on websites, in
newsletters and customer letters, and in
conversations with customers.
For each of the four points below,
we have provided a summary state-
ment that can be shared quickly with a
customer as well as the news develop-
ments that support it. Links to many
of the news stories referenced below
can be found on the American Energy
Coalition website at americanenergyco-
alition.com.
TALKING POINT NO. 1:
Natural gas prices will rise
Summary: Natural gas is enjoying a tem-
porary price advantage now, but large-scale
users are rushing to natural gas, creating
upward pressure that is likely to drive
prices higher again.
New Developments: Natural gas prices
are relatively low now because producers
have developed ample new supplies while
enjoying freedom from environmental
regulations that could drive up production
costs. As markets develop to absorb the
increased natural gas supplies, supply and
demand will equalize, and prices will rise.
Three major markets for natural gas
are developing rapidly. One is electricity
generation in the U.S., where many electric
utilities are switching from coal to natural
gas. NaturalGas.org reports that 80 percent
of new power generation capacity being
added in the U.S. between now and 2035
will be fired by natural gas. As a larger
share of the natural gas supply is diverted
to power suppliers, prices for residential
customers could increase.
Power suppliers across the U.S. are
already making the switch from other fuels.
Reuters reports that 40,000 megawatts of
coal-burning power plants have already
been replaced with natural gas plants, and
a study by National Economic Research
Associates indicates that generators will
, be forced to shut down another 54 000
and 69,000 megawatts of coal-fueled elec-
tricity generation, mainly due to the EPA
regulations.
Another likely driver of higher natural
gas prices is the exporting of U.S. natural
gas supplies. Natural gas prices in Asia and
Europe are up to 500 percent higher than
prices that U.S. consumers pay today, and
U.S. producers are eager to sell to those gas-
thirsty markets. Producers have submitted
at least 15 proposals for liquefied natural
gas (LNG) export facilities to the federal
regulatory authorities. If all were to be
approved, producers could export more
than 25 billion cubic feet a day, equivalent
to more than a third of domestically con-
sumed natural gas, according to the New
York Times.
Low prices are also leading to expanded
use of natural gas in transportation and
manufacturing. As all these users rush from
every direction to take advantage of the low
natural gas prices they see today, they will
combine to drive those prices higher and
raise the price of gas heat.
In addition to the increasing demand,
producers could also face new restrictions
and higher production costs due to tighter
environmental regulations. The U.S.
Environmental protection Agency is sched-
uled to complete an in-depth report next
year on the environmental impact of gas
drilling. Tougher regulations could raise
the cost of production and cause some
producers to stop drilling, leading to
further increases in residential prices.
TALKING POINT NO. 2:
U.S. oil production is on the rise
Summary: U.S. oil production is on the
rise, and the U.S. could soon rival Saudi
Arabia as the world’s leading supplier
of crude oil. Higher domestic produc-
tion makes the U.S. less dependent on
foreign oil and drives down the price of
products like heating oil.
Details: U.S. oil production is rising.
As National Public Radio (NPR) suc-
cinctly put it in October 2012, “An oil
boom is under way in the United States.
Since 2008 domestic oil production
has increased dramatically, reversing
what was a nearly three-decade decline.
That has some predicting the U.S. could
overtake Saudi Arabia as the world’s largest
petroleum producer in coming years.”
Adam Sieminski, Administrator of the
U.S. Energy Information Administration
told NPR that U.S. production would prob-
ably top 11 million barrels a day in 2013,
which would match Saudi Arabia’s produc-
tion. “It’s very exciting,” Rayola Dougher,
senior economic adviser for the American
Petroleum Institute, told NPR. “We spend
a lot on importing crude from around the
world that we may not have to in years
ahead.”
U.S. crude oil imports have already
started to drop. EIA’s Sieminski recently told
Bloomberg Businessweek that the U.S. would
likely import only 42 percent of the petro-
leum it consumed for calendar year 2012.
As recently as 2005, the nation imported
more than 60 percent of the oil it consumed.
The shifting supply picture could soon
put substantial downward pressure on the
prices of heating oil and gasoline. In fact,
Bank of America and Merrill Lynch recently
advised investors that U.S. crude oil prices
could drop as low as $50 a barrel within the
next two years. “North America’s energy
supplies are surging while the rest of the
world continues to fight for scarce mol-
ecules of oil and gas,” the analysis states.
“On our estimates, onshore U.S. crude oil
output now vastly exceeds previous growth
Continued …