T Nation

Natural Gas

Anyone else think that this might be a buy right now? I guess my thoughts are that it’s back off it’s extreme highs and back to more intermediate trend and any meaningful US energy policy regardless of November’s election results should result in an increase domestic use of Nat Gas.

Couple of other questions in that regards: how portable is it to areas like the east coast where from my understanding most homes still use heating oil (is this correct?)? What is the time to market of new access to reserves as opposed to time to market with new drilling of oil?

I think they have NG pipelines running to the East coast. I know they use gas in there stoves on the Food Network - so they have to get it from somewhere.

The time to market is much faster with NG than with crude. Very little processing is needed compared to crude.

I don’t know what you are planning to invest in wrt the NG market. Drilling? Exporation? Transport? Support industries?

It looks like Chesapeake is about to settle back to its historical price range, so if you are expecting NG to take off, now migh not be a bad time to jump in.

Is it Pickens who wants us to run cars on Natural Gas? I would think that by the time we had converted a serious chunk of the cars on the road to run on NG, we’d have already come up with a better electric solution. Also, why is burning natural gas ok when burning petroleum is not? Does NG not emit as much CO2? Also, if we run millions of cars on NG, won’t we end up running out just like they are predicting with oil?

[quote]MrRezister wrote:
Is it Pickens who wants us to run cars on Natural Gas? I would think that by the time we had converted a serious chunk of the cars on the road to run on NG, we’d have already come up with a better electric solution. Also, why is burning natural gas ok when burning petroleum is not? Does NG not emit as much CO2? Also, if we run millions of cars on NG, won’t we end up running out just like they are predicting with oil?[/quote]

Nat gas is 90% cleaner than gasoline.

Electric is way far away from being a good alternative. NG requires some modifications to the intake, but you can still use the original engine if I am not mistaken.

Propane used to be all the rage in this part of the world before the automakers went to FI engines.

I think that Pickens’ scheme (or plan if you prefer) has more to do with making money for Pickens than anything else.

Not that there’s anything wrong with that, it’s just that it may be a mistake to assume that altruism is the cause of his spending many millions of dollars on what seem like “public service commercials” for the common good.

It seems sound that since some applications, for example vehicles, are restricted in their choice of energy sources – for example gasoline, diesel, or natural gas; but not coal, nuclear, wind, solar, or hydroelectric – while power plants can use any of these things and therefore it doesn’t make the most sense to burn up in powerplants fuels suitable for vehicles.

On that line of thinking, a clean coal-fired power plant, or Pickens would say a wind farm owned by him, would make more sense than a natural-gas fired plant. The saved natural gas could be used in vehicles, which in turn would lessen oil consumption.

OK so far.

But as for trying to make this take off, well, the thing is this conversion has been around a long time and no one who wants it should have any trouble finding it and having it done.

It’s just that people do not find it worth doing, for themselves, when making their own decisions.

Improving the infrastructure might change that somewhat.

But ultimately, so far, natural gas as a fuel source for vehicles has in practice been shown to be not what people find best for themselves. Or 99% of people don’t, anyway.

I think an interesting and relevant question is, based on the amount of natural gas that could be available as well as on what could believably be expected as a best case for consumer acceptable, what’s the highest percentage of vehicles that could potentially be using it?

If the answer is, for example, no more than 10%, then there can probably NEVER be an infrastructure providing natural gas at anywhere near as many locations as is the case for gasoline. If every gas station installed natural gas tanks and pumps, the business on average could then be no more than 10% of what gasoline is, and it’s hard to imagine that the cost of providing this could be worth doing. More likely only 10% or maybe 20% of stations might have it. But if that’s the case, then very many people won’t want a natural gas vehicle because of fear of being unable to find a station when running low.

Another question is, Is there affordable equipment that allows refilling one’s natural gas vehicle at home, if the home is provided with natural gas?

If so that could make the idea a lot more practical. But I have no idea if that’s the case.

[quote]rainjack wrote:
I think they have NG pipelines running to the East coast. I know they use gas in there stoves on the Food Network - so they have to get it from somewhere.

The time to market is much faster with NG than with crude. Very little processing is needed compared to crude.

I don’t know what you are planning to invest in wrt the NG market. Drilling? Exporation? Transport? Support industries?

It looks like Chesapeake is about to settle back to its historical price range, so if you are expecting NG to take off, now migh not be a bad time to jump in.

[/quote]

If one were conservative, I think pipelines would be a good bet as they act like a toll road and have less exposure to changes in prices and it’s more of a volume game for them. Typically you share in the depreciation of the pipeline if it is a Master Limited Partnership also. If one were aggressive then I would think exploration would offer the greatest upside, albeit with a considerable amount more risk.

I guess what I really like about nat gas right now is that it seems to me to be the most readily avialable domestic natural resource. It also seems to be the one that would be quickest to market, hence, making it the most attractive. It might not be the end solution, but it might be the one to initially free us up a bit from foreign oil.

[quote]Bill Roberts wrote:
But ultimately, so far, natural gas as a fuel source for vehicles has in practice been shown to be not what people find best for themselves. Or 99% of people don’t, anyway.

I think an interesting and relevant question is, based on the amount of natural gas that could be available as well as on what could believably be expected as a best case for consumer acceptable, what’s the highest percentage of vehicles that could potentially be using it?

If the answer is, for example, no more than 10%, then there can probably NEVER be an infrastructure providing natural gas at anywhere near as many locations as is the case for gasoline. If every gas station installed natural gas tanks and pumps, the business on average could then be no more than 10% of what gasoline is, and it’s hard to imagine that the cost of providing this could be worth doing. More likely only 10% or maybe 20% of stations might have it. But if that’s the case, then very many people won’t want a natural gas vehicle because of fear of being unable to find a station when running low.

[/quote]

Okay so here’s a question though: if natural gas is already delivered to my house, could competition drive down the price of a home installation that I would simply refuel at every night if need be?

Competition?

If a few million more people suddenly decided they needed to have NG, wouldn’t that drive the price up?

I guess I can understand why NG is desirable if it burns cleaner, but how long would it take to get enough stations up and running to be able to supply enough cars to make any sort of difference. Seems like a LONG time, which is why I figured our resources would be better invested in electric. Or even Hydrogen, which burns completely clean, and we will never run out of… right?

Hydrogen has to be made by using a greater amount of some other energy source.

So if you mean, can we always make hydrogen (at nowhere near the rate needed to power all our vehicles, though) from solar, wind, and hydroelectric?

Yes.

Though for that matter, devoting energy from those sources towards producing hydrogen may mean that instead of saving, by means of adding to our electrical power production, oil and coal burned in powerplants, now a corresponding extra amount of oil and coal must be burned.

Hydrogen should be viewed as being like a type of battery – an energy storage system – not as an energy source.

[quote]MrRezister wrote:
Competition?

If a few million more people suddenly decided they needed to have NG, wouldn’t that drive the price up?

I guess I can understand why NG is desirable if it burns cleaner, but how long would it take to get enough stations up and running to be able to supply enough cars to make any sort of difference. Seems like a LONG time, which is why I figured our resources would be better invested in electric. Or even Hydrogen, which burns completely clean, and we will never run out of… right?[/quote]

Stations? What stations? You put a tap on your existing residential gas line, and you have a “station” in your own driveway.

The infrastructure is already in place to put in NG “pumps” just about everywhere.

I am very seriously considering starting up a little company that will install and service these home stations.

[quote]rainjack wrote:
MrRezister wrote:
Competition?

If a few million more people suddenly decided they needed to have NG, wouldn’t that drive the price up?

I guess I can understand why NG is desirable if it burns cleaner, but how long would it take to get enough stations up and running to be able to supply enough cars to make any sort of difference. Seems like a LONG time, which is why I figured our resources would be better invested in electric. Or even Hydrogen, which burns completely clean, and we will never run out of… right?

Stations? What stations? You put a tap on your existing residential gas line, and you have a “station” in your own driveway.

The infrastructure is already in place to put in NG “pumps” just about everywhere.

I am very seriously considering starting up a little company that will install and service these home stations. [/quote]

I’m sitting here running numbers and thinking the same thing myself. I’m in chicagoland with millions of homes, no current competition and all homes have Nicor gas running to the house. The retail cost of Phill is around $4000 and the cost to convert a car I think can be done around $1500 if you vertically integrate and sell the conversion and unit as a package. By my numbers that means selling only 320 in a year would give me rev’s of $1.76MM per year. If my gross margin net of labor is 25% than that leaves profit at around $440k per year. With banking contacts, I can probably set up consumer finance so that customers don’t have to stroke a check for the entire amount up front. Depreciation on these things is around 8-16 years so 5-10 year ammortization schedules work and payments should be minimal and less than the cost savings from gasoline.

Am I missing something?

[quote]ajcook99 wrote:
rainjack wrote:
MrRezister wrote:
Competition?

If a few million more people suddenly decided they needed to have NG, wouldn’t that drive the price up?

I guess I can understand why NG is desirable if it burns cleaner, but how long would it take to get enough stations up and running to be able to supply enough cars to make any sort of difference. Seems like a LONG time, which is why I figured our resources would be better invested in electric. Or even Hydrogen, which burns completely clean, and we will never run out of… right?

Stations? What stations? You put a tap on your existing residential gas line, and you have a “station” in your own driveway.

The infrastructure is already in place to put in NG “pumps” just about everywhere.

I am very seriously considering starting up a little company that will install and service these home stations.

I’m sitting here running numbers and thinking the same thing myself. I’m in chicagoland with millions of homes, no current competition and all homes have Nicor gas running to the house. The retail cost of Phill is around $4000 and the cost to convert a car I think can be done around $1500 if you vertically integrate and sell the conversion and unit as a package. By my numbers that means selling only 320 in a year would give me rev’s of $1.76MM per year. If my gross margin net of labor is 25% than that leaves profit at around $440k per year. With banking contacts, I can probably set up consumer finance so that customers don’t have to stroke a check for the entire amount up front. Depreciation on these things is around 8-16 years so 5-10 year ammortization schedules work and payments should be minimal and less than the cost savings from gasoline.

Am I missing something?[/quote]

Yeah. Sending me a plane ticket to Chi-town.

[quote]rainjack wrote:
ajcook99 wrote:
rainjack wrote:
MrRezister wrote:
Competition?

If a few million more people suddenly decided they needed to have NG, wouldn’t that drive the price up?

I guess I can understand why NG is desirable if it burns cleaner, but how long would it take to get enough stations up and running to be able to supply enough cars to make any sort of difference. Seems like a LONG time, which is why I figured our resources would be better invested in electric. Or even Hydrogen, which burns completely clean, and we will never run out of… right?

Stations? What stations? You put a tap on your existing residential gas line, and you have a “station” in your own driveway.

The infrastructure is already in place to put in NG “pumps” just about everywhere.

I am very seriously considering starting up a little company that will install and service these home stations.

I’m sitting here running numbers and thinking the same thing myself. I’m in chicagoland with millions of homes, no current competition and all homes have Nicor gas running to the house. The retail cost of Phill is around $4000 and the cost to convert a car I think can be done around $1500 if you vertically integrate and sell the conversion and unit as a package. By my numbers that means selling only 320 in a year would give me rev’s of $1.76MM per year. If my gross margin net of labor is 25% than that leaves profit at around $440k per year. With banking contacts, I can probably set up consumer finance so that customers don’t have to stroke a check for the entire amount up front. Depreciation on these things is around 8-16 years so 5-10 year ammortization schedules work and payments should be minimal and less than the cost savings from gasoline.

Am I missing something?

Yeah. Sending me a plane ticket to Chi-town.
[/quote]

Have you made contact with the manufacturer? I’m meeting with a funding source on Saturday. I can’t imagine that a required equity downstroke to secure rights would be more than $250k unless they’ve gone exclusive or have plans to with Honda. Feel free to take this offline and PM me if you want.

Wait, you mean people might actually make money off of this? Doesn’t that automatically negate all the positives… ?

Seriously, though - I had no idea there were that many people with NG at home - over 60 million? Wow.

Source:
http://tonto.eia.doe.gov/dnav/ng/ng_cons_num_dcu_nus_a.htm

Seems like prices are rising (much slower than gasoline). I wonder how high prices have to be before NG stops being profitable?

Maybe look at some of the royalty trusts and MLP’s. They’ve gotten smashed and the yields are up in the 13-15% ranges, paying MONTHLY. Love that

Well. Unless you like to gamble I would not invest in anything energy or healthcare related. The impending liberal doom will send both these markets into complete disarray. Logical investments will rid you of your life savings. Foolish investment may make you a very rich man.

No analysis or logical evalution can predict the winners and losers if the predictions of a liberal president and supermajority in congress come to fruition. I’d rather invest in the financial market right now.

[quote]sledge2 wrote:
Maybe look at some of the royalty trusts and MLP’s. They’ve gotten smashed and the yields are up in the 13-15% ranges, paying MONTHLY. Love that[/quote]

Read my mind. I’ve been DCA’ing into some of the Canadian income trusts. Probably a bit more risky than some of the domestic MLP’s. Probably wise to diversify any domestic and international exposure to the sector unless you want to put a currency hedge on also.

When I read the title of this thread, I thought it was a veiled reference to Obama/Biden. hehe