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The future of natural gas pricing could be a trans-Atlantic tug of war

Floyd Norris, NY Times
JUST when natural gas prices seemed likely to hit the moon this winter, much of the United States had the warmest January in history. With gas inventories high, prices plunged. Natural gas is now unusually cheap relative to oil.

United States natural gas is also cheap relative to gas in Britain, and traders think that pattern will persist into next winter — notwithstanding the fact that the weather is notoriously hard to predict.

Wild swings in natural gas prices have long been a part of the commodities market. Unlike oil, gas was impossible to ship outside of pipelines. So a surplus of gas in the United States would drive prices down, perhaps at the same time they were soaring in Britain because of a cold spell.

But that is starting to change, as the volume of liquefied natural gas transported by ship grows. Those ships can turn around if one market will pay much more than another for gas.

“Once it gets really cold, you have both sides of the Atlantic bidding for the same gas,” said Francisco Blanch, a commodity strategist at Merrill Lynch in London.
(11 March 2006)

Government delay pulls Iraq’s oil sector down

Mariam Karouny, Reuters
BAGHDAD – As if sabotage, killings and collapsing infrastructure were not enough, political uncertainty and the failure of Iraqi parties to form a government three months after an election is now dragging on Iraq’s oil industry.

Analysts and officials said Iraq risks losing entirely the confidence of the international market as a supplier. The Oil Ministry said a cash crunch could hit even domestic supplies if the limbo continues, something that could provoke public anger.

“With the political situation as it is, the only direction the oil sector is going is downwards,” Saad Allah al-Fathi, a former official at Iraq’s oil ministry, told Reuters.

“Iraq now supplies the international market with 1.5 million barrels per day (bpd). If the situation continues as it is with the security and political problems, the market will discount Iraqi oil.

“They will view it as a reserve rather than depend on it as a supplier.”
(9 March 2006)

Brazil leading the world in using ethanol

Alan Clendenning, Associated Press via Lincoln Journal-Star
…While Bush set 2025 as the target date for replacing three-fourths of the oil imported from the Middle East with American ethanol, Brazil already satisfies nearly half of its domestic passenger vehicle fuel demand with ethanol.

After decades of government intervention and subsidies, the industry here is a thriving free market business, complete with ethanol pumps at every filling station in Latin America’s largest country. Millions of cars run on either ethanol, gas or any combination of the two. And there’s plenty more land available for sugar cane cultivation as the planet’s biggest sugar producer gears up to become its undisputed long-term ethanol supplier.

Brazilian ethanol producers and international energy experts agree that the United States will probably never come close to reaching Brazil’s potential as an ethanol superpower. But they say Brazil offers clear lessons on how to boost domestic ethanol use.
(11 March 2006)

US energy secretary: Need ethanol sources other than corn

David Twiddy, Associated Press
KANSAS CITY, Mo. – U.S. Energy Secretary Samuel Bodman said Friday that more research is needed for making ethanol out of such things as wood chips because the country will eventually run into supply problems with corn.

Speaking to a meeting of the Greater Kansas City Chamber of Commerce, Bodman said the ethanol industry now consumes roughly 14 percent of the country’s corn crop.

The crop’s regular purpose as human and animal feed will eventually compete with the demand for ethanol, driving up prices.

…In an interview with The Associated Press, Bodman said much is being done to increase public acceptance of the fuel, including tax incentives for buying so-called “flex fuel” vehicles that can run on ethanol, gas or a mix of the two.

He said he also expected that the oil industry, which has largely rebuffed ethanol as expensive and still too experimental, will come around.
(10 March 2006)
Related: Energy Secretary Bodman outlines plans on Yucca, nuclear waste and oil security. (E&E TV interview).

Will Canada fuel Fortress America?

Professor Goose, The Oil Drum
Many cornucopians see Canada as the savior of America’s bacon because of the tar sands, especially those of Athabasca.

Will Canada complacently allow the US to pillage her resources as energy supplies become more scarce? Further, will she become discontented enough with that idea to cause a political rift between Canada and the US when she sees her own future energy security being compromised? Will the NAFTA energy sharing provisions hold up, maintaining fungibility of scarce resources? There seem to be many questions that need to be asked about this supposed panacea of a relationship; some ideas of the potential answers under the fold.

This post was prompted by an email by Stoneleigh and some further research by Leanan which yielded this document, which is a policy report from the Canadian Centre for Policy Alternatives (CCPA), a progressive policy analysis shop centered in Ottawa.
(11 March 2006)
UPDATE (March 13): Related article in the Toronto Star: U.S. oil addiction could make us sick.