With apologies to The Who, recent developments have suggested that we just might. One such example deals with details regarding the decision by the government of Qatar to redirect a significant portion of the liquefied natural gas, or LNG, from the United States, largely due to the Chinese inclination to pay more for LNG1.
Some organizations, like the American Energy Alliance, have raised the alarm about the issue, yet many commentators have suggested that the diversion of energy resources away from the United States is not a cause for concern2 . Their argument is that “one of the big reasons natural gas prices are low in the U.S. is because the country’s swimming in the stuff thanks to a spate of new production. Gas inventories are well above average levels.”3
The commentators fail to address or, quite frankly, even ask how much of the reserves flush we are experiencing due to new production, and how much is due to a more likely source, decreased demand due to the recession. In fact, current gasoline and jet fuel demand over the recent Thanksgiving weekend barely exceeded demand from last year, when the nation was experiencing the depths of the economic malaise.4 When the recession eventually eases and the demand for natural gas increases will the spate of new production meet our needs or will we face another round of rapidly increasing energy prices? Furthermore, the glut of natural gas on the market has led to production cuts that have finally begun to take hold, suggesting that natural gas prices might start to rebound, even before the recovery fully takes hold5 . Moreover, now that the capacity has been diverted to China, it will be difficult — and costly — to return it to the United States, if that will be even possible when demand for energy ramps back up.
All this serves to remind us that we are not likely to see a prolonged lull in energy prices, like we saw after the oil embargoes of the 1970s, this time around. Despite significant earning drops for oil companies like Exxon Mobil (68 percent drop in earnings for 3rd quarter 2009 as compared to the previous year)6 and despite the tremendous drop in oil (and by extension other energy prices), we saw between the July 2008 peak and December 2008 floor, we should not expect prices to hover around their floor levels as the economy recovers from the current recession.
U.S. West Texas Brent Crude Oil Prices, Weekly, January 3, 1986 – October 23, 20097
In fact, as seen in the chart above, oil prices have already shot up more than 140 percent from December lows to current October 2009 levels. Moreover, the current October prices are about as far above the market low for the period ($80 vs. $32) as they are below last summer’s high ($144 vs. $80).
What does this mean for American consumers and businesses?
It means that as we saw last year, companies and individuals will need to seek tools and opportunities to limit their exposure to rising energy prices and protect their productivity from being eaten away by fuel costs. One such method is energy efficiency, which will help both consumers and companies manage their energy consumption and by extension manage their exposure to rising market prices for energy, not to mention rising energy costs associated with any potential climate change regulations that are being contemplated by both the federal and many state governments.
By finding innovative solutions to meeting their energy needs — be they process (petroleum, natural gas, electricity), illumination (home/business electricity), climate control (home/business natural gas, electricity), or transportation (home/business petroleum) — energy efficiency solutions can help people and firms decrease their dependence on these volatility priced commodities, therefore insulating themselves at least to some degree, and ensuring that they do not get fooled into failing to prepare for the next energy price shock, again.
- N/A, “Gas Pains” China, Qatar, and the Competition for Natural Gas,” Wall Street Journal, 28 October 2009, 1 pg; available at www.wsj.com ↩
- Ibid p.1. ↩
- Ibid p.1. ↩
- N/A, “Refiners, after lackluster Thanksgiving, likely to have a lousy Christmas,” Wall Street Journal, 2 December 2009, 1 pg., available at www.wsj.com ↩
- N/A, “U.S. Gas Production (Finally) Fall; Will Prices Now Rebound?” Wall Street Journal, 30 November 2009, 1 pg; available at www.wsj.com. ↩
- N/A, “Exxon: Profits Down, Support for Carbon Tax and Nat Gas Up,” Wall Street Journal, 29 October 2009, 1 pg.; available at www.wsj.com ↩
- Crude Oil Spot Prices as recorded by the United States Energy Information Administration; data available at: http://tonto.eia.doe.gov/dnav/pet/pet_pri_spt_s1_w.htm ↩
