Beer ... Arrrhh my head ... Read the ending. Today thats a punishment.
I don't agree. Sorry this is always a big stumbling block when pricing what gas is worth.
The whole thing is a nightmare to work it all out. One converts to another to another and so on.
Have been over and over this one because, like you it didn't make sense to me. The conversion of gas to LNG is pretty straight forward. Industry uses 6,000 cubic feet to equivalent one barrel of oil equivalent energy. This works out roughly in thermal yields whether using kJ or BTU. Same energy is contained in one barrel of oil or 6,000 cubic feet of gas. No question about that one. The exact number is in fact lower.
Now as to pricing.
One cubic foot of gas converts to 1,000 BTU. A BTU or British thermal unit is an old English measure of energy like pounds or gallons. Joule is the metric measure. One kilo joule equals 0.9478 BTU or British thermal units I.E. 1,000 joules 1 kJ = 0.9478 BTU Now the pricing basically all comes out of the US The futures contracts are traded in BTU basis and therefore need to be converted.
Now at present the price for spot natural gas in the US futures closed at USD $6.395 The contracts actual value is USD 63,950- that's for a total of 10,000 mm Btu or in plain English 10 billion BTU Its all bloody confusing !!!! For 1,000 cubic feet of gas at 1,000 Btu per foot is 1 million BTU per 1,000 cubic feet of gas. So if 1,000 cubic feet = 1 million BTU What's the price conversion 6,000 cubic feet = 6 million BTU if the contract represents in total 10,000 million or 10 billion BTU and is valued in total at USD 63,950 - going backwards
The value right now for 6,000 cubic feet of GAS is USD 38.37 or AUD $50.48.
Of this I am positive. A one cent move in the price from USD $6.30 to USD $6.31 is worth USD $100- per contract. USD $6- to $7 is a $10,000- USD change.
The relationship between the two varies but if you multiply the headline rate by 6 you come out with the oil price comparison.
They vary all the time ... at present the price is depressed but the range is supply and demand driven.
Oil right now is USD 48.38 when compared to the gas price equiv. USD 38.37 its trading at 79.3 % of the price.
This relationship has moves a hell of a lot but the gap between the two with oil always being higher has been narrowing for many years now. Remember they both produce the same amount of energy. Today the gas market is at one extreme of the curve, that is the relationship is at near the low it has been for a while at 79% of the oil price.
Don't despair, Over time the gap has been closing. Slowly but surely. We all know the high of oil was around USD $55- per barrel. The high of the current front contract Feb. 05 gas was USD $9.987 or when looking at oil it was US$ 59.92 ... in other words it was higher !!! Have to take an average and the gap has been closing. And over time I expect it to. Gas has pulled back way too far I suspect. The recent low for gas was USD $5.55 back in Jan 2004. Sitting at USD $6.45 we are not up much from there. The market is choppy to say the least. Oil has come back and so will gas. If you get the same energy but at 80% the cost well the market will use gas more and more.
In summary gas prices are around 80% of oil prices. My conversion of cubic feet to BTU changes depending on the composition of the gas but normally the rate is actually higher in the 1050 to 1100 area so have been conservative.
Now there are some benefits and cost savings for LNG as well. Sure you need tankers, but transportation of LNG takes up 25% less room.
If you use the 5,700 cubic feet and the 1,050 BTU conversion the price of LNG the gap is 10% less. Then again production costs and startup are bigger as well. Somewhere in the range of USD $5- to $8 per barrel.
Still with the break even on LNG down at below USD $15- and the prices taking into account the 5,700 number being around USD $40- still leaves a lot of room.
As to whether someone is selling the gas at a much lower rate than the going international market, well if they are selling it at USD $2- per thousand cubic feet as opposed to the current rate of US$ 6.38 I would sack them.
Sorry no beer for me, nursing a hangover. Never going to drink ever again .....
Hope this helps. Its a Very confusing topic with USA using old imperial measures ... but that's where the pricing comes out of in the end ...
More asprin please ?
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