Letter to the Editor - Energy Prices & Arithmetic ------------------------- Central Hudson has been busy digging up New Paltz streets to install infrastructure to sell more fracked natural gas. Simultaneously, we have received Central Hudson promotional flyers touting natural gas as a “cheaper” alternative to home heating oil. The flyer depicts a $3,665 pile of cash for fuel oil and a $1,491 pile for natural gas. The fine print reads “Based on 2013 price of natural gas compared to 900 gallons of fuel oil at $3.95 per gallon.” We’re suggesting folks take a closer look before jettisoning oil burners with remaining life for new natural gas burners. There are three significant problems with Central Hudson’s flyer and its arithmetic: 1. 900 gallons * $3.95 = $3,555 not $3,665. 2. Local heating oil was less than $3.95 per gallon in 2013. 3. Using Central Hudson’s actual gross residential rate (including delivery and taxes), the natural gas would have cost $430 more than what the flyer suggests. One BTU of energy can raise the temperature of one pound of water one degree Fahrenheit. To compare the energy content of heating oil to natural gas, we used the following ratios: • Heating oil contains 140,000 BTUs per gallon • Natural gas contains 103,000 BTUs per 100 cubic feet (ccf) Therefore, there are 126 million BTUs in 900 gallons of heating oil, and the equivalent amount of natural gas would be 1,223 ccf. In our neighborhood, we paid $3.67 per gallon for heating oil in 2013, on average. (The price fell to $3.15 last month). Our neighbor, who spent $12,000 for a new natural gas burner through Central Hudson’s conversion program, paid an average of $1.57 per ccf in 2013. • 900 gallons of heating oil at $3.67 = $3,303 and • the equivalent amount of natural gas (1,223 ccf) at $1.57 = $1,921 (or $1,382 less) An annual savings of $1,382 is significantly large, but buying a new $12,000 natural gas burner to replace a functioning oil burner might be reason to pause. Assuming static energy prices and ignoring the opportunity cost of tying up investment in a new boiler, it would take almost 9 years to recoup the cost of a new $12,000 natural gas burner. There also appears to be macro reasons to be careful about switching to natural gas. Yes, horizontal drilling and “fracking,” has resulted in extra supply and lowered prices. For the last 10 years the price of natural gas has gone down -34% while heating oil increased 65%. But during the last 24 months the price of natural gas has gone up 26% and heating oil has decreased -22%. It may be more likely that the price differential between natural gas and heating oil will continue to widen with producers hoping to export and relieve US natural gas supply to take advantage of higher global prices. For example, spot market natural gas prices in Asia reached $1.56 per ccf in Dec-12, while spot prices in the US were $0.33. Exporting natural gas remains illegal without approval from the Secretary of Energy. Anticipate the natural gas industry to continue to push DC to tweak the Natural Gas Act - first passed in 1938 and amended several times since – to permit new natural gas export capacity. Fracking has gone on for decades but more recently the industry began fracking shale horizontally using acids and detergents injected into the ground at high pressures. The 2005 Bush-Cheney Energy Policy Act exempted the industry from having to disclose hydraulic fracturing fluids from the requirements in the Safe Drinking Water Act. Currently, natural gas production from horizontal drilling accounts for 37% of total US output. Many believe the fracking made possible by the combination of anti-environmental energy deregulation during the Bush years combined with injections of investment from Wall Street driven by dubious rosy projections of frackings purported profitability is a bubble poised to deflate. Fracking is an expensive technology that depends on expensive crude oil. The low-hanging fruit with favorable EROI has been picked. The energy return on investment (EROI) is a key determinant of the price of energy, as sources of energy that can be tapped relatively cheaply will allow the price to remain low. The ratio decreases when energy becomes scarcer and more difficult to extract or produce. Investors in fracking may become suspicious that they have been duped if they begin to feel the: • bounty of profitable shale to frack has been overstated, • anticipated profits from fracking have been inflated and • regulators are more likely require frackers to follow new stringent regulations related to water, air, land and methane emission risks. The cheap natural gas prices may end up being a short-lived phenomenon. Carefully consider the actual gross rate for residential natural gas and broader energy price trends before feeling forced to surrender to fracked natural gas. Tim Rogers & Daniel Lipson New Paltz (Cherry Hill)
Posted on: Fri, 14 Nov 2014 19:36:26 +0000
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