That’s the correct Jeopardy question to the answer: “The lifetime during which the United States will run out of natural gas.”

In other words, we’ve got a lot of it. We may very well have more than a lot of it.

At least, we think we do. Until we develop the ability to see through solid rock, we can only estimate how much natural gas lies underground within the United States. This is why figures that you will see published are complex and often contradictory, because most people have a strong vested interest in presenting the figure as being either high or low, and there are many different sets of figures to choose from. We have discussed the complexities of this issue in a previous post, which you can read here.

Basically, the question of how much domestic natural gas we have comes down to a combination of three sub-questions: do we have geologic proof that it’s there, or are we just guessing; if we have proof, do we have the technology right now to get it out; and if we have the technology, does the current market allow us to actually put up wells and started producing profitably? Depending on how many “yes” answers you expect, the figure you end up with is very different. This is why you will hear people categorizing their totals using terms like “undiscovered recoverable resources.”

Here, in a nutshell, are the current best estimates.

If you’re going to hold your total to the highest possible standard, the United States has enough proven, recoverable reserves for the next ten years, assuming current usage.

If you’re willing to stretch your standard to include all the gas we know we can get at, that figure stretches to between eighty and one hundred and twenty years.

If you’re willing to stretch a bit farther, and assume that we will continue to improve our technology, the figure stretches into thousands, and perhaps even tens of thousands, of years.

Why are these figures so different? Because our whole conception of how we mine for natural gas has changed radically in the past decade. New drilling technologies now allow us to remove natural gas from geological formations that were previously thought impossible to tap.

The most important are shale deposits and coal gas deposits, particularly shale. We have only scratched the surface of what these new resources can produce. And it’s notable that most of these new resources are located throughout the lower 48 states, in fairly close proximity to existing pipelines.

The wild card, which might extend natural gas reserves beyond the foreseeable future, is a source we don’t yet know how to tap: huge deposits of frozen methane trapped under the ocean and the ice of Alaska. The potential here dwarfs all previous natural gas sources…indeed, all previous sources of all the fossil fuels.

This is bad news to a lot of people. For natural gas producers, it speaks of continued ample supply and, as a result, continued low prices. For green energy supporters, it takes some of the shine off the argument that fossil fuels are running out. And for investors, it raises doubts that they will see a repeat of the profits they took in the first half of 2008.

But let’s not forget: supply is only half of the equation when it comes to price. And future demand for natural gas, both domestically and internationally, is another question with many possible answers. It remains to be seen how the emerging economies of Asia and South America will rebound from the current economic downturn, and which energy source will fuel this rebound.

There are also many questions about the role natural gas will play, above and beyond it’s current usage, in America’s energy future. Will it power our cars? Will it replace coal as a way to reduce emissions for generating electricity?

We’ll keep you posted.

I was watching one of those “World’s Most Amazing Videos”-type shows the other day, and saw a video where a bungee jump almost went disastrously wrong, with a television crew there to catch the whole thing. I don’t remember exactly what happened during the jump…there are an awful lot of these videos of extreme stunts going wrong on television these days…but I do remember what the jumper said to the television interviewer after they got safely to the ground.

The interviewer asked whether, in retrospect, the jumper would rather not have risked the jump.

The jumper responded that, even knowing what they now knew, it would still have been worse to go through life never knowing whether they had the courage to actually take the jump.

This story encapsulates everything you need to know about the risks you face as a customer in today’s energy market.

While there are all kinds of hedges available to you…and at Cost Containment Intl., we are strong advocates of hedging whatever energy plan you choose…your energy plan will be based on one of two basic approaches. You can lock in a fixed rate. Or you can ride the market with a variable rate.

The choice is traditionally presented as being fixed=no risk, variable=risk. Looking back at 2008 and the lessons it taught us, we need a new way to look at risk. As the bungee jumper shows us, it’s really a question of what kind of risk bothers you the most.

Fixed rate plans offer predicability. Stay within your contracted usage, and you’ll know exactly what your energy costs will be for the length of your contract.

Variable rate plans offer flexibility. If you’re positioned to control use, you can maximize your savings and minimize your loss by matching highest use to lowest price.

With a fixed rate plan, the risk you run is that you’re going to see prices dip below your fixed rate and regret the flexibility you no longer have. The sure price is not the sure bet.

With a variable rate plan, you run the risk that prices will go high and then keep going higher, and regret the fixed rate you could have locked. The water is often deeper than it looked when you dove in at the shore.

As 2008 has shown us, we are entering a new age of volatility in energy prices, when traditional predictors and traditional patterns are not as reliable as they once were. Which means that you, the consumer, must develop a new understanding of your own tolerance to risk.

It starts with a simple question. Which would bother you more: the risk you took and lost, or the risk you never dared to take? When you know the answer, you will have the foundation for the right energy plan for your future. Cost Containment Intl. is ready to help you find the right answer.

This week, for a change of pace, we’ll feature some thoughts from one of our consultants, Larry Kauf.

Ever since July 08, when the NYMEX started its tumble from a high of almost $15,00, you’ve been hearing traders talking about a “support” level. That’s not life support they’re talking about, though some of them probably need it. It’s price support.

Support, simply put, is the market telling you it’s time to stop waiting an BUY. It’s that point where the natural gas investors, who want prices high, and the people like you who actually use the stuff, who want it low, both come to the conclusion that this is as low as it’s gonna go, so it’s time to get in.

The last few months have seen the NYMEX blow through a lot of predicted support levels. $12.00….$10.00…..$7.00. Every time they said it couldn’t go lower, it did. Every time they predicted that “support” had been hit, the support collapsed.

Here’s the problem right now: with so many support levels getting blown through, everyone is just sitting around waiting. There’s a bit of a “fool me once, shame on you, fool me twice, shame on me” feeling. Very similar to what’s going on everywhere in the economy. Banks are still too scared to lend, commercial paper is still operating at a trickle. Everyone is looking for that “sign” that it’s time to get back in the game.

Why is this a problem? Because the folks who sell gas like making money. You might have to bite the bullet when prices are high, but when the prices get low these guys pick up their marbles and go home until its time to play again. Wellers shut rigs. Production plants shut.

This has already happened. Rig counts are falling faster than the NYMEX: 15% in the past month. Plants are cutting back. Their aim isn’t to get down just to the current demand level, but to create a “shortage.” Plus, they know a few things most buyers don’t. When Nuclear Power plants go offline for maintenance in the spring, utilities have to use gas to offset the loss of generation. Hurricane season has been giving people the willies ever since Katrina.

What happens then? Price spike. Gas prices tend to go up a whole lot faster than they go down. You could say the pendulum swings back, but in this case, it’s going to be like someone gave it a big shove. And I don’t need to tell you what happens to somebody who’s sitting when a spike happens, do I?

As I have been saying, now is the time to lock. Consider the next 12 months with a close eye on prices going into April 2010.

Check the NYMEX

Week two, and we’re still trying to get that elusive NYMEX price. We discovered last week that there was a major infrastructure obstacle in our way: how to get the gas from Louisiana to your meter.

So we’ve agreed that we’ll pay the utility for delivery. They charge everyone the same rate, so that part of our price is a given. But nothing is preventing you from being your own supplier. Natural gas is an open market, and anyone can buy on an open market. Will this get you the NYMEX price?

Let’s see if you’re cut out for the job. Here are the steps you must follow:

1. Set up a line of credit to purchase NYMEX futures contracts. Not cheap, but the price of doing business.
2. Calculate your monthly usage for the next 12, 24 or 36 months. You want to make this as accurate as possible, as we’ll see later.
3. Buy your gas. Depending on your savvy, you might get the NYMEX settle. You might even beat it. And since these are futures options, you can also buy as far into the future as you want. Is now the right time to buy? Natural gas prices have gone from a high of almost $14.00 to a low of under $5.00 in the past year. Stakes are high.
4. You’ve got your NYMEX price. Take a moment to enjoy it. Because now you’ve got some decisions to make.Remember how the utility is handling delivery? That’s local delivery. Depending on your area, the utility might handle delivery within your state, within a few states, or within just a part of your state. You’ve still got to get a pipeline operator to move your gas to the local gate.Welcome to the world of basis, or pipeline transportation costs. This is going to add to your cost, and it’s also going to add a few new wrinkles to your purchasing plan.
5. Does your monthly usage round out to a multiple of 100,000 therms? Anything below a full contract volume of 100,000 therms, or 10 million cubic feet of gas, will carry a purchase premium, since part of the contract needs to be sold back as an odd lot. So you’ll either have to buy more than you need, and pay someone to store it, or pay the premium.
6. Sign your contract with the pipeline owner(s) for transportation of your gas. There might be three or four involved, depending on where you are located relative to Henry Hub. If you have bought more natural gas than you need (to avoid the premium) you will also have to consider the transportation charges to deliver it to and from storage.Your interstate pipeline contract(s) will require irrevocable lines of credit before anyone will do business with you. Again, not cheap.
7. Now comes the fun part. You’re bidding for space on the pipelines with a multitude of other customers. Pipelines operators think in terms of block of BCF…that’s billions of cubic feet of gas. If your gas totals are lower, they will tack a surcharge onto your bid. They might also require that you purchase additional capacity beyond your actual gas to make it worth their while.
8. If, rather than buying too much natural gas for the month, you buy too little, get ready to do this all over again on the spot market to make up the difference. Needless to say, buying from necessity on the spot market is not where you find the best prices.
9. Remember, the NYMEX settle is the daily average. To really get the best price, you need to be on top of the market on an hourly basis to catch the lows when they happen.
10. If, after all this, you didn’t read the market correctly, you probably don’t want to read tomorrow’s paper.

Actually, we simplified things a bit. All right, we simplified things a lot. But you get the idea. You natural gas supplier, as the song says, works hard for the money.

What this means to you. The NYMEX price only tells part of the story of what you should expect to pay for your natural gas. Our weekly report gives you a way to track how prices for both natural gas and electricity are trending. As the market is going, so go the deals that will be available to you as a consumer. Track the trend, not the actual listed price.

At Cost Containment Intl., we appreciate the hard work and expertise on the part of your supplier to get your gas to your burners. This doesn’t stop us from using our own hard work and expertise to put together the best plan and then grind down the best price for you.

The best way to get the best price is still to give us a call.

Check the NYMEX

As promised, we’re now going to answer the question people have been asking: how do I get the natural gas prices I see in the NYMEX report? Actually, it’s pretty simple, and only requires one step:

Step 1: build a pipeline from your meter to Louisiana…

Sorry. Hopefully, you saw that coming. The NYMEX price is the price for raw gas that’s being paid at one of the major gas pipeline terminuses, the Henry Hub in Erath, Louisiana. So if you are in Erath Louisiana, and you’ve got the NYMEX settle price in your pocket, what you’ll get in return is a clear, odorless cloud of gas containing 1 mmBTU…one million British Thermal Units, or roughly one thousand cubic feet…of mostly methane.

(Technically speaking, the NYMEX price is for futures contracts on the New York Mercantile Exchange, not for the gas itself. However, the spot price for gas…the price for people who are actually buying the raw gas…tends to be very close to the NYMEX rate. The NYMEX rate is considered a benchmark for gas prices in all markets in America where gas is bought and sold. There are quite a few of them. Our gas cloud is for demonstration purposes only.)

You’re now the owner of a ten foot x ten foot x ten foot cloud of gas. Assuming it hasn’t dissipated into the air yet, and assuming no one got careless with matches or sparks (the volatility of the natural gas markets are nothing compared to the volatility of your cloud!), your natural gas has to get from Henry Hub to your meter, along with enough other clouds to meet your demand for the year. This will require a few more steps: you will also need to build storage tanks, pumping and compression stations, valve stations, a command and control center…

…which is part of the reason why most people don’t get the NYMEX price. Because it makes a lot more sense to pay other people to handle the whole “from Erath to me” part. That way, you can take advantages of one of the wonders of modern engineering, the American natural gas pipeline system, which transports a highly volatile substance to virtually every point in our country safely, efficiently, quickly, and surprisingly cheaply. If you’d like to see a map of the system, take a look on our Web site.

Your natural gas bill has two components: the price you pay your provider for the gas that gets to your utility (if you haven’t chosen an alternate supplier, the utility is your provider, as well), and the price you pay the utility to deliver it to you. No matter who is providing your natural gas, the delivery costs should be about the same, because the utility charges all providers (including themselves) pretty much the same rate.

Where is that original raw gas price in your bill? That, as they say, is a very…interesting…question, and we’ll be discussing it in a future newsletter. Getting to the bottom of this is one of the ways that Cost Containment Intl. helps our customers find the savings they didn’t know they were missing.

Let’s say you’ve broken down the charges on your gas bill, and you’ve separated out the delivery costs. You’ve isolated what you are being charged for the actual gas. NOW can you get NYMEX? Only if your provider has decided to become a non-profit organization. This is the other part of the reason why you don’t get the NYMEX price. Your provider is in this business of reselling gas to make a profit. NYMEX is what they are looking to hit, or to beat. And then they sell to you.

Of course, even if you can’t build your own pipe, you could still be your own provider. Anyone can buy on the NYMEX. Is that the way to get the NYMEX price? We’ll find out next week.

Check the NYMEX