Forbes: Coffee, Tea Or Gas? The Mispricing Of Natural Gas On World Markets

One perverse side-effect of the shale gas revolution in the US is the revival of coal power plants in Germany, where 5300 megawatts of  new plants are under construction.  Why would green Germany, a major supporter of renewable energy, be turning to coal power?

The answer is simple, actually.  Natural gas in Germany is enormously expensive, as it is in most industrial countries outside of North America.  Prices in 2012 were $11/MMBtu (or Mcf) in Europe, compared to $2.76/Mcf in the US. Japan, suffering from the loss of nuclear power following the Fukushima disaster, paid even higher prices, discouraging the use of this cleaner, more efficient fuel.

How can the price be so inconsistent across national boundaries?  It’s true that high transportation costs for gas create enormous barriers to trade, so that prices don’t equalize, but that is only part of the reason.  Before the 1970s, there was relatively little international gas trade, given the high cost of supply, but the discovery of gas in the North Sea and huge fields in Siberia and Algeria provided strong incentives to developing exports.  MORE

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