Natural Gas Ain't Cheap...

One refrain I have been hearing a lot over the last few years is that natural gas is really cheap right now, and this will lead to some sort of economic bonanza. This would be nice, if the premise was true. Now, natural gas is certainly cheaper than it was in the aughts, but how does it compare historically? The EIA publishes all sorts of data on natural gas production and prices, but unfortunately does not have an inflation adjusted series, which is more relevant from a policy perspective. I have gone about constructing one, so that we can compare today's prices with those in the past.

I've chose to use the EIA's wellhead price, which was its longest running series until it was discontinued at the end of 2012. The prices in red are estimated from the city gate price, using a linear extrapolation based on the overlapping city gate and wellhead data from 2010-2012 using the regression formula

WH = (CG-2.9053)/0.7031

As you can see, wellhead natural gas is not unusually cheap. While it did very briefly touch historic lows near the beginning of 2012, it's average price over the last year of around $3.60 per tcf is similar to or higher than the real prices of natural gas in the late seventies and the period from 1985-2000.

But what about before the mid-seventies, you ask? Well, fortunately the EIA has less granular historical data going back to the 1920s! Again, I had to do the inflation adjustment myself, so here is their data in 2014 dollars.

  

Well I'll be. Natural gas was lot cheaper from the 1920's through the mid 1970's than it is today! Who would have guessed?

So no, natural gas is not cheap right now, nor does the futures market predict it ever will be again. It is highly unlikely we will ever return to the real price levels of the middle of the last century, or even to the somewhat elevated but still tolerable prices of the mid 80s and 90s. Instead, we will be faced with high prices in good years and insane prices in the rest. You'd better be ready for it.

 

The Trouble with Game of Thrones, Season 5 (In One Chart)

Very light spoilers ahead....

The directors of Game of Thrones have said many times they were looking forward to Season 4, and dreading Season 5. Here is why.

By my count, there are currently nine plots running in the series, a "plot" being defined as a cluster of characters in a single location. The three major ones are the King's Landing / Lannister plot, the Jon / Wall plot, and the Daenerys / Slaver's Bay plot. Six smaller plots (Stannis and Company, Sansa/Littlefinger, Arya/Hound, Bran and Company, Brienne/Pod, and Ramsey/Theon/Yarra) round out the story. To film the series, the directors tend to focus on one of the three "main" plots each episode, filled with smaller scenes from some of the minor plots or the other two main plots.

As you can see, though, this breaks down in Season 5. If the books are followed, not only are two new significant plots born, but one of the main three splits into three and births another, one splits in two, and the other combines with an existing minor plot and then proceeds to split into five separate lines. At peak levels, there are many as seventeen separate plots going on simultaneously. Two of these do combine towards the end of book A Dance with Dragons (Book 5), and it is clear that many are converging early in Winds of Winter (Book 6), but as it stands, even with some significant pruning of characters and plots, there are some serious challenges to filming Season 5, as so many characters get divided and scattered to the winds. It will be interesting to see how the directors handle this challenge.

Note that this near-doubling of the plot lines is what underlies most of the criticism of the books A Feast for Crows and A Dance with Dragons. With that many threads going on at once, the pace of the overall plot seemed to slow down considerably.

PS: I'll give a small prize to the first person who can correctly decipher my graph!

What 94% of Americans don't know...

Obama has reduced the deficit.

There. You are now officially more informed than 94% of Americans.  Just to make it really clear, here is a simple chart of deficit by calender-year quarter, which resolves any questions as to who was President when the deficit exploded into the stratosphere during the economic collapse.