BP is set to try a top kill tomorrow on the MC252 well in the Gulf.

Effectively, a top kill consists of injecting heavy fluids under high pressure down into the well bore. The weight of those fluids (i.e. the “head”) counters the pressure of the oil and gas coming up the well bore, and the end result is a “kill”.

Then, BP can come back in with cement and permanently plug the well.

The key is that the fluid you’re injecting needs to be very heavy. Drilling fluid is typically used; it’s used on the drilling process for the exact same purpose, to contain fluids in the well bore.

The other requirement is that you must be able to inject that heavy fluid under enough pressure to initially overcome (or overpower, if you will) the opposing pressure of the oil and gas condensate coming the pipe.

Good luck BP. I’m excited to see if this works. It’s never been done in deep water.

Energy, Oil & Gas BP, oil spill, top kill

The Obama Administration is now saying that it will push BP off cleanup duty and take over if they determine that BP isn’t taking all the appropriate actions.

Great. Call in the experts.

The administration also accuses BP of “missing deadline after deadline”.

If that isn’t the kettle talking…

BP will try a top kill on Tuesday, and if that doesn’t go well I suspect they’ll try a junk shot. I don’t have much faith in junk shots.

Energy, Oil & Gas, Politics BP, deepwater drilling, oil and gas

If there is one ratio in the commodities market that completely out of whack, it has to be the price of crude ($wtic: chart) to natural gas ($natgas: chart).

From 2000 to the end of 2005 the ratio of the crude oil price in $/bbl to the price of natural gas in $/MMBtu was around 7:1.

Today, that ratio is a little over 18:1.

The price of crude oil started its ascent towards record highs in 2006, and natural gas supplies started creeping upwards, also to record highs about that same time.

If one were thinking about the ratio alone, you’d surmise that either crude prices need to fall or natural gas prices need to rise to trend back towards that 7:1 ratio.  The problem with this logic is that crude and natural gas now contend for markets with drastically different scopes.

Crude is truly a global commodity as evidenced by the geography of the crude reserves and the intercontinental demand for the black gold from the Middle East.  Natural gas on the other hand is very localized, and this is due primarily to the transportation and infrastructure differences between the two energy resources.

Natural gas is relegated to pipeline transportation (with the exception of limited LNG movement via ships) whereas crude oil is fit for pipelines, freighters, tankers, rail…

So you can start to see the conundrum.

The holy 6:1 ratio (based purely on energy content) is not so holy any more, and natural gas and crude have devolved into completely unrelated markets.

For now.

I suspect that if we continue to see natural gas supply levels stay up, and prices stay low, that more and more industries will shift to natural gas for purely economic reasons.

I predict that natural gas draws will start increasing this winter, and the price will reflect that.

As for the ratio, I suspect it will start to moderate, but not because crude oil prices start retreating.

Energy crude oil, crude to natural gas ratio, natural gas