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The Really Negative Story on Natural Gas

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  • The Really Negative Story on Natural Gas

    Will natural gas drop to $1?

    http://online.wsj.com/article/SB1000...488679458.html

    By LIAM DENNING

    Natural-gas prices are on the floor. Could they go negative?

    The overhang of excess natural-gas supply could crash prices even further this spring. Liam Denning discusses on The News Hub with Simon Constable and Bob O'Brien. Photo: Reuters

    The probability that wholesale gas prices will drop below $2 per million British thermal units, from today's almost $2.50, is rising. Gas hasn't closed below $2 since September 2009. Today's market shares one critical similarity to then: bulging gas inventories. This overhang of excess supply could crash prices even further this spring.

    Like squirrels with nuts, we humans store gas during the summer and then deplete those inventories in the winter. But this winter has been mild and comes amid rising gas production. The latest official figures, released Thursday, show the U.S. has about three trillion cubic feet of stored gas, up 25% from this time last year and the five-year average.

    Barring a sudden chill, we will enter summer with gas inventories well above normal. This is a problem because storage operators often need to cycle gas through a facility on a seasonal basis to maintain operational efficiency. Companies that leave gas in storage beyond their contracted time usually risk stiff financial penalties. Morgan Stanley forecasts there will be 2.2 trillion cubic feet of gas in storage at the end of March, which is traditionally when we start refilling inventories. However, that level is very close to the 2.3 trillion cubic feet level at which, Morgan Stanley estimates, storage operators start forcing clients to take gas out.

    This carries big risks for prices. BofA Merrill Lynch points out that back in 2009, when capacity limits were again being tested, gas prices almost halved in the space of a month between early August and early September.

    But there have been even more extreme instances. In the U.K., for example, gas prices very briefly turned negative in October 2006, after a new pipeline from Norway flooded the market when storage capacity was nearly full already. Rather than pay penalties for causing imbalances in the system through excess gas, some traders preferred to simply pay someone else to take delivery.
    [NATGAS] Bloomberg News

    Companies that leave gas in storage beyond their contracted time risk stiff financial penalties. Above, a drilling rig sits on a natural gas pad in Pennsylvania.

    That is an extreme example. But logistical constraints mean some gas producers in the U.S. already effectively take a loss on their gas. Last year, over a third of North Dakota's gas output—which costs money to produce—was burned off as production growth outpaced pipeline construction (the proportion flared nationwide is less than 1%).

    The more likely scenario is that forced sales of gas push prices below $2, and perhaps even $1, for a brief period at some point this year. The real solution will be for such low prices to encourage more demand or, more immediately, for gas producers to shut-in some production, like Chesapeake Energy did last week. Citigroup puts the breaking point for high-cost producers at about $1.80, 27% below today's price. Ultimately, a crash may be the only way to get this market to rebalance in short order.

    Write to Liam Denning at liam.denning@wsj.com WillWWasdasdasasdasdzxcxzcx

  • #2
    Re: The Really Negative Story on Natural Gas

    Great title touchring. You need to spend a little time channeling your inner Don.



    Thanks for the info.

    Comment


    • #3
      Re: The Really Negative Story on Natural Gas

      Originally posted by touchring View Post
      Even if it does drop to $1, the only thing I can see that it means is that utilities might be more profitable in the northeast (which is more heavy on natural gas in the electricity and heating mix). To make a long story short, rates are preset by utilities commissions and determined in filings. This increases the spread between the $/therm and $/kWh charge tables previously agreed to and the wholesale cost to the utilities from the power plants and distribution channels. But there are also so many public and private ways that the increased profit margin could be screwed up, that it's still a risky bet. It's bad news for anyone sitting on shale land that they were hoping would open up, especially in New York where Cuomo only recently lifted the drilling moratorium, but otherwise, I don't think consumers will see much, if any, difference.
      Last edited by dcarrigg; February 04, 2012, 03:26 PM.

      Comment


      • #4
        Re: The Really Negative Story on Natural Gas

        Originally posted by dcarrigg View Post
        Even if it does drop to $1, the only thing I can see that it means is that utilities might be more profitable in the northeast (which is more heavy on natural gas in the electricity and heating mix). To make a long story short, rates are preset by utilities commissions and determined in filings. This increases the spread between the $/therm and $/kWh charge tables previously agreed to and the wholesale cost to the utilities from the power plants and distribution channels. But there are also so many public and private ways that the increased profit margin could be screwed up, that it's still a risky bet. It's bad news for anyone sitting on shale land that they were hoping would open up, especially in New York where Schneiderman only recently lifted the drilling moratorium, but otherwise, I don't think consumers will see much, if any, difference.

        Warren Buffett is against investing in natural gas, but Wilbur Ross is bullish.

        One interesting bit, the stock price for Westport Innovations Inc. is rising even as Natural gas price crashes.
        Last edited by touchring; February 04, 2012, 12:57 AM.

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        • #5
          Re: The Really Negative Story on Natural Gas

          If not connected to pipeline infrastructure accessing an export terminal gas producers will have to sell domestic. Until domestic demand picks up and export terminals ramp up, gas stays flat.

          http://pipeline.kindermorgan.com/


          http://www.kindermorgan.com/asset_ma..._Asset_Map.pdf

          http://www.ferc.gov/industries/gas/i...-potential.pdf

          http://www.ferc.gov/industries/gas/i...exist-term.asp

          http://www.ferc.gov/industries/gas/i...G-approved.pdf

          http://www.cheniere.com/lng_terminals/terminals.shtml

          http://www.lngfacts.org/LNG-Today/Import-Terminals.asp

          http://www.elpaso.com/pipelines/

          http://www.elpaso.com/pipelines/lng.shtm

          http://www.kindermorgan.com/business...tePipeline.cfm

          http://www.kne.com/business/gas_pipe.../eagleford.cfm




          Cat's excavators are coming for pipeline infrastructure.
          http://www.caterpillar.com/cda/files...n+Victoria.pdf

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          • #6
            Re: The Really Negative Story on Natural Gas

            -del-

            Comment


            • #7
              Re: The Really Negative Story on Natural Gas

              http://fuelfix.com/blog/2012/02/03/e...l-gas-exports/
              Energy secretary backs natural gas exports

              Posted on February 3, 2012 at 7:03 am

              The low price of natural gas is hurting domestic job growth, and exporting a small amount of the fuel will boost the economy, U.S. Energy Secretary Steven Chu told a Houston audience Thursday.
              Speaking at a town hall at Houston Community College, Chu said a modest increase in the price of natural gas wouldn’t significantly raise its cost to U.S. consumers who use it to heat their homes and manufacturers who need it to make products.
              Natural gas futures closed at $2.55, up 17 cents, in trading Thursday on the New York Mercantile Exchange. It brings much higher prices in other countries.
              “Exporting natural gas means wealth comes into the United States,” Chu said.
              The Energy Department’s Office of Fossil Energy is reviewing several applications to export liquefied natural gas. The exports would relieve the glut of natural gas on the domestic market and raise revenue, but also potentially increase prices for domestic consumers.
              Several U.S. energy companies have announced plans to close their natural gas wells and curb spending in natural gas fields, as its price has fallen from more than $13.50 in 2008.
              In his State of the Union speech last week, President Barack Obama called for an “all-of-the-above” approach to domestic energy production, including investment in oil, natural gas and renewable energy sources.
              Chu said it’s important that the United States be at the forefront of innovations and technologies in renewable energy.
              “We have a choice. When all these things become cost-competitive, do you want to buy or do you want to sell?” he asked. “If we are buying, that is wealth out of the country. If we are selling, that’s wealth into the country.”
              Before the hour-long session with students at the college, Chu met with oil and gas executives and explored the Texas Medical Center’s energy efficiency upgrade.
              At the college, he answered questions about the Obama administration’s rejection of the Keystone XL pipeline and Iran’s threat to close the Strait of Hormuz, among other topics.
              Chu said the administration is open to exploring alternate routes for the pipeline that would carry oil from Canadian tar sands to Gulf Coast refineries.
              It’s become a touchstone issue for supporters who say it will create jobs and reduce U.S. dependence on oil from hostile nations, and opponents who argue it could threaten water supplies and promote use of an especially dirty form of oil.
              Chu said he supports construction of pipelines nationwide, particularly to relieve the glut of oil at the hub in Cushing, Okla., a major price point for domestic oil.
              “There is such a shortage of pipelines between Cushing and Houston,” Chu said. “There will be major construction of pipelines in the next decade or so. All the job creation from Cushing to Houston is being done now.”
              Chu touted government investment in wind, solar and other renewable energy sources, as well. He said he expects the cost of solar power to fall by 50 percent within six to eight years.
              Chu also dismissed Iran’s threats to close the Strait of Hormuz, a key oil shipment channel, in retaliation for international sanctions aimed at the nation’s nuclear program.
              “I don’t think they can really shut down the Strait of Hormuz,” Chu said. “We certainly have capabilities to reopen it.”

              Comment


              • #8
                Re: The Really Negative Story on Natural Gas

                For an altogether different perspective, watch 15:55 to the end:
                http://www.youtube.com/watch?v=0w83l...eG9qSgs1bS7NcR

                Nicole Foss describing the natural gas industry as a major ponzi-scheme waiting to go bust. A big part of her thesis seems to be that fracking has a very low EROEI ratio such that when energy generally gets more expensive, the cost-benefit analysis stops making sense. She describes the sale of the land leases as "another real estate bubble".

                She has supposedly also written articles on the topic. I'll see if can get ahold of them.
                "It's not the end of the world, but you can see it from here." - Deus Ex HR

                Comment


                • #9
                  Re: The Really Negative Story on Natural Gas

                  Ah, already posted about here: http://www.itulip.com/forums/showthr...Shale-We-Dance
                  "It's not the end of the world, but you can see it from here." - Deus Ex HR

                  Comment


                  • #10
                    Re: The Really Negative Story on Natural Gas

                    Natural gas stocks getting attractive. But timing is difficult...

                    Comment


                    • #11
                      Re: The Really Negative Story on Natural Gas

                      I donīt know enough to emit an opinion about nat gas in the USA. But a question arises: automobiles, especially taxis use compressed nat gas in Argentina.
                      The tank is a bit cumbersome, it occupies some volume in the car, but itīs cheap an needs only a not to expensive adaptor in the engine and a valve.
                      Then the cars can work with normal gasoline, which is better, that is more power in the engine or with nag gas which is much cheaper.
                      And of course you need a gas station infrastructure, which is maybe the most difficult part.
                      But it works.
                      Why donīt I see people talking about this?

                      Comment


                      • #12
                        Re: The Really Negative Story on Natural Gas

                        Originally posted by Southernguy View Post
                        I donīt know enough to emit an opinion about nat gas in the USA. But a question arises: automobiles, especially taxis use compressed nat gas in Argentina.
                        The tank is a bit cumbersome, it occupies some volume in the car, but itīs cheap an needs only a not to expensive adaptor in the engine and a valve.
                        Then the cars can work with normal gasoline, which is better, that is more power in the engine or with nag gas which is much cheaper.
                        And of course you need a gas station infrastructure, which is maybe the most difficult part.
                        But it works.
                        Why donīt I see people talking about this?
                        In the US natural gas conversion is rigidly controlled by the EPA and in California by CARB. Only certified vehicles may be converted and in most cases only by a certified mechanic. The cost to certify a new car or engine is in the hundreds of thousands of dollars and most manufacturers don't bother.
                        http://www.ngvamerica.org/pdfs/marke...ses.NGVs-a.pdf

                        Comment


                        • #13
                          Re: The Really Negative Story on Natural Gas

                          Originally posted by globaleconomicollaps View Post
                          In the US natural gas conversion is rigidly controlled by the EPA and in California by CARB. Only certified vehicles may be converted and in most cases only by a certified mechanic. The cost to certify a new car or engine is in the hundreds of thousands of dollars and most manufacturers don't bother.
                          http://www.ngvamerica.org/pdfs/marke...ses.NGVs-a.pdf

                          I believe there are serious political opponents to natural gas pipelines, such as Warren Buffett who is against natural gas since natural gas is a competitor for coal.

                          Comment


                          • #14
                            Re: The Really Negative Story on Natural Gas

                            A post for those interested in more debate and perspective on these issues. I do not personally vouch for any of these opinions and am not that knowledgable in natural gas or exploration technology. That said, I feel like I learned some things reading these, especially the at times pointed debate in the comments sections. Its not a short read but could be worth it for some.

                            http://www.theoildrum.com/node/8900


                            Berman out with one also, below.

                            http://www.theoildrum.com/node/8914

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                            • #15
                              Re: The Really Negative Story on Natural Gas

                              Berman out with one also, below.

                              http://www.theoildrum.com/node/8914[/QUOTE]

                              Berman says
                              The gold rush is over at least for now for the less commercial shale plays. The money and activity have moved to more oil-prone shale plays such as the Eagle Ford
                              Look at all the pipeline links I posted above.

                              and now this
                              http://af.reuters.com/article/commod...8D677D20120206

                              Feb 6 (Reuters) - Comstock Resources Inc said it plans to exit the gas-rich Haynesville shale by March as the explorer focuses on more lucrative oil-rich shales like its peers who are hit by falling natural gas prices.
                              "We plan..to focus for the remainder of this year on our Eagle Ford Shale program in South Texas

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