The Really Negative Story on Natural Gas

[jiimbergin]

Re: The Really Negative Story on Natural Gas

via Chris Martensen

http://oilprice.com/Energy/Natural-G...-Industry.html

[touchring]

Re: The Really Negative Story on Natural Gas

Berman out with one also, below.

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

There's a great amount of comments and arguments on the above link. Anyone with industry information care to comment?

[jpatter666]

Re: The Really Negative Story on Natural Gas

There's a great amount of comments and arguments on the above link. Anyone with industry information care to comment?

Where's GRG55 been?

[globaleconomicollaps]

Re: The Really Negative Story on Natural Gas

say, anybody seen this?

NATURAL GAS ($/MMBtu)

	PRICE*	CHANGE	% CHANGE	TIME
Nymex Henry Hub Future	2.48	0.00	0.00%	02/10
Henry Hub Spot	2.50	0.01	0.40%	02/09
New York City Gate Spot	3.52	0.72	25.71%	02/10

[bill]

Re: The Really Negative Story on Natural Gas

Gas lease flippers get smart and go for oil.

http://fuelfix.com/blog/2012/02/13/c...s-reduce-debt/

2-13-2012
Chesapeake Energy will try to raise as much as $8 billion by selling parts or all of some of its emerging oil and gas territory in West Texas and Oklahoma.
Natural gas prices have fallen to ten-year lows recently, making many natural gas drilling operations unprofitable. Chesapeake is the nation’s second largest natural gas driller.
The Oklahoma City company is attempting to reduce debt and shift its drilling focus to geologic formations that hold a greater percentage of oil and other liquid hydrocarbons, and away from those that hold mostly natural gas.
Chesapeake Energy Corp. also announced plans Monday to sell an additional $2 billion in other assets and raise $1 billion in new debt.

[touchring]

Re: The Really Negative Story on Natural Gas

Gas lease flippers get smart and go for oil.

http://fuelfix.com/blog/2012/02/13/c...s-reduce-debt/

Gas prices may continue falling further, but it will be a matter of time before supply starts with shrink. 1 year, 2 years, 3 years?

[rtchoke]

Re: The Really Negative Story on Natural Gas

http://www.thestreet.mobi/story/1139...xon-mobil.html

While he did not subscribe to the cynical conspiracy theory that Exxon Mobil was enjoying the pain of smaller E&Ps -- and to be sure Exxon has been beaten up over its acquisition of XTO Energy -- Argus Research analyst Phil Weiss did note with irony, "They have the potential to put everyone else out of business."

................

Look at the performance of Exco Resources(NYSE:XCO), the day after Exxon's commentary. Exco Resources, which is 98% dry gas, but only 40% hedged for 2012, was down 8% on Wednesday on four times its average volume, even though there was no news specific to the company. William Butler, analyst at Stephens, said that Exco is traded as a proxy for natural gas pricing and the commentary from Exxon during its conference call weighed on shares.

Low NG prices until well after the elections....?

[touchring]

Re: The Really Negative Story on Natural Gas

Low NG prices until well after the elections....?

Good article, I suspect as much. There is dumping going on. This time not by the Chinese or America's biggest company. Gas is grossly undervalued.

[Starving Steve]

Re: The Really Negative Story on Natural Gas

The obvious solution to the nat. gas glut is to have Detroit re-design the entire automobile to run on nat. gas. This would mean an easy attachment filling port for nat.gas fills, new monitoring on the dash, a tube to the engine, and maybe a re-design of the fuel injection system into the cylinders.

Really, the entire vehicle fleet in America ( and the world ) needs to be re-designed to run exclusively on nat. gas.
Filling stations need to be converted to nat. gas immediately. This should have been done decades ago. Again, the fact that they have not been converted shows how the Repukes have let America drift into poverty.

And then, we have the brain-dead environmentalists (the eco-frauds) unfortunately in both parties, Demo and Repuke. Just reading through Thomas Friedman's, Hot, Flat and Crowded this weekend, I see that his basic solution is to let gasoline run up toward $10 per gallon. He wants to put a floor under the price of gasoline so that the federal government will not let the price of gasoline drop below $4.50 per gallon. He wants motorists to lose their freedom and right to drive a car. He does not give one damn about how this would affect working people, especially the poor. He does not give one ship if people starve.

Instead of demanding that Detroit ( Oshawa in Canada, etc. ) switch to nat. gas motor vehicle production for the entire motor vehicle fleet, Friedman's proposal is to take away the right of people to drive a car. His proposal is to let people lose their right of mobility and to let people starve.

Sorry to say, one step below the Republicans (the Repukes) are the environmentalists, and they are right across the political spectrum in America, Canada, the UK, and worldwide. Hardly one word in Hot, Flat and Crowded about nat.gas at the obvious solution to the energy crisis and as the way to liberate the world from the tyranny of OPEC. Instead, from Friedman and the rest of the eco-frauds, we get such insane proposals as cap-'n-trade, ethanol, electric cars, a $4.50 per gallon floor under gasoline, letting people starve, forcing people to live one-on-top of the other in crime-filled cities, and making people go to hell for their supposed crime of being born.

Read Friedman's book; he's very slick in his proposals, and they sound so reasonable until you think about those proposals and what they really mean. He states that, "People have been dining in the 'electon buffet' for too long."...
In other words and instead of natural-gas as the solution of choice for energy for transportation, for electrical generation, and for space-heating,.... humanity should down-shift into poverty. People should do-without.

[Starving Steve]

Re: The Really Negative Story on Natural Gas

Starving Steve's common-sense solutions to the energy crisis and the economic mess the Western World is in now:

a.) natural gas for ALL cars, trucks, and buses; excepting: airplanes, ships, subs, and possibly trains;

b.) atomic power for electricity, also nat. gas power plants, hydro-electric power, and clean coal-fired power plants;

c.) space-heating with nat gas, space-heating with electricity from coal, hydro, nat. gas, and atomic power;

d.) atomic power for ships and subs, also trains;

e.) to stop wasting time and $ with green solutions including windmills and solar junk;

f.) more rail transportation;

g.) more hydro-electric dams;

h.) atomic power units for space-heating & electricity within skyscrapers, hospitals, universities, and other institutions;

Steve's solution (i.): giving the middle-finger to OPEC and that entire bunch in the Middle-East;

Steve's solution (j.): converting all gas stations to nat. gas fuel, exclusively;

Steve's solution (k.): giving the middle-finger to the green movement, incl. the Sierra Club, Greenpeace, among others;

Steve's solution (l.): retrofitting ALL motor-vehicles to nat. gas: big or small, new or old, 4 cylinder, 6 cyl or 8 cyl;

Steve's solution (m.): do this immediately, everywhere in the economy, and as a Western World emergency effort;

[GRG55]

Re: The Really Negative Story on Natural Gas

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.

i think if you look closely you will find that Berkshire's MidAmerican Energy Holdings Company has some significant natural gas pipeline assets, including the Kern River pipeline and NNG.

[jpatter666]

Re: The Really Negative Story on Natural Gas

i think if you look closely you will find that Berkshire's MidAmerican Energy Holdings Company has some significant natural gas pipeline assets, including the Kern River pipeline and NNG.

Welcome back GRG55! Been looking around for your posts.

[GRG55]

Re: The Really Negative Story on Natural Gas

There's a great amount of comments and arguments on the above link. Anyone with industry information care to comment?

There's an old saying in the oil and gas industry that the best cure for low prices is...low prices.

Like every good capital markets fueled party it lasted longer than anyone might have imagined. And the early entrants (into the Barnett, Haynesville, Marcellus) made a lot of money...mostly by hyping the resource, managing the reserves life index, and selling out to those who believe they must buy in before its too late. We are late in cycle two of this game right now, and as with every "good idea" that gets discovered the playing field in round two is more crowded, the fundamentals are different in some important ways, and it's proving a bit tougher going than round one.

Step 1 is hype the resource. When you have everyone from US government agencies, Wall St analysts and brokers, producers and the major service companies all singing the same tune in four part harmony, well it sounds pretty compelling (and familiar, non?). And the money flows in.

Step 2 is manage the reserves life index (RLI). Reserves differ from resource in that reserves have an economic test attached to them. But an economic model can give whatever answer is desired by manipulating the input assumptions...and with huge resource numbers being touted it isn't very difficult to attach equally large reserves numbers to each well and not be questioned very closely (the current low prices will result in reserves write-downs for the SEC regulated publicly traded producers). Shale gas wells have high production decline rates because the wells initially produce from the fractures (created by those controversial "fracing" programs), but once that gas is rapidly depleted the well is then supplied by the low productivity tight shale reservoir rock matrix. The RLI (measured in years) for a company = booked reserves divided by current production rate. To be an attractive target (for Step 3) the RLI needs to be well under 10 years, because gas in inventory that won't be produced for a decade isn't worth very much to a buyer. That means drilling lots of new wells with ever longer horizontal sections, ever more sophisticated and expensive hydraulic fracturing techniques (many wells now have 20+ stage frac programs), and large (over)investment in surface production equipment, such as wellhead compression, to boost rates. An engineer friend of mine who works for one of the most successful early entrant companies in this game once described to me what he was required to do as "economically irrational resource development".

Step 3 is sell out while the game is still hot. In round one, which started early last decade, many junior companies ended up selling to the intermediates, and some of the intermediates sold out to the major multinationals (such as XTO which was acquired by Exxon). My friend above worked for a private junior natural gas company that was owned by the management team and two Wall Street private equity funds. They sold out to a USA intermediate and made everyone quite wealthy. In the post-financial crisis environment the target buyers are no longer domestic but "the Chinese" and "the Indians". A bit tougher game as I noted earlier.

So why did it take so long for prices to collapse? And where might we go from here?

To the degree shale gas was creating surplus domestic supply in round one in the last decade, that surplus was backing out higher cost imported gas. In the early/mid-2000s USA LNG import terminal capacity expanded, anticipating rising demand from a growing economy and potential shortfalls from conventional supply. Canadian pipeline imports are also a higher cost source than domestic USA production. These high cost gas sources had very attractive displacement economics for USA shale gas producers. Now that they are finished taking market share from those sources in round two the price is behaving like it always does for any commodity in surplus...the first barrel (cubic foot) of surplus depresses the price of all the barrels.

It'll probably take a while for reservoir depletion to soak up the surplus as the investment and drilling finally falls off. Have a look at the volatility of natural gas prices over time on any long term chart (such as the charts in lower right of this page: http://geology.com/articles/natural-gas-prices/ ). One of the things that seriously discourages capital investment in industries that create high natural gas demand (such as ammonia/urea fertilizer manufacturing) is the near impossibility of making a rational and reliable business plan when one of the largest input costs moves around so much. One can spend 2 to 4 years permitting and constructing a plant and suddenly find it is completely uneconomic on start-up day. The natural gas futures and derivatives markets aren't deep enough to adequately hedge this risk, especially after the demise of the merchant energy companies like Enron and Dynegy, who in their early (pre-corruption) days played an important and valuable role in that market.

Which brings me to the prickly topic of a "USA domestic energy plan"...but that's a subject for another day...

[jiimbergin]

Re: The Really Negative Story on Natural Gas

Welcome back GRG55! Been looking around for your posts.

+1. You have been missed

[c1ue]

Re: The Really Negative Story on Natural Gas

Which brings me to the prickly topic of a "USA domestic energy plan"...but that's a subject for another day...

Welcome back indeed.

I, for one, would be very interested in your thoughts concerning what the US might put together regarding a domestic energy plan.

It seems to me there are quite a few markers on the 'plus' side regarding resources, but equally a large number of markers on the 'minus' side regarding utilization of energy vs. GDP creation (or lack thereof).