Marcellus Shale Nat Gas Production Higher Than Anticipated

[cbr]

Re: Marcellus Shale Nat Gas Production Higher Than Anticipated

i think the story is in gas and gas to liquids infrastructure. of course the shale plays are not making a huge dent in oil imports, as they produce gas for the most part. we could have ramped up shale gas production in 6 years ago and government cleared the way for export infrastructure, and been selling natural gas to the rest of the world, especially china and europe, at $8-15/mmcf for 6 years straight (instead of the sub $2 price you are seeing now due to lack of markets or infrastructure to facilitate markets), and beat these countries to the race for those markets. that would have been a significant economic and geopolitical boost for the us as well as its trade deficit.

instead, we prevented that growth, and though it is slowly happening, the ROTW has been working on their infrastructure and that captive market is lost. and china and europe have not yet put a dent in their coal or nuclear power market share with the cleaner resource.

why did your friend come back from PA? why did people have less of a financial boon? because the US government caused a crash in price and shale plays are basically not economic anymore since the infrastructure to make use of the resource was obstructed.

[Polish_Silver]

Re: Marcellus Shale Nat Gas Production Higher Than Anticipated

. . .

Even with the astounding increase in domestic production over the past few years the U.S. is merely treading water with respect to managing its oil import trade deficit. The implications for the GAGFO value of the USD is that if output does not prove sustainable that its oil import bill will start to rise again and with it the USD price of gold held by foreign central banks to hedge the declining value of the USD for oil trade.

If the hedge were to be 100%, wouldn't that imply a roughly constant gold oil ratio? Of course, we have to consider geopolitical factors, market irrationality, etc.

[touchring]

Re: Marcellus Shale Nat Gas Production Higher Than Anticipated

i think the story is in gas and gas to liquids infrastructure. of course the shale plays are not making a huge dent in oil imports, as they produce gas for the most part. we could have ramped up shale gas production in 6 years ago and government cleared the way for export infrastructure, and been selling natural gas to the rest of the world, especially china and europe, at $8-15/mmcf for 6 years straight (instead of the sub $2 price you are seeing now due to lack of markets or infrastructure to facilitate markets), and beat these countries to the race for those markets. that would have been a significant economic and geopolitical boost for the us as well as its trade deficit.

The question is, why sell gas when Bernanke can print money and get stuff for free?

The crisis has shown that printing money does not necessarily create jobs because the money goes only to a few people. But having a competitive advantage in cheap gas can create tens of thousands of manufacturing jobs.

[Roughneck]

Re: Marcellus Shale Nat Gas Production Higher Than Anticipated

There's a reason Exxon bought XTO. There's a reason most of the planned LNG import facilities are being turned into export terminals. Shell is considering building a gas to liquids facility in Louisiana. Exxon is building the largest cracking facility in the world in Texas to crack gas into ethylene. The shale gas potential due to fracking is real. It's much easier to get light gas molecules out of the ground by fracking than liquids. There is a big debate going on about exporting gas. The chemical only companies want to keep feed stock prices low. Th major producers want to export which is where the big bucks are.

[coolhand]

Re: Marcellus Shale Nat Gas Production Higher Than Anticipated

The week of June 23, 2010 U.S. total crude oil imports peaked at 10,597,000 barrels per week. As of Oct. 18, 2013 weekly imports were 6,949,000 barrels, a 34% decline. However, the total cost of those imports has only declined 6% to a $39 billion annual rate from $42 billion. The reason is the price, $110 versus $78.

Even with the astounding increase in domestic production over the past few years the U.S. is merely treading water with respect to managing its oil import trade deficit. The implications for the GAGFO value of the USD is that if output does not prove sustainable that its oil import bill will start to rise again and with it the USD price of gold held by foreign central banks to hedge the declining value of the USD for oil trade.

And EJ, given decline rates of the US fields (30%+) & the accelerating decline in net exports from oil exporting nations as they use more of their own oil to power their own economies (take flat production & a 2-3% increase in domestic consumption & run that for a few yrs & pretty soon you have an exponential rate of export decline - this is Dr. Jeff Brown's "Export Land Model"), the mathematical evidence would strongly suggest that now may be close to "as good as it gets" re: the imported oil deficit.

What does this mean for gold if GAGFO is at its secondary zenith, with shale production increases having bought some time? It means that the stress in the gold derivative market is going to continue to rise - "gold" prices are likely to keep falling along with global bullion supplies (moving eastward.)

"Gold" prices & physical bullion supplies globally will continue to fall until a LEH-type moment occurs on either the LBMA or COMEX...if I'm right, when that does, that will mark the end of the petrodollar/GAGFO & we will move to something new, with all that entails for the world economy (less consumption, more production in US, vice versa in China, etc. etc.)

[gwynedd1]

Re: Marcellus Shale Nat Gas Production Higher Than Anticipated

uhhhh.... most of those 'poor' own land, and are taking royalties... and who do you think is working that play? mostly locals for many tasks. some poor ranchers got thousands of dollars per acre just for the lease bonuses. the marcellus shale is a once in an era economic boon for local residents, frustrated only by obstructionist government preventing appropriate export infrastructure from allowing us to sell that gas overseas at 7x profits.

I was thinking of the non land owning stable boy. I think people that own vast tracts of land with mineral rights takes them out of the lower classes. However it would be nice that cash flows from this resource fund our government over the stable boy since that is the very same entiry that guarantees their property rights. If a hoard of invaders come, they will have no use for land owners. They will however need a good stable boy.

[gwynedd1]

Re: Marcellus Shale Nat Gas Production Higher Than Anticipated

So given that gas resource, exactly how would you deal with it to help the poor?

- Leave it in the ground because of the negative local environmental effects of developing it?

-Regulate the rate at which money can be invested so the development is not so boom and bust, and the play takes many decades to reach maturity? And if so what parameters will be used to determine just the right pace of development?

-Nationalize the resource so only State or Federal government entities can develop it and earn the profits for the public good?

-Develop it with private capital but regulate the maximum rate of return that capital can earn (essentially treat it as a utility) and tax away all of the rest in the public interest?

-Something else?

You are the Governor of West Virginia, or Pennsylvania. Tell us what you would do.

Since I have little prospect or inclination to be a leader of men, all I can tell you is what I will not do . No good principle could ever lead even three men who cannot even agree upon a beverage. Only the fear of death can lead a body of men reliably. Back to things under my control, I will not move to a place with newly discovered mineral wealth expecting to get a piece of the pie. It never flows to labor for long. Move to such places as a labor input at your peril. The current resident s will drop out of the labor pool and the next generation of trust fund kiddies can only create hobbie farms of mismanagement. Just saw one drive a public library into the ground in my neck of the woods.

In Belgium and Flanders, in France and Germany, the rent and selling price of agricultural land have doubled within the last thirty years.∗ In short, increased power of production has everywhere added to the value of land; nowhere has it added to the value of labor; for though actual wages may in some places have somewhat risen, the rise is clearly attributable to other causes. In more places they have fallen—that is, where it has been possible for them to fall—for there is a minimum below which laborers cannot keep up their numbers. And, everywhere, wages, as a proportion of the produce, have decreased.

-Henry George

The truth of course can only guarantee that it will be ignored in a series of recurrences :

I have read many a dry read of history but non has paid off more than this:

For instance, it is evident that the country now called Hellas had in ancient times no settled population; on the contrary, migrations were of frequent occurrence, the several tribes readily abandoning their homes under the pressure of superior numbers. Without commerce, without freedom of communication either by land or sea, cultivating no more of their territory than the exigencies of life required, destitute of capital, never planting their land (for they could not tell when an invader might not come and take it all away, and when he did come they had no walls to stop him), thinking that the necessities of daily sustenance could be supplied at one place as well as another, they cared little for shifting their habitation, and consequently neither built large cities nor attained to any other form of greatness. The richest soils were always most subject to this change of masters; such as the district now called Thessaly, Boeotia, most of the Peloponnese, Arcadia excepted, and the most fertile parts of the rest of Hellas. The goodness of the land favoured the aggrandizement of particular individuals, and thus created faction which proved a fertile source of ruin. It also invited invasion. Accordingly Attica, from the poverty of its soil enjoying from a very remote period freedom from faction, never changed its inhabitants. And here is no inconsiderable exemplification of my assertion that the migrations were the cause of there being no correspondent growth in other parts. The most powerful victims of war or faction from the rest of Hellas took refuge with the Athenians as a safe retreat; and at an early period, becoming naturalized, swelled the already large population of the city to such a height that Attica became at last too small to hold them, and they had to send out colonies to Ionia.

- Thucydides.

A precondition of a just society is low rent, like the poor soils of Attica. Even King Agis of Sparta recognized it was gold and silver that spoiled Athens which then spoiled the Lacedaemonians.
If you want an example, perhaps Norway with its sovereign oil fund understood it best to avoid Dutch disease.


http://www.investopedia.com/terms/d/dutchdisease.asp

Negative consequences arising from large increases in a country's income. Dutch disease is primarily associated with a natural resource discovery, but it can result from any large increase in foreign currency, including foreign direct investment, foreign aid or a substantial increase in natural resource prices.

The natural resource was one and the same when the Netherlands discovered their windfall of gas. Speaking of beverages we have found a large barrel of whiskey. When we are done with it we will be no wiser in how to brew one of our own. I will give up my seat to the party. That way the whiskey will last a bit longer. Its all I can do.

[Roughneck]

Re: Marcellus Shale Nat Gas Production Higher Than Anticipated

This will really help the poor in those areas, just like in Africa

Even Jesus said the poor you will always have with you. The shale gas boom will not solve poverty. But a steel mill was built in the midwest to supply drill pipe. Did you ever think you would see another steel mill built on US soil? For those suffering due to this mass unemployment this has been one of the areas were employment has been increasing other than Mcdonalds. Oil field workers make more than burger flippers. Don't under estimate the spillover effect to the economy. Surely it won't last forever, but in these tough times it sure does help.

[gwynedd1]

Re: Marcellus Shale Nat Gas Production Higher Than Anticipated

Even Jesus said the poor you will always have with you. The shale gas boom will not solve poverty. But a steel mill was built in the midwest to supply drill pipe. Did you ever think you would see another steel mill built on US soil? For those suffering due to this mass unemployment this has been one of the areas were employment has been increasing other than Mcdonalds. Oil field workers make more than burger flippers. Don't under estimate the spillover effect to the economy. Surely it won't last forever, but in these tough times it sure does help.

I would respectfully disagree that it will have any lasting positive effects. The oil field workers will surely be employed, but it will also cause dollar strength depressing other industries. I gave the Dutch example. I don't see what's different.

The only way to make it work is to tax the easy to get gas considering them rents. It may even even raise the price of gas while providing revenue. This would encourage efficiency while also giving government the ability to prevent shocks to the market where it could adjust the price. Then they should be use the revenue to untax labor and capital to encourage industry.


We know that isn't going to happen.

[gwynedd1]

Re: Marcellus Shale Nat Gas Production Higher Than Anticipated

Speaking of Goldilocks the US has been in the business exporting the $USD for global liquidity. If the US did become a petroleum export county , that is going to be a tough business to be in unless we begin importing something else. Our own self sufficiency may clobber the world economy. How is the rest of the world going to even buy our petroleum as we repatriate the reserve currency? They will not have the money to buy it. I also wonder which industry will volunteer to shut down to get back to a "healthy" trade deficit?

This is a porcupine quill in a pig's snout economy.

[Polish_Silver]

Re: Marcellus Shale Nat Gas Production Higher Than Anticipated

Speaking of Goldilocks the US has been in the business exporting the $USD for global liquidity. If the US did become a petroleum export county , that is going to be a tough business to be in unless we begin importing something else. Our own self sufficiency may clobber the world economy. How is the rest of the world going to even buy our petroleum as we repatriate the reserve currency? They will not have the money to buy it. I also wonder which industry will volunteer to shut down to get back to a "healthy" trade deficit?

This is a porcupine quill in a pig's snout economy.

Any change helps some and harms others. It is the i-tulip thesis that the US constant trade and budget deficits make the IMS unstable.
Correcting those problems will stabilize, rather than destabilize, the IMS.

Contrary to what is frequently said, economic growth does not depend on a constantly increasing money supply. There is more economic growth in an environment with stable prices. Money should be a store of value, and the money supply should only grow at the rate of economic growth, or slower.

It is only situations with large debt that require money growth to deflate the debt relative to prices and income stream. IF the US becomes an exporter, it's debts will decrease.

[coolhand]

Re: Marcellus Shale Nat Gas Production Higher Than Anticipated

Speaking of Goldilocks the US has been in the business exporting the $USD for global liquidity. If the US did become a petroleum export county , that is going to be a tough business to be in unless we begin importing something else. Our own self sufficiency may clobber the world economy. How is the rest of the world going to even buy our petroleum as we repatriate the reserve currency? They will not have the money to buy it. I also wonder which industry will volunteer to shut down to get back to a "healthy" trade deficit?

This is a porcupine quill in a pig's snout economy.

This is a very, very, very great point Gynedd1...in fact, IMO, it is THE point...if the US gov't knew that the petrodollar was going to go away, being phased out by our trade partners, the #1 order of business would be to increase domestic production to the levels where we could cover most of our critical needs.

What currency is going to take over for the USD IMO if the petrodollar goes away? Take a look at what currency the BRICS (esp China) is buying the most of: Gold.

One could settle oil in gold very easily. In fact, given that oil priced in gold hasn't changed meaningfully in price since 1971, one wouldn't be wrong in arguing that someone already effectively gets paid in gold for their oil. What is needed is a re-pricing of gold in oil terms to make it sustainable (ie there isn't enough gold at current prices...at something much bigger than here, plenty of gold.)

[gwynedd1]

Re: Marcellus Shale Nat Gas Production Higher Than Anticipated

Any change helps some and harms others. It is the i-tulip thesis that the US constant trade and budget deficits make the IMS unstable.
Correcting those problems will stabilize, rather than destabilize, the IMS.

Contrary to what is frequently said, economic growth does not depend on a constantly increasing money supply. There is more economic growth in an environment with stable prices. Money should be a store of value, and the money supply should only grow at the rate of economic growth, or slower.

It is only situations with large debt that require money growth to deflate the debt relative to prices and income stream. IF the US becomes an exporter, it's debts will decrease.

With all due respect,

The premise :
"There is more economic growth in an environment with stable prices."

Is not something that is so easily, empirically and unambiguously observed with a telescope to overturn the hypotheses of a geocentric universe.

[gwynedd1]

Re: Marcellus Shale Nat Gas Production Higher Than Anticipated

This is a very, very, very great point Gynedd1...in fact, IMO, it is THE point...if the US gov't knew that the petrodollar was going to go away, being phased out by our trade partners, the #1 order of business would be to increase domestic production to the levels where we could cover most of our critical needs.

What currency is going to take over for the USD IMO if the petrodollar goes away? Take a look at what currency the BRICS (esp China) is buying the most of: Gold.

One could settle oil in gold very easily. In fact, given that oil priced in gold hasn't changed meaningfully in price since 1971, one wouldn't be wrong in arguing that someone already effectively gets paid in gold for their oil. What is needed is a re-pricing of gold in oil terms to make it sustainable (ie there isn't enough gold at current prices...at something much bigger than here, plenty of gold.)

And its a good point to raise again, coolhand. The flight of petro-dollar is a fuselage attached to these two wings where the change in one must impact the change in the other. One reason why I did not expect inflation is when the price of oil rose. At $100 a barrel the cash on hand must rise which absorbs dollars. The higher oil goes, so goes the dollar strength because I need more dollars in my pocket for the petro candy store. The demand for dollars must rise with the price of oil. Changes in the flow of oil ...Imagine if the US found a massive gusher. This would put us in the same dilemma China is in that they cannot keep their currency on the global money markets cause people send it back to China for coffee grinders.

[unlucky]

Re: Marcellus Shale Nat Gas Production Higher Than Anticipated

Q3 financial results for the leading shale E&P firms are now available and they confirm an interesting trend: companies like Chespeake, Devon, Hess, Apache, have all drastically reduced their rate of borrowing this year. E.g. Chesapeake borrowed 5.4 Bn$ in Q3 2012, last quarter they repaid 29 M$. Apache borrowed 4.4 Bn$ in Q3 2012, last quarter they repaid 1.4 Bn$. In all cases captial expenditures (mainly drilling I assume) continue to exceed cash from operations, with the difference now being funded by assets disposals. The trend has been going on since the start of the year. Looks like investors have stopped lending money to these companies. The CEOs are claiming they have a new focus on "financial discipline".