Natural Gas: Sharp Recent Drop In Baker Hughes Gas Rig Count Explained [View article]
Sir, I do not have access to Goldman Sach's research, and my last week's article came out at least a day earlier (submitted on Wednesday) than their publication in which I hear, from commenters, they are turning bullish on nat gas. It would be difficult for me to comment on their work.
Marcellus Shale: 10 Bcf Per Day In 2013 [View article]
Aricool,
You are reading my mind - this is yet another unfinished piece of research. I think I do have a decent handle on the shape and productivity of the Marcellus Northeast sweet spot. Very big. Much bigger than anyone would have believed couple of years ago. Realistically, at least a decade of ramp up from where we are, even using an aggressive drilling assumption. Gas is certainly not running out. I just don't think that cost is sustainable at $3. I promise to produce something detailed in the next few weeks.
Marcellus Shale: 10 Bcf Per Day In 2013 [View article]
Aricool,
I actually do think that Marcellus will show some very big volumes in terms of production. I have a draft of an article specifically on this topic but have been too busy to finish. I think last time we were discussing this I was mostly questioning the pace of the ramp up (i.e., 2013 exit rate). But with time, yes, absolutely. Markets: New England, Eastern Canada, Midwest, new gas fired generation, some ethane exports via pipes.
Natural Gas: Sharp Recent Drop In Baker Hughes Gas Rig Count Explained [View article]
Quantcoyote,
Thank you for a terrific comment.
I agree with you, the Nymex curve has flattened a lot. Moreover, I would add to that, the physical curve has been inverted in some areas. The injection strategy that you are suggesting - buy October Nymex - is interesting, I need to think about a little more. My immediate reaction though, it is a theoretical approach that is not executable in reality. If every market participant did that, we would effectively have several Bcf/d of surplus for the duration of the injection season. Few weeks into that strategy the front end of the curve would drop very low and a very steep contango would be reinstated. So, as in the prisoner's dilemma, marketers will be storing gas the second they can cover all of their costs, even if expected margins are very slim.
Another thought that springs to my mind, storage injection is a physical business. Until perhaps this week, there was little gas available to be injected - with the cold weather, some delivery points have been challenged to receive enough gas out of storage (as pressures are at seasonal lows). Once we go into the shoulder season, the situation will clearly change and sufficient physical contango should develop to at least the point when costs to store are covered.
I understand what you are saying with regard to supply/demand balance this summer. Let's assume, just for a moment, that there is no production surplus this time. In that case, only a minimum contango would be required since storage is no longer scarce. Therefore, the flattening of the curve is very logical in the context of an increasing gas price. The market, in a way, is sending a signal that scarcity of storage at the end of the season is questionable in gas marketer's minds.
So, price structure looks pretty logical to me. But I very much agree with you on the following - if the summer is very cool, than coal provides no support all the way to ~$3 or even lower. It is a clear risk, I should have mentioned it in my earlier note.
With regard to supply/demand balance, stats are very noisy, it takes some time to detect a trend. I sense from my numbers that the market is much better balanced at the moment than it was even during the second half of 2012. That's what I voiced last Thursday.
Natural Gas: Sharp Recent Drop In Baker Hughes Gas Rig Count Explained [View article]
Sir Monaco, I don't think Baker Hughes' rig count is either defective or meaningless, I use it a lot in my work. It just needs to be handled with care.
Natural Gas: Sharp Recent Drop In Baker Hughes Gas Rig Count Explained [View article]
I would add to that, the permits in the Haynesville you have pointed out all support existing active drilling programs, i.e. do not necessarily indicate a higher pace of drilling activity, may simply be permit replenishment. We should see. Encana will be adding another two rigs and should harvest a lot of new wells by the end of the year.
Natural Gas: Sharp Recent Drop In Baker Hughes Gas Rig Count Explained [View article]
Uain53,
Infrastructure is certainly a constraint for liquids-rich plays. Utica is a case in point: tons of wells waiting on processing and takeaway capacity. However, in dry gas shales takeaway is rarely an issue, with few exceptions. Just to put it in perspective, the Haynesville could accommodate 180+ rigs during its boom days. Now its less than 40. So drilling curtailments are discretionary.
Natural Gas: Sharp Recent Drop In Baker Hughes Gas Rig Count Explained [View article]
Gigem,
When I say "full," I mean "statistically full," i.e., 100-200 Bcf is an irrelevant amount and a rounding error given the high deliverability of supply.
I think the seasonal contango in the curve has tended to motivate LDCs to store. I many areas the physical curve has been inverted due to cold weather in the past several weeks. But I suspect that should normalize into shoulder season and the winter "hump" that we see in the futures curve should again become sufficient to motivate marketers to store.
So yes, I do think that the economic "goal" is to fill 'er up this year. If the market begins feeling that production is such that storage is on a trajectory to have a lot of spare capacity by the end of the season, I bet I know what will happen to the gas price.
Also, storage is not the sole factor. Storage not full is probably less of an issue if production is visibly accelerating.
Natural Gas: Sharp Recent Drop In Baker Hughes Gas Rig Count Explained [View article]
Moneyeconomics,
Just few thoughts:
"...so what you are seeing as drilling reductions is the impact of the 2013 capital budgets."
Just to clarify: my read is actually the opposite - I see gas-drilling activity more or less stable across the industry. I totally agree on the budget dynamics. There is a lot more caution among managements driven by the quick gas cycle - they do want to be sure (i.e., higher hurdle for price environment). That is a great point.
"No doubt some reclassification takes place based on the hydrocarbon targeted but I do not think is as pervasively erroneous as you suggest."
Just to clarify, I did not suggest Baker Hughes' survey was erroneous. The survey has a certain structure, methodology and process, and its results are the output. I am just highlighting some of the mechanics.
But I do suggest that in some instances the change in the number of rigs is indeed a matter of reclassification and not a matter of actual change of the geological target/location. I also do suggest that it is not solely the operator's discretion to make that change and Baker Hughes, as the leader, designer and administrator of the survey, has the ability to impact the way the results are being collected. interpreted, categorized, and communicated to users on a weekly basis.
Natural Gas: What A Difference A Year Makes - Analysis, Outlook, Statistics, Catalysts [View article]
One thing I would totally agree with you on, State X Teachers Fund's money should be nowhere close to those hedge funds who "work" natural gas.
SandRidge Energy: New Board In Action - Quick Read On The Company's Update [View article]
Thank you for sharing your operating insights, very valuable.
Natural Gas: What A Difference A Year Makes - Analysis, Outlook, Statistics, Catalysts [View article]
Thank you for the update.
Natural Gas: Sharp Recent Drop In Baker Hughes Gas Rig Count Explained [View article]
Another observation, storage arb is narrow but still positive, particularly if you look at the winter season average.
Natural Gas: Sharp Recent Drop In Baker Hughes Gas Rig Count Explained [View article]
Marcellus Shale: 10 Bcf Per Day In 2013 [View article]
You are reading my mind - this is yet another unfinished piece of research. I think I do have a decent handle on the shape and productivity of the Marcellus Northeast sweet spot. Very big. Much bigger than anyone would have believed couple of years ago. Realistically, at least a decade of ramp up from where we are, even using an aggressive drilling assumption. Gas is certainly not running out. I just don't think that cost is sustainable at $3. I promise to produce something detailed in the next few weeks.
Marcellus Shale: 10 Bcf Per Day In 2013 [View article]
I actually do think that Marcellus will show some very big volumes in terms of production. I have a draft of an article specifically on this topic but have been too busy to finish. I think last time we were discussing this I was mostly questioning the pace of the ramp up (i.e., 2013 exit rate). But with time, yes, absolutely. Markets: New England, Eastern Canada, Midwest, new gas fired generation, some ethane exports via pipes.
Natural Gas: Sharp Recent Drop In Baker Hughes Gas Rig Count Explained [View article]
Thank you for a terrific comment.
I agree with you, the Nymex curve has flattened a lot. Moreover, I would add to that, the physical curve has been inverted in some areas. The injection strategy that you are suggesting - buy October Nymex - is interesting, I need to think about a little more. My immediate reaction though, it is a theoretical approach that is not executable in reality. If every market participant did that, we would effectively have several Bcf/d of surplus for the duration of the injection season. Few weeks into that strategy the front end of the curve would drop very low and a very steep contango would be reinstated. So, as in the prisoner's dilemma, marketers will be storing gas the second they can cover all of their costs, even if expected margins are very slim.
Another thought that springs to my mind, storage injection is a physical business. Until perhaps this week, there was little gas available to be injected - with the cold weather, some delivery points have been challenged to receive enough gas out of storage (as pressures are at seasonal lows). Once we go into the shoulder season, the situation will clearly change and sufficient physical contango should develop to at least the point when costs to store are covered.
I understand what you are saying with regard to supply/demand balance this summer. Let's assume, just for a moment, that there is no production surplus this time. In that case, only a minimum contango would be required since storage is no longer scarce. Therefore, the flattening of the curve is very logical in the context of an increasing gas price. The market, in a way, is sending a signal that scarcity of storage at the end of the season is questionable in gas marketer's minds.
So, price structure looks pretty logical to me. But I very much agree with you on the following - if the summer is very cool, than coal provides no support all the way to ~$3 or even lower. It is a clear risk, I should have mentioned it in my earlier note.
With regard to supply/demand balance, stats are very noisy, it takes some time to detect a trend. I sense from my numbers that the market is much better balanced at the moment than it was even during the second half of 2012. That's what I voiced last Thursday.
Natural Gas: Sharp Recent Drop In Baker Hughes Gas Rig Count Explained [View article]
Very informative, thank you. I agree, those are important trends.
Natural Gas: Sharp Recent Drop In Baker Hughes Gas Rig Count Explained [View article]
Natural Gas: Sharp Recent Drop In Baker Hughes Gas Rig Count Explained [View article]
I don't think Baker Hughes' rig count is either defective or meaningless, I use it a lot in my work. It just needs to be handled with care.
Natural Gas: Sharp Recent Drop In Baker Hughes Gas Rig Count Explained [View article]
Natural Gas: Sharp Recent Drop In Baker Hughes Gas Rig Count Explained [View article]
Infrastructure is certainly a constraint for liquids-rich plays. Utica is a case in point: tons of wells waiting on processing and takeaway capacity. However, in dry gas shales takeaway is rarely an issue, with few exceptions. Just to put it in perspective, the Haynesville could accommodate 180+ rigs during its boom days. Now its less than 40. So drilling curtailments are discretionary.
Natural Gas: Sharp Recent Drop In Baker Hughes Gas Rig Count Explained [View article]
When I say "full," I mean "statistically full," i.e., 100-200 Bcf is an irrelevant amount and a rounding error given the high deliverability of supply.
I think the seasonal contango in the curve has tended to motivate LDCs to store. I many areas the physical curve has been inverted due to cold weather in the past several weeks. But I suspect that should normalize into shoulder season and the winter "hump" that we see in the futures curve should again become sufficient to motivate marketers to store.
So yes, I do think that the economic "goal" is to fill 'er up this year. If the market begins feeling that production is such that storage is on a trajectory to have a lot of spare capacity by the end of the season, I bet I know what will happen to the gas price.
Also, storage is not the sole factor. Storage not full is probably less of an issue if production is visibly accelerating.
Natural Gas: Sharp Recent Drop In Baker Hughes Gas Rig Count Explained [View article]
Just few thoughts:
"...so what you are seeing as drilling reductions is the impact of the 2013 capital budgets."
Just to clarify: my read is actually the opposite - I see gas-drilling activity more or less stable across the industry.
I totally agree on the budget dynamics. There is a lot more caution among managements driven by the quick gas cycle - they do want to be sure (i.e., higher hurdle for price environment). That is a great point.
"No doubt some reclassification takes place based on the hydrocarbon targeted but I do not think is as pervasively erroneous as you suggest."
Just to clarify, I did not suggest Baker Hughes' survey was erroneous. The survey has a certain structure, methodology and process, and its results are the output. I am just highlighting some of the mechanics.
But I do suggest that in some instances the change in the number of rigs is indeed a matter of reclassification and not a matter of actual change of the geological target/location. I also do suggest that it is not solely the operator's discretion to make that change and Baker Hughes, as the leader, designer and administrator of the survey, has the ability to impact the way the results are being collected. interpreted, categorized, and communicated to users on a weekly basis.