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The Realities of Natural Gas [view article]
all the regulation gurus never explain how you get demand reduction when you artificially lower the price of a finite commodity through regulation. ReplyThe Realities of Natural Gas [view article]
So, did I do the right thing when I signed a 5 year Declining Natural Gas Price plan at 41.9 cents per cubic meter on April 24 and falling by one cent per cubic meter each year thereafter??Reply
The Realities of Natural Gas [view article]
The article was rather wordy but made valid points about the misconception of unbundling and deregulation and their premise that they would lead to lower prices more supply and customer choice. Deregulation has been an failure. If you don't believe me ask the citizens of Georgia and California.A central point that is missed in this whole conversation is that price volatility really became a reality after deregulation. Up until then, nat gas was a minimal player in electrical production. Gas was primarily used for heating, water heating and in manufacturing and chemical processing such as the fertilizer industry. With the advent of efficient gas turbine technology it found a niche in electrical generation, starting with peak load production in the hot summer months and then by supplying some year round demand. Turbines were relative cheap and the environmental permitting process was a breeze compared to coal and especially nuclear. It was cheap and easy (is that concise enough?) and became the path of least resistance. If you don't believe me, does Calpine Energy ring a bell? They were going like gang busters installing turbines all over California and other states back in the late 90's but subsequently, like the tech bubble, they busted as well. Never the less, as a result, the normal summer period where gas used to put into storage at low prices for winter heating use was gone. Gas was being bought and used in the summer for peak electrical generation keeping the price high and introducing more price and supply volatility into the market. That my friends... is why we are in the situation we are today. Gone are the 20 year firm contracts for 3-4 dollars an mcf and they are not coming back. It is a shame because gas is a great efficient and environmentally friendly source of fuel for generating heat and heating water at the source. And, it could be a great fuel for transportation but we have ruined it for the time being. Large scale electrical production is NOT the best use even though turbine technology has made great strides, it still looses energy/efficiency as the electricity is transported from the producer to the end user. I have been in the business for 20 years and have witnessed this first hand, but if you don't believe me....read some articles by Boone Pickens, you will hear the same story.
As for investments, natural gas is a great place to be pipelines and local distribution companies are great dividend low risk plays with steady growth. Exploration and production companies offer more risk and possible returns and the support network companies that surround these companies are attractive as well. I am invested in all of those areas and have been reasonably successful. Not gangbusters mind you, but I sleep well at night. Good Luck.
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The Realities of Natural Gas [view article]
"Probably the most important observation on the ambitions of natural gas deregulators was rendered by Professor David Teece of the University of California (1990). According to him, market liberalization in the U.S. has already “jeopardized long-term supply security and created certain inefficiencies.” He also notesthat “While more flexible, a series of end-to-end, short-term contracts are not a substitute for vertical integration, since the incentives of the parties are different and contract terms can be renegotiated at the time of contract renewable. There is no guarantee that contracting parties will be dealing with each
other over the long term, and that specialized irreversible investments can be efficiently and competitively utilized.”
For this reason I never miss an opportunity to remind my students that as far as I am concerned, large and complex gas systems operating in a climate of uncertainty are most efficiently run on an integrated basis that emphasises long-term contracting. This kind of arrangement promotes optimally dimensioned installations, and although it may not be mentioned in your economics textbook, if pipeline-compressor-pr... systems which fully exploit increasing returns to scale in order to obtain minimum costs are to be readily financed and expediently constructed, then – as I interpret the evidence – the kind of uncertainties associated with short to medium term arrangements should be kept to a minimum. Failing to do so could cause a reduction in physical investment, and in the long run lead to higher rather than lower prices."
Garbage dressed up in unintelligible English.
Let me try to summarize.
In the first paragraph he cites a "scholar" that believes de-regulation energy was a bad idea, and is citing one reason for his belief. I worked for two regulated entities - one in energy and one in telecommunications. Regulation simply doesn't work - regulated industries are inefficient and are focused on perpetuating themselves. "Creative Destruction" is a foreign concept to a regulated entity - and necessary if we are to deal with a changing environment.
In the second paragraph our good professor eschews regulation, (good for him!), in favor of long-term commitments. I also believe in long-term commitments. My wife and I have been married almost 50 years. Good for the kids, and good for each of us. I wish our author had taken a course in expository writing while he was a freshman. It could have helped. Reply
Investor
The Realities of Natural Gas [view article]
Pipeline gas in the Northeast and on the West Coast will originate from the Pinedale anticline in Wyoming--tens of trillions of cubic feet of it.On a worldwide basis, we are nowhere near the peak of natural gas production. A couple of decades ago many foreign finds of natural gas were considered a nuisance as part of a quest for oil. The problem is, much of the gas is stranded and costs billions to market. Nevertheless, LNG imports are growing and, as a natural gas investor, I'm concerned about the growth of LNG imports in North America. Reply
Sterling
The Realities of Natural Gas [view article]
HUGE FREE GAS RESOURCES IN BLAKE RIDGE; OFFSHORE SOUTH CAROLINA.The Blake Ridge hydrate resource is super-giant sized but the 250 meter thick free-gas underneath is the real commercial prize. The Hydrate zone above serves as a nice cap to trap the free gas underneath.
The entire Blake Ridge-Carolina resource has been estimated to contain between 1,000 to 1,300 trillion cubic feet of methane, mostly 99% pure. An estimated 25-40% of this is a free gas resource much of which is commercially viable today, (Estimated, 100-250 trillion cubic feet recoverable).
Significant clean free gas reserves and associated lower concentration Hydrates are known to be locked beneath the seafloor under vast areas within the Blake Ridge-Carolina Rise region. These super-giant Probable free-gas reserves cover an area, which is 75% within the US OCS 200 mile EEZ.
1. The Strategic Nine Corp., Consortium has made an International Resources Rights Claim, for the approximately 25% area of the Blake Ridge Gas resource located outside of the US 200 mile EEZ.
2. The Consortium has also made application for a very large unsolicited OCS Petroleum Extraction Lease on a non-competitive basis, within an area of the Blake Ridge-Carolina Rise, located beyond state jurisdiction but inside the US EEZ, within an area currently covered by a nation-wide Federal moratorium on new offshore leasing until June 2012. A waiver has been requested.
The Blake Ridge Free gas resources have the following attributes;
1. Confirmed presence of super-giant areal extent of high FREE GAS saturation (proved by coring and well logging, and by geophysical methods) in shallow, easily accessible reservoirs.
2. Occurrence within fine sediments much of sufficient reservoir quality to support horizontal well-based fracc production methods.
3. Site accessibility through close proximity to existing major US East coast markets and other infrastructure.
4. Additional 1,000 Tcf speculative resources of Gas Hydrates, some of which may become economically viable in the future.
WWW.STRATEGICNINE.COM
Messoyakha Gas Field : While the west postulates methane-hydrates recovery, the Russians have been producing from it for years. The Messoyakha gas field in the frozen northern Russia is an excellent example of a hydrocarbon accumulation from which gas has been produced commercially from hydrates, mostly by simple reservoir depressurization.
At least one-third and, most likely, two-thirds of the Messoyakh reservoir, which for 13 years has been in commercial production, occurs in the form of natural gas hydrates.
It is conservatively estimated that about 36% (about 5 billion cubic meters) of the gas withdrawn from the Russian field has come from the gas hydrates.
Reply
The Realities of Natural Gas [view article]
PEOPLE WHO READ ALPHA (AND I'M BEGINNING TO WONDER WHY WHEN I SEE ARTICLES LIKE YOURS) ARE LOOKING FOR EQUITY AND COMMODITY ANALYSIS FOR INVESTMENT...Leeches Reply
The Realities of Natural Gas [view article]
I have got to say that the article was written in the most professorial/academici... way which is to say, it was not well-written regardless whether it had good information or not. It was classically obfuscatory and for the non-academic mind, muddled and wordy. Two of the commenters have restated what was in the article in much more succinct fashion using fewer words and extracting what was important from all the excess verbiage. Professor, learn to write plainly. No wait, that is an oxymoronic sentence, isn't it? Forget it. As long as we can get some interpreters I suppose we'll do OK. God save us from the Academy! ReplyThe Realities of Natural Gas [view article]
I never heard of you before, Prof. Banks, but you sure are right. I get most of my stock tips from articles like yours, and not from analysts. ReplyThe Realities of Natural Gas [view article]
I am no expert at all, but if I can synopsize his post, it's that we have a limited supply of gas in the long run, although in the short run we seem to have plenty. Gas is still relatively cheap when you measure it in terms of barrels of oil equivalents (comparing the energy produced from each). The problem is that as gas increases in price, demand for it will decrease. Gas prices in both the US and in the world aren't rational, since gas supplies are local and it's difficult to deliver gas from the wellhead to the user. This is true for both internal (US/Canadian) sources, where, as with coal, most production occurs outside of the Northeast, and for external sources, i.e., LNG delivered from places where gas occurs in lavish abundance. Expensive pipelines have to be built to deliver the gas to either gas companies or electric companies, and in the case of LNG, expensive specialized port facilities have to be built.He believes that the free market is not a good way develop the gas infrastructure (good point!) since, as stated above, gas use will tend to decrease with price. This means that expensive buildout of infrastructure may not ever have a sufficient return on capital to justify the cost, and even if it does, the total cost of the infrastructure might be more expensive than would have been necessary if it could have been rationalized by central planning and financed with investments made more secure by long-term contracts.
I wonder if he's taking into account large recent discoveries of natural gas in the "shale" areas, such as Haynesville.
Gas producers (CHK is an exmple) will benefit from the current price of $10 per MMBTU plus any increase in that price. Prices have been as low as $5.50 in the last year (August, 2007). They are also benefiting from huge recent finds.
The gathering and distribution pipelines are mostly MLPs, or master limited partnerships. Some have commodity price exposure (they make more money when prices are high), and some don't. Some are gatherers and processors, which cluster around a producing area. Others are short or long-range pipelines, which collect fees for the use of their pipelines. Further, some are involved in both gas and oil.
Most of them rely on 50% debt and 50% equity to fund new projects, since they don't accrue earnings because of their structure as partnerships. I don't know the spectrum of MLPs well enough to know which ones are which in the above-mentioned areas, although I do know more about my three holdings in domestic MLPs. I also don't know how to measure the feasability or risk of new projects, but I know something more after reading Professor Kirk's contribution.
I'd welcome any ideas about how to measure the value of producers and MLPs. Reply
The Realities of Natural Gas [view article]
I have to agree with those who find value in this article. A bit of "macro overview" sure helps with the "stock picking", imho.Jan Reply
The Realities of Natural Gas [view article]
John is definitely right! see last paragraph:what mostly characterizes gas and electricity restructuring up to now is a reduction in economies of scale (due to sub-optimal investment strategies), increased prices, decreased reliability, and perhaps a threat to the security of supply – and all or some of these inexplicable shortcomings are visible in virtually every corner of the globe and as yet show no sign of disappearing..this conclusion to the 'professor's' article basically explains that for the long term, one needs to invest in other forms of energy as gas availability is obviously limited, even with LNG increased supplies, which is not coming anytime soon (that is evidenced by the higher prices of uranium these days, despite the fact that nuclear plants take a long time to approve and build). Other forms of energy of course include alternatives, coal & CTL technologies and oil which is also getting depleted. I also notice that most people don't realize the surge in wind turbine construction all over the world, especially in the US, one good wind power company is Vestas (GE may be a good company to buy now at the lower price). Of course wind power needs more distribution lines, but it's clean, cheaper than nuclear and the Dakotas have an abundant supply of wind in addition to the 2 coasts (offshore). Reply
The Realities of Natural Gas [view article]
I too appreciated the article.. Agreed there are no obvious stock-picks.. But what's wrong with getting background from someone that obviously knows his stuff? Background gives you a gut feeling when you are indecisive about a ticker...Articles like this do give you an edge in the market. Otherwise, just become a pure-play techie and don't read fundamental articles at all.As an example; food prices rise (partly) on ethanol production. Rising food prices push TNH, MOS and POT higher...Consider what the article says and either use it as a basis for research, or if nothing else as an explanation for market moves after the fact.
Good stuff!!!
Thx jegan ;-) Reply
The Realities of Natural Gas [view article]
Obviously a textbook writer/professor! ReplyThe Realities of Natural Gas [view article]
Combined cycle power plants have been around for over 40 years. As with many technologies, the efficiency has improved over that time with the advancement in Gas Turbine technology. Natural gas was an attractive fuel while low in cost as it also resulted in lower emissions and less wear-and-tear on the gas turbine and accessories. Note, that the gas turbine exhaust is used to make steam for the coexisting steam turbine/generator. Reply