Mmarrkk

Natural Gas Is Heading to 1997 Levels, Should Stay There Awhile

A large portion of the Qatar LNG has to go to the US receiving plants. They do have re-route rights if they can get a better price, but in the end, if no other home for the gas, the US plants HAVE to take it.

I think the number CS is showing is not an incremental cost to liquify; Total all in costs are about $2.50/3.00 in to the U.S. pipeline (liquify, ship, regas). 15% marketing/admin is way too high!

Natural Gas Is Heading to 1997 Levels, Should Stay There Awhile

You are one of the few folks who "get" the real price of imported LNG! LNG is dirt cheap once the facilities and ships have been built. Those are sunk costs and the operators of the liquifaction plants just want to keep them running and eek out a very small OPERATING PROFIT. Yeah, it makes the several billion dollar investment a poor one, but it would be worse if you shut down the plant completely!

Another thing you didn't note: a huge percentage of the LNG from Qatar is obligated to go to the US. It can be re-routed to Europe or other places if the price is higher and the demand is there. But if there is no demand in Europe, that LNG HAS TO COME TO THE U.S. There it will be pushed into the pipelines, backing out domestic production and keeping prices way down for at least a year. The savoir here: demand pick up...which will only happen after we get this recession off of our backs!

Fast Money Recap - 6 Companies That Make Real Things (3/6/09)

Agree with APB up to a point. I disagree that CHK and others have drilled "far beyond any realistic demand requirements". Now, they have drilled beyond demand, but I'd argue that its not really that far. We consume somewhere between 55 and 60 BCF/day in the US. Most estimates of oversupply these days lie in the 2.5 to 4 BCF/day range. Not sure I'd call that "far beyond any realistic demand". It does show that our markets are very volatile and susceptible to big price swings when demand/supply is nudged just a bit. And that saw will cut both ways when the situation flips.

We have dropped 30-40% of the rigs drilling in the U.S. and new wells are plummeting. Also, some companies are shutting in production. This will quickly (late 2009?) bring balance to the situation. Unfortunately, we won't stay balanced for long and will end up with a shortfall again and higher prices again. Then, we'll do the same all over again, with crashing prices and rising prices.

LNG imports are a problem, though. Oversupply of very low incremental cost LNG (think $0.90 to $2.00 per mmBTU) could flood the US market in late 2009 to early 2010 if world markets don't recover. But if world markets don't recover by then, we'll have plenty of other problems to worry about!!