scfranklin94

How Much Natural Gas Remains in the USA?

When trying to predict lifespan of reserves, especially natural gas, you're wasting your time.

Before the Horn River Basin was drilled, geologists thought there was probably gas there, but it was uneconomical to produce due to low potential reserves. Then the first exploratory wells came in and, low and behold, there was an estimated 100 Tcf in unproven reserves, then more wells were drilled and by this spring, Horn River was up to 250 Tcf, now some estimates say over 500 Tcf.

Worrying about when we're going to run out of natural gas is much like worrying about when the Sun is going to go super nova..............why does it matter; we'll all have been dead for generations.

Why Are Natural Gas Producers Expanding Production So Aggressively?

The author is concerned about why producers would drill during times of perceived 'low' prices, so his explanation is that executives are lining their pockets.

It's a bit more complex than that:

1) HappyCajun pointed out the economics of drilling is a use it or lose it proposition.

2) The producer isn't hedging at the spot price, but at something more in line with annual prices (adjusted for declining production monthly). The prompt month is at $3.674, but the average for the next twelve months is $5.307 at Henry Hub; if a producer decides to drill a shale well today, it will take at least ninety days to set up, drill the well, and get tied into the gathering system, the annual forward price of gas 3 months out is $5.68 (there's a ton of production costs and basis considerations that I don't have time to get into).

3) Once a well is drilled, the bulk of the production costs are over, but the borrowed debt is still on the balance sheet. So shutting in a well just because prices are low is usually not option for most producers, because they have monthly interest payments they have to make. When a producer decides to shut in wells due to low prices (as opposed to being shut in due to pipeline oversupply), it says a lot about the strength of the producer's balance sheet.

4) There is a wide range of breakeven costs for shale wells out there. Many estimates are based off of the high leasing costs of June 2008 and the drilling costs from that time; virtually every cost has declined substantially since that time. So what is the breakeven for a shale well in the Haynesville? Some will claim it's $6.50, while I've seen analysis that it's closer to $4.75 for new leases. If you've already paid the leasing fee a year earlier, you might as well drill if the estimated production is calculated to pay you something over the actual drilling costs.

Natural Gas: Worth Another Look

On Jun 30 10:27 AM GordonScott wrote:

> Those new fracturing technologies have also been found to lead to
> a tainting of the water supplies around the world. Once this fact
> comes to fruition and New York water supply is tainted, these technologies
> will no longer be allowed to be used and the surplus will quickly
> be used.

You don't have a clue of what the fracturing process involves, do you? The federal oversight mandates might increase well costs by $20k apiece, but it's not going to stop fracturing. Most wells are drilled at depths of 10k+ feet, I don't think that's going to bother a hundred foot water well.

The only reason that the industry is complaining about this is 1) the states already have fracturing laws on the books. 2) the only instances of 'fracturing contamination' have happened when an operator is violating the state laws, so why is federal oversight needed?

Natural Gas: Long-Term Bull, Short-Term Bear (Part 2)

Everyone in the gas trading world sees this summer being an oversupplied train wreck, and then sometime in the winter or next spring prices will once again ramp up as overproduction finally declines to parity with demand.

Meanwhile, calendar strip after calendar strip has been sold lately for 2010, leading me to believe that the producers have decided that $6+ average for 2010 is good enough to hedge a drilling program around. Without a robust rebound in industrial demand, it might be possible that this moderate level of shale production will actually keep the US in an oversupplied nat gas market for all of 2010. Therefore it is very possible that the near term bear market in NG might continue deep into 2010.

I know that's not the concensus view, but then a year ago, July09 futures were priced at $10+.

Six Reasons Natural Gas Is Better than Oil

1) Reserves deplete faster than oil - generally true; depends on the formation, some gas wells drilled in West Texas are still producing 45 years later. Shale wells deplete much faster than conventional wells, but then you get 8x+ initially than what you get with a conventional well.
2) Oil/NG ratio - please get off of this; if you can put NG in your car instead of gasoline, then we would have interchangeability, but until then, forget the friggin' ratio.
3) $4 dollar gas is uneconomical to develop - check out the whole curve, 2010 is at $6+. If you drill now, the well won't be completed until the fall and probably won't flow until November. Gee, maybe that explains why strip after calendar strip has been sold the last two weeks and the rig count went slightly up.
4) LNG is uneconomical - Trinidad & Tobago's cost of nat gas is 1.50/mcf or less and then it costs a dollar to get it here, they'll do fine. Qatar just sold 250 bcf to Sempra for 2010 to bring in at Cameron. LNG producers don't like to sell at such low prices, but LNG liquification facilities are a sunk cost and the cost of operation is relatively low, so it will eventually come here.
5) Politically more favorable than coal - you would think so, but then how come in the Waxman cap & trade bill coal generators get their emission credits for free and gas generators and industrial users of gas have to buy their credits at auction? In effect we are subsidizing coal at the expense of NG. Could it be that the Dems need coal-state votes to get their brain-damaged bill passed?
6) Supposedly this will happen in 2025, when the coal generators have to buy their emission credits at auction, like everyone else. Be prepared for Senators and Congressmen getting on the tube, howling how we're raising the cost of electricity for poor consumers and how we're legislating US jobs out of existence.

Other than #1, I don't think you have much of an argument.

Ethanol's Persecution Complex: To Rehabilitate Its Image, It Must Understand the Issues

Ethanol = bailout for corn farmers. For every study that shows that ethanol reduces GHG, I can show you another one that says that it increases it. This industry doesn't even pay for itself at $100/bbl crude. The actual hydrocarbon offsets are minimal when you consider that you have to truck the product to refineries. It's a complete waste of time and money; anyone who tells you different is from the farm lobby.

Natural Gas ETF Anomaly - Is It Time to Exploit?

Actually the Waxman bill gives free carbon emission credits to coal-fired generators, but nothing to nat gas fired generators, so coal is being subsidized over nat gas. Same with industrial users of nat gas; i.e. 90% of the raw material cost of fertilizer is natural gas - last time I checked there's not a single give away to Terra Nitrogen and other fertilizer makers, so the added costs will get embedded in the food prices.

Natural Gas: The Next Big Thing

All the talk of the Obama administration helping out NG usage is just that, a bunch of talk. The Waxman Cap and Trade bill gives the coal-fired generators free carbon emission allowances, while industrial users of NG have to buy the emission credits at auction; so in effect, we're subsidizing coal over natural gas.

I wish people would stop bringing up the oil to natural gas ratio; there's only a very small part of the country that can swap oil-fired generation for nat gas generation, and over 99% of cars can't use natural gas for fuel, so the fuels aren't interchangable.

If natural gas is so valuable, how come it trades in the $2.50 to $3.00 range out west? Could it be that we have too much supply; no it must be evil speculators forcing the price down!

Destroy Cities to Save Them?

Michigan has faced this problem for decades and what is their answer? Raise taxes, time and time again. No amount of urban planning or federal bailout funds will permanently fix this problem. I suspect that if Flint reduces the city by 40% now, we'll next find that they need to reduce the city by another 10%+ ten years from now.

The answer is to give business a reason to move to Flint via low taxes and low operating costs, but Michigan is wedded to the UAW and union labor costs, and it will stay that way as long as we keep bailing them out.

Are Oil ETFs Showing Us How Natural Gas ETFs Will Trade?

Thoughts on using TSX vs. UNG:
Pros
1) TSX is in CDN, which is good if you think USD is going to weaken.
2) High crude prices will get the tar sands into high gear and Alberta nat gas prices will have a floor due to NG use in the extraction.
3) AECO gas can go either east or west, unlike many other production areas.

Cons
1) If crude prices tumble, the CDN will probably weaken.
2) Canadian gas storage is already high, so the daily volume has to be burned/exported or shut-in.
3) Western US gas storage facilities are nearing 90% full, limiting AECO's deliverability to Ontario and Chicago, neither of which need much gas for the summer.

One thing to consider in playing ETFs in nat gas, is that the winter is already at $6, and the breakeven price for shale gas is below that, so it's possible that we could get to the winter, with increasing rig counts and no appreciable gain on the ETFs, since they continually roll into the next month at a higher price.

Natural Gas Should Get a Boost from China's New Demand

I think 20 billion cubic meters equates to 540 bcf, which is a lot, but then this demand was more than anticipated; check out how Qatar had to sell 250 bcf of LNG to Sempra for 2010 (which will bring the gas in via Cameron, La), because their target market, China and India doesn't need the gas.

Everyone is waiting and hoping for the 'big ramp up' in US nat gas prices, because it seems so obvious that prices 'have to go up soon'; meanwhile incremental LNG production for 2010 is having trouble finding a market (Note how Russia had to sell 128k mcf/day to Sempra for Baja import, because neither Japan or South Korea would take the gas).

We know we're going to completely fill storage this fall and it would take a very severe winter (like 1976) to deplete the inventory levels. It's more likely that we'll have a winter similar or more mild than last year, so there's a real possibility that we exit the winter with near record storage inventory in April. If nat gas demand hasn't returned to early 2008 levels (which is most likely) then the drop off in nat gas production for 2010 will be offset somewhat by all the LNG coming here. So it's very possible that nat gas prices for next summer that are currently in the $6+ range will fall to $5 or $4.

The only scenario that makes NG prices extremely bullish for 2010 is that the US economy comes screaming back to life in the next six months. If you think the US economy will grow gradually, if at all, in the next six months (like I do), then UNG is a poor investment for the near term.

Will Surging Oil Derail a US Recovery?

If oil gets above $80 the price rise from $40 to $80 basically offsets the stimulus package effect on the economy (depending on whether gasoline goes up 75%+ or not).

If crude is going to take off like a rocket every time there's the least hint of demand recovery, then I don't see how we avoid getting stuck in a perpetual stagflation scenario.

Hugoton Royalty Trust: A Stock for the Natural Gas Contrarian

No need to buy natural gas stocks until September at the earliest. A good portion of the Hugoton field could be shut-in by early October, forcing the value of this royalty trust to it's absolute low - so why buy it now, when there's a 80% chance it will be cheaper in the fall?

Is Oil Going the Wrong Way, Or Do We Need to Adjust Our Perceptions?

Here's the paradox:
Stimulus package creates demand, which increases crude prices to the point that the increased energy costs offset the value of the stimulus package....

The energy markets are all over the idea that CL is going to $75/bbl; seems no one has factored in that the return to higher prices will force the US into a stagflation scenario, meaning very low growth in GNP and a flattening of demand.

Sorry Arnold, TARP Can't Be Used to Bail Out the Golden State

On May 27 12:15 PM Duude wrote:

> The fact is as a large state wealthy Californians have been subsidizing
> smaller states for decades. Large states have always, always put
> more into the pot and got little back while little states put in
> little and get all of it back and then some. The call for bail out
> might not be as unfair as many believe.

This only became true when the military started closing bases in the 1990s, before then California got more from the Feds than they paid in taxes.