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: 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!

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.

Three Reasons to Be More Bullish on Natural Gas than on Oil

No need to get bullish on NG just yet; we'll probably hit the limits on storage by September, forcing massive shut-ins. Aubrey is dreaming if he thinks NG is going to be back to $9 by December. Most likely scenario is that gas declines to $2.50 by Sep/August and then that will be the time to buy. This coming winter will have record storage on hand, so even if it is as cold as this last one, prices probably won't rebound greatly until a year from now. If the winter of 2009-10 is a warm one, be prepared for an end-of-winter storage number of 2 Tcf or more, which will keep a lid on prices until 18 months from now.

So will NG prices go up in the long-term? Of course, but it might be a year to 18 months.

The Case for Natural Gas

NG might look cheap, but study the fundamentals before you decide to go long. YonY production is up +6%, YonY demand is down 3% and this is happening during the coldest winter in the last decade. What happens if the weather moderates and if the summer comes in cooler than last year? Be prepared for $3 nat gas for the next six months.

Six Companies Poised to Gain from a Natural Gas Auto Mandate

I'm all for CNG vehicles; but here's some facts:
1) A great deal of the nat gas on the north slope in Alaska is being reinjected to maintain the pressure in the depleting oil fields up there, that's why the big oil companies aren't so enthusiastic about sending the gas to the lower 48.
2) Roughly 20%+ of the gas that went into a pipeline in northern Alaska would be burned up as compression fuel to move the gas down to Chicago. It only makes economic sense to move gas from the North Slope down to the lower 48 via a pipeline if gas averages $10/mmbtu.
3) Utah's gas cost is due to a old lawsuit over captive gas in storage so the utility is forced to supply ng at a cheap price; actual cost for most places would be between $1.50 to $2.50/gal gas cost.
4) The only gas being flared in the lower 48 and most of Canada is from new wells that haven't been tied into the pipeline grid; the bulk of flared gas nowadays is in Nigeria.
5) We have about 100 years worth of nat gas based upon a burn rate of 20Tcf/yr. If a lot of the transportation vehicles got switched over, it would be more like 50 to 60 years.
6) Nat gas is sort of 'green', but it still creates carbon dioxide when it is burned, so the Enviros will never support it 100%.
7) The US gas market has 5% more supply from production than this time last year, and demand is down 2 to 4%; so the market is way over supplied for the short term, meaning 2009. Even if Obama mandates CNG filling stations, the market won't begin to soak up the excess until next winter at the earliest. My expectation is that nat gas prices will stay low till at least October, so don't rush out and buy nat gas companies just yet.
8) Three major LNG trains come on line in June, unless demand picks up, the LNG in Trindad will be forced to come here, even though we don't need it this year, so there's a real chance that prices stay low well into 2010.

Chesapeake Energy: Back from the Dead

No way NG 'sprints' to $10 next winter; these shale plays are too prolific. I can see gas drifting up to $7 or $8 over the next few years, but every time it does, shale production will be ramped up and prices will retreat.

Chesapeake Energy: Back from the Dead

Nat gas is probably going into the low $5s or mid $4/MMBtu territory in Q1. Too much production is coming online and demand is down. It will probably recover to $6 by next winter as low new production doesn't offset the decline curve in existing wells. So I would wait to buy CHK until Feb-Apr; wait for media stories of "NG at five year lows", etc.

The Honeymoon Is Over: Gauging the Market with an Obama Presidency

The economy is going to supercede everything else for at least for the next two years, so don't bother buying solar stocks just yet. I'm with longoil on American complacency; wholesale gasoline (before fed and state taxes) is approaching $1.30/gallon, I doubt anyone will want to finance alternative energy projects at these low prices.

Don't get me wrong, I think the US should have a national energy policy that concentrates on investing in alternative energy, but we don't have the money to fund it right now.

Chesapeake Energy Analyst Day Update: Company Moves to Resource Conversion

I wish the gov't would adopt the Pickens Plan, but I'm not a believer in the US gov't having any common sense. Basically, our gov't only responds to contributions from special interests.

Natural Gas: Clean Fuel with a Dirty Little Secret

Basically why Aubrey McClendon and Pickens are pushing so hard for NG to become a transportation fuel, is that the new shale plays will outstrip current demand for the rest of the next decade. CHK is about the most skillful hedger of all of the producers, but when it comes time to put on hedges for next summer, the price may be in $6 - $7 range; thereby locking in a huge disparity vs. crude.