I seriously doubt $5 is the right #. Sounds way too high. Likely more like $4, or even $3.5 for the best ones. Think of it this way, T. Boon invested heavy into CHK and you can rest assured that he was plugged into ALL the true production economics of their plays and the whole industry. This guy probably could do (likely has done) the whole E&P cycle himself and intimately knows all the ground realities of all the various plays for gas, NGLs, and oil. So, both you and Mark think T. Boon is such an uninformed, idiot that he dumps 100's of millions of $ into the "Picken's plan", which needs NG to be priced under $4 to be a viable 'bridge fuel" against diesel, and at $3.5 is very compelling. He also knows that wind farms need NG >~$7 so he dropped that part of the original plan. So, I guess you both are saying that Pickens is a sham too, and selling "snake oil" to congress in the form of false promises of unlimited, cheap NG for the next decades?
That is a mighty big conspiracy theory you and Mark are building up here. Someone, somewhere certainly needs a sanity check on this. Who would you say needs the sanity check here?
Mark, nice charts, formulas, and breakdown. Always great to see real analysis of complex economics. Thanks for your SA contributions. However, I am having a VERY hard time believing not only your conclusions, but also those of Paulo in re shale gas being an uneconomical sham. I mean, to believe you guys, I have to believe that not only the whole NG E&P industry is completely lying (e.g., UPL says their "Total NG production cost is ~$3.3), but mega Integrated oil like Exxon are duped and dumb too when they bought XTO (at a very high premium), and some of the best oil investors in the biz like Pickens are also duped and dumb for betting heavy on cheap and endless shale gas. With all due respect, just from a top level, if I had to lay bets on who to believe, it would not be data geeks on SA, it would be these mega, hardcore, multi-billion $ oil/gas players.
Please enlighten me as to why they are all duped morons, and you and Paulo are the whistle blowers on their stupidity, or even conspiracy to fraudulently hide failed shale gas economics.
Natural Gas: 67 Bcf Storage Injection Continues On A 'No Containment' Trend [View article]
Craig, you may be right on coal down trend (due to EPA IMO); however, do you really think that power plants are going to make 20 year decisions to build new plants that burn ONLY NG? It makes NO economic sense to do so. I mean, everyone knows NG is ridiculously volatile and prices are based on near pure speculation, unlike coal which is priced on cheap, stable, long-term contracts. If utilities go towards a pure NG fleet, our cost of electricity will sky rocket if/when NG gets exported, used in transportation, and/or use in new petro-chem. That is way too risky for 20 year plant decisions, right?
What seems the most likely is that utilities will build dual fuel plants that can switch to either fuel depending which is cheaper. Hence, unless Coal is completely banned in the US (which is unlikely during a bad economy and while the EU is madly burning coal like there is no tomorrow) it seems like coal will set the marginal price for NG for many years to come.
Hence, IMO, there are many downsides to depending on NG for base-load power demand, and the trend to use more NG will inevitably be VERY slow, and hedged against coal, unless there are government mandates, which the petro-chem industry has already warned Washington NOT to do if they are to invest big and depend on cheap NG, and Utilities are likely to lobby for the same position. Right?
I would not count this as any nat gas "rally". I've heard multiple reports that NG popped up just b/c a huge hedge fund player pulled of the NG speculation biz, and closed all his shorts. Also, do you really think that CHK (1/3 of US NG production) is going to keep to its curtailments now that it is struggling to keep the lights on? Before they sell off there oil assets they'll crank out more NG for cashflow to keep those lights on. With no hedges, and a crooked CEO, CHK is in a near death spiral. So, unless a brutal hot summer comes early, I expect NG to test sub 2 again, and with the EU/China slowdown killing exports of met coal too, then coal will get wacked even more. I expect that the longer NG stays in the low 2's (e.g., > 6-9mo) high bankruptcy risk on the tier 3 coal players gets more priced in. And you'll get more of that "fire sale" you've been talking about. I'm currently buying NG service companies, who usually get killed 1st. I feel like it is too early to buy into coal yet. I'll likely soon look for well hedged NG producers. Then, when blood is in the streets look at tier 2 coal like (ACI and ANR). I'm holding off until after June, when Uncle Ben will stop dancing the twist, and (as always) markets will tank w/in a month later and he'll have to jump into his helicopter again for some QE3 sugar boost. Before that this will completely kill coal and NG stocks because industrial production is the marginal/variable NG consumer, which is another leg of the stool yet to be pulled out.
UNG has so much upfront premium and roll losses in the next couple months that it wipes out your differential wrt to CHK that your hoping to profit off of. That is, no gap to close in this pair trade because even if NG prices would rise relative to CHK, UNG would not rise nearly so much. I'm sure you have notice this in the past few days of massive NG price gains. UNG is a bad vehicle for this trade.
The Fall Of The Electric Car... And The Rise Of The NGV [View article]
Gaucho, how dare you impugn FOX news; they have an impeccable history of being very reasonable, fare and balanced. For example, did you know that when the evil US government fraudulently said that the US launched a rocket w/ humans to the moon in 1969, FOX news consistently reported back then that it was a complete hoax and simulated in a Hollywood studio to trick Americans. Did you ever wonder why we have NEVER gone to the moon for over 40 years??? Well, because it was a complete hoax! We never went there in the first place, and FOX News' crack team of investigative journalist were the first (and only?) mainstream news org. to reveal the hoax. So, wake up and see how FOX News is once again saving us (well, except for maybe NY/NJ) from the global warming hoax....
Natural Gas Momentum Likely to Continue - Blackmont [View article]
This seems like a rediculous quote: "Investors, however, are clearly looking 'across the valley' to the winter months when cold weather will stimulate demand for gas and when economic growth is expected to return to North America."
Did you know it gets cold in November, not October? October is probably the worst demand month of the year, no cooling and no heating. So, why would an October deliverable contract trade on November and beyond demand dynamics? Please enlighten us.
Plenty of Natural Gas: Exploration and Production Companies Keep Increasing Oversupply [View article]
mekats, I think your view is dangerously over simplistic and not at all rigourous enough to even be taken seriously. Maybe you can address the who picture instead of perma-bull hand-waving talk.
The current pop up is just massive short covery and rabid bull sector rotation desperation. Why can't Nat Gas (NG) go under $2? If most of the producers are 100% hedged for '09 (hence likely why their stock prices are not in the toilet w/ NG price) and they have to produce to keep their valuable leases and we have a 100 year supply, then why stop production at any price when you're getting top (hedged) $ any how??? Someone needs to explain to me why will they given these (and many other simar) factors.
Besides, did you notice that rig counts bottomed in early June and actually started to uptick in July-Aug. Also, day rates never came down enough. Not a good sign if you believe in major production cuts.
Also, if you look at the last recessions NG droped to around $2.5-2.7 in real terms (adjusting for inflation); however, that was when US NG production was believed to have peaked, which is why we later created infrastructure for LNG imports- and those lows were before we became the Saudi-Arabia of NG with massive supplies. So, it would stand to reason that we'll see below $2 easy; esp. since we got so quickly to $2.5 w/o resistance.
Moreover, I'm very concerned about the long term pricing of NG. I'm trying to see it as bullish as you do, but many long-term factors seem like it might keep it very low- not the least of which is LNG imports from Russia and Arabs when NG gets back over $4.
Have a look at the LNG import spike between end '06 and early '07 and it tracks *exactly* with a step down of NG price from 7 to 5. This is insane that LNG could crush prices during a robust US economy. I'm very scared now that with the paltry 2% trend growth expected for the US (and EU?) going forward that they'll dump excess Euro LNG onto the US and repeat that '06/'07 event. This would almost certainly keep NG prices under $4 in the expected weak situation for '10. This is a huge uncertainty in playing '09 weakness esp. if buying into NG driller/services securities to play the "perfect storm" against NG. That is, the LNG would dump just enough supply to easily keep the storage full, thus keeping NG exploration and cap ex down to a minimum, and b/c most NG producers are only partially hedged for 2010 (maybe 30% or less?) then they would get killed in 2010 making there hedged supported stock prices 2009 quite high. This uncertainty really sucks! Can you discount this scenario?
the EU is expected to recover more slowly than the US so why (in the context of those reports/articles I sent you) won't the LNG plays dump what ever they can on the US. As I analyze the charts, the LNG chart tells me a very bad story. That is, the June '09 LNG was sold at only ~ $4.3 while volumes where a little above that just before the '06 event (see above) when NG price in '06 was ~7, and then dumped 2X the volume for 6 months and were more than happy to collect only $5 in that time. Again, this was when the EU and US were heading into a peak earning cycle. This tells me that the LNG players will keep US NG prices in the toilet (<$4) until the US (and EU?) are in a full recovery. Very, very bad for NG sector stocks for 2010. Please debunk this gloom and doom scenario! It seems all too possible if the magal V-shape recovery does not materialize in early 2010. Hence, why with a weak EU they'll dump there LNG at a (double? june '09) high rate and keep the US storage near max, thus NG prices in the toilet.
I'd really hate to additionally bet on a V-shape recovery on top of the structural NG risks I've discussed. There are much more (risk adjusted) profitable bets on a V-shape recovery in the market.
Betting on a V-shape recover is over the top for a NG bet at this point. Also, how can you be so sure that that '06/'07 event (see above) won't repeat in 2010?
In summary, NG prices seem destined to go well under $2 well into November, and while it may rebound next year LNG will keep it near $4 and kill/hurt most US NG producers until the economy fully recovers (1-2 years) and get NG price in the $5-6 range.
So, you can try catching a falling knife or put your money in soaring NG stocks which will collapse next year when there hedges are gone and NG is kept too low b/c of LNG. Seems like NG is a bad bet until at least Nov.
Cheers, Ariel-
On Sep 11 08:34 AM mekats wrote:
> another nat gas expert......just watch storage and production and > you have all the answers. author conveniently overlooks the years > of lead time involved in the capital decisions to drill, develop, > hookup wells, pipelines, etc. E&P companies try not to turn it > on and off like a light switch which paper shuffling analysts would > recommend as optimal "economic behavior". After buying your puts > you may be treated to a lesson in self correcting economics as reduced > drilling and depletion "take care" of soft demand and low prices.
Natural Gas Production Outlook: Decreases Are in the Offing [View article]
why can't it go under $2? If most of the producers are 100% hedged for '09 (hence likely why their stock prices are not in the toilet w/ NG price) and they have to produce to keep their valuable leases and we have a 100 year supply, then why stop production at any price when you're getting top (hedged) $ any how??? Someone needs to explain to me why will they given these (and many other simar) factors.
Besides, did you notice that rig counts bottomed in early June and actually started to uptick in July-Aug. Also, day rates never came down enough. Not a good sign if you believe in major production cuts.
Also, if you look at the last recessions NG droped to around $2.5-2.7 in real terms (adjusting for inflation); however, that was when US NG production was believed to have peaked, which is why we later created infrastructure for LNG imports- and those lows were before we became the Saudi-Arabia of NG with massive supplies. So, it would stand to reason that we'll see below $2 easy; esp. since we got so quickly to $2.5 w/o resistance.
Moreover, I'm very concerned about the long term pricing of NG. I'm trying to see it as bullish as you do, but many long-term factors seem like it might keep it very low- not the least of which is LNG imports from Russia and Arabs when NG gets back over $4.
Have a look at the LNG import spike between end '06 and early '07 and it tracks *exactly* with a step down of NG price from 7 to 5. This is insane that LNG could crush prices during a robust US economy. I'm very scared now that with the paltry 2% trend growth expected for the US (and EU?) going forward that they'll dump excess Euro LNG onto the US and repeat that '06/'07 event. This would almost certainly keep NG prices under $4 in the expected weak situation for '10. This is a huge uncertainty in playing '09 weakness esp. if buying into NG driller/services securities to play the "perfect storm" against NG. That is, the LNG would dump just enough supply to easily keep the storage full, thus keeping NG exploration and cap ex down to a minimum, and b/c most NG producers are only partially hedged for 2010 (maybe 30% or less?) then they would get killed in 2010 making there hedged supported stock prices 2009 quite high. This uncertainty really sucks! Can you discount this scenario?
the EU is expected to recover more slowly than the US so why (in the context of those reports/articles I sent you) won't the LNG plays dump what ever they can on the US. As I analyze the charts, the LNG chart tells me a very bad story. That is, the June '09 LNG was sold at only ~ $4.3 while volumes where a little above that just before the '06 event (see above) when NG price in '06 was ~7, and then dumped 2X the volume for 6 months and were more than happy to collect only $5 in that time. Again, this was when the EU and US were heading into a peak earning cycle. This tells me that the LNG players will keep US NG prices in the toilet (<$4) until the US (and EU?) are in a full recovery. Very, very bad for NG sector stocks for 2010. Please debunk this gloom and doom scenario! It seems all too possible if the magal V-shape recovery does not materialize in early 2010. Hence, why with a weak EU they'll dump there LNG at a (double? june '09) high rate and keep the US storage near max, thus NG prices in the toilet.
I'd really hate to additionally bet on a V-shape recovery on top of the structural NG risks I've discussed. There are much more (risk adjusted) profitable bets on a V-shape recovery in the market.
Betting on a V-shape recover is over the top for a NG bet at this point. Also, how can you be so sure that that '06/'07 event (see above) won't repeat in 2010?
In summary, NG prices seem destined to go well under $2 well into November, and while it may rebound next year LNG will keep it near $4 and kill/hurt most US NG producers until the economy fully recovers (1-2 years) and get NG price in the $5-6 range.
So, you can try catching a falling knife or put your money in NG stocks which will collapse next year when there hedges are gone and NG is kept too low b/c of LNG. Seems like NG is a bad bet until at least Nov.
Bakken Update: Mississippi Lime Well Design Improvement Is Increasing Estimated Recoveries, Part 3 [View article]
Mike, I know you are focused on the Bakken, but I thought you might get a kick out of the science well approaches GPOR is doing in the Utica. I like the fact they say they are doing every kind of science now available and listing them all, so a good state-of-the-art update. Please ignore if out of your interest zone:
James D. Palm - Chief Executive Officer and Director We have a well called the Darla that we're going to drill. After we drill these 2 wells on the Wagner, we'll take that rig up to the new location that's just barely north of the Wagner. And this one, again, it's like "throw the kitchen sink" worth of science, but we think it's money that'll be well spent at this stage of the game. We talked about -- we're trying to figure out the best way to frac the wells, and we're trying to figure out the best way to him space the wells. And so the Darla is sort of a unique situation because we're going to drill 3 wells off of that 1 pad, and they're going to be sort of fan-shaped array when we drill the wells. In other words, the -- as compared to the middle well, back near the heel, one of the laterals will be 300 feet away from that well. And when we go to the toe, it'll be 1,300 feet away. So we're obviously going to have -- when we frac the well, we're going to have quite a wide range in there of the distances between the wellbores. Then when we frac it, we're going to use 3 different frac designs. Two of them will have 550,000 pounds of sand per stage. Stages are about 240 feet long. And the other one will have about 300,000 pounds of sand in that stage. But the -- one of the -- one's that 500,000 pounds will have CARBO Ceramics in there, which may make a better well. We also will be putting in radioactive tracers, so we can go back after we frac the wells, seeing where the frac actually went. So there'll be different tracers for different stages. We're also putting in chemicals that will allow us to see if there's communication between the wellbores and whether or not we communicated at 1,300 feet or whether we communicated at 300- or 400-foot spacing. So we're also putting in optical fiber, and that optical fiber will allow us to tell from temperature readings, which intervals are producing. Right now, we frac a well and we have all these perforations down there and we don't really know whether we're producing from the heel, from the toe, whether it changes from day-to-day, from month-to-month. Now we'll be able to real-time what's going on down the hole and which perfs are actually giving up the hydrocarbons. And another thing we'll do with optical networks, we'll be able to put a pressure transducer down there. So today, all we know is what the -- what's going on at the surface on the well. And so we will be able to fill now what our flowing bottom hole pressures are for the well. So that gives us more valuable information that we don't have today. So just the pressure transducers and the optical cables that go down there, that'll be about $600,000 per well. And then we'll also do microseismic while we're frac-ing it, and that's going to give us valuable information about where our fracs go according to be microseismic. And if it says the fracs are reaching out and touching the other wellbores, the chemicals will tell us if they really produce, even though the frac may have -- we might see frac energy going out there, but may or may not connect the wells. So that's going to help us figure out how far just apart to space them. So if -- it's really key, though, that we get in here and figure things out like the spacing on the wells and the best frac design early. If it turns out that we can give less sand and still make as good a well, just think how much money we can save in the future as we frac them. And if we can space them closer together, then we can drill that many more wells on our acreage. So I know this sounds like a lot to spend, but that's why -- we're not through the development stage yet. When we do, we'll see it go -- we'll see the cost go down. But right now, we're still doing -- I know it seems like we've done a lot of science and we have, but we're not through yet, and that's kind of what we're concentrating on this first 6 months.
U.S. LNG Exports: Increasingly A Reality [View article]
Maybe someone in the SA group can help understand all the Major Oil (e.g., Exxon, etc) and investor (e.g., Blackstone, et al) confidence in US LNG.
I strongly suspect that b/c Cheniere (et. al) is so absolutely desperate, and its consumers have LOTS of other options, that the buyers most likely negotiated VERY favorable terms for themselves, and put all/most of the risk on Cheniere and their investors.
For example, how do proponents figure that US LNG is predictable enough to engage in long term contracts when the cost side of the business model is not locked into equally long term contracts? LNG has to buy the nat gas from somewhere right? So, did they lock in 100% of their 20 year contract by buying equal volumes in futures 20 years out? So, are they are locking future commitments on terms during today's horribly low HH prices while buying $5-8 futures NG if you go out 10-20 years? Even if the contracts have some kind of indexing mechanism as HH goes up, has anyone read the contracts to know that it is as favorable as they assume.
What gives me great pause is that I know that company executives are famous for front loading profits and back-loading risk and massive losses so they can exit with lots of $ before the company explodes and goes down in flames (as we saw this is the norm via the 2009 financial catastrophe, right?). So, unless one can have an attorney go through those long term contracts and advise us small time investors of the (multitude of?) loop holes, seems to me LNG export proponents/investors are professing pipe dreams....
Many LNG proponents cite something like a Blackstone investment as some kind of proxy for their own due diligence. After seeing the smartest of the smart investment firms blow up in the last financial (scam) debacle, forgive me if I'm less than impressed with assumptions that investment firms do brilliant due diligence before they dump billions of their clients $ into risky bets w/o much, if any, DD. I always recall how GS said Nat gas prices were heading to $7 back in 2010, and I laughed my head off, and later saw their call blew up, as we know. These firms 'invest' billions in many very over capacity (in the red) industry like solar and iron ore projects too. What LNG proponents might be missing here is that such big investment firms are obliged to invest a certain amount of $ in a sector (e.g., energy) so they just place their (risky?) bets across the board, and likely don't dig deep into any single investment b/c even the industry experts are clueless.
What do we know about the structure of those contracts? If nothing, then LNG proponents might want to refrain from a lot of high confidence future profitability assumptions.
Other issue that LNG proponents fail to address is how Cheniere (et. al) cannot lock in the cost of extracting US Nat gas, so when we burn through the current dirt-cheap "sweet spot" gas their costs will soar. As we all know those wells mostly deplete within a year, so unlike Q'tar who knows their extraction costs and future supplies out to 10-20 years, the US E&Ps are COMPLETELY clueless. Moreover, as US Nat gas demand volumes increase, the service fees of all aspects of E&P services will rise dramatically. How can Cheniere hedge against all these risks? Unless US LNG export proponents can show me otherwise, I tend to be of the view that they are essentially betting on an AIG kind of sub-prime loan insurance bet, pre-bubble burst; i.e., get the insurance payment money and investor hype $ now, and defer crash and burn for later as they escape on their golden parachute....
Bakken Update: Williston Basin Estimated Ultimate Recoveries In North Dakota - Part I [View article]
craig, are you talking about this repackaged Fool article "Piggybacking on the U.S. Shale Boom"? http://bit.ly/UD2aTd
I can't imaging how CRR can keep high margins in the face of increasingly similar alternative suppliers. That is a lot of R&D risk to stay ahead of that curve. I don't know enough about that tech area to even know how hard it is to work around their design/formulation, or even if they have enough patent protection. Seems like a binary risk outcome to me....
How Big Of A Threat Can Intel Be To ARM's Mobile Dominance? [View article]
Michael, good comment. I worked as a system's engineer MANY moons ago at TI wireless segment, and I was always shocked that TI never bought ARM given that ARM was the standard CPU IP core dropped into DSPs. TI could have had a lock in mobile computing the way Intel did for PCs.
At this point, re INTC, don't you have to figure that they will create a standard mobile chipset around the ARM core which will standardize the ARM MCU's interface to all the mobile platforms, then that would open the door for INTC doing to arm, what AMD did, except with 800 lbs Gorilla muscle behind it, which can grab HUGE market share from ARM. Right? That is what I'd do if I were INTC. I would not be surprised either, if Intel does a deal with MSFT to create a WinTel reference smartphone design platform that commodity Tier 2 and 3 cellphone makers can use and dump on the market, which would do to Samsung, what they did to Nokia and Ericson. Poetic justice...right?
Haynesville Production Increased In June According To Latest Data - Part II [View article]
Steve, don't you have to figure that if those Ivory Tower, pencil pushers were right then the Haynesville should have rolled over soon after Jan 2010 when HH was <$5 ever since, and mostly stuck around $4? Those operators would have shifted cap ex to more profitable plays, right? Instead they kept drilling so much that they had a two year backlog which they recently just finished. That does not sound like what E&Ps would if the Haynesville was an underwater play ever since early 2010.
Looks Like Iron Ore Is Back In Business [View article]
Goobie, re "fake money", I think you are confusing that with the US and EU. All they have is "fake money" b/c they are insolvent, and must just print and/or borrow money to pay for anything. China, on the other has $3T of REAL cash money in reserves (and actually finance the US & EU). It also seems like investments will come from the national gov level going forward, and NOT local (who have lots of bad loans and debt). So, seems like you have it wrong wrt to China investments being based on fake money....
Can Shale Gas Ever Be Profitable? [View article]
That is a mighty big conspiracy theory you and Mark are building up here. Someone, somewhere certainly needs a sanity check on this. Who would you say needs the sanity check here?
Can Shale Gas Ever Be Profitable? [View article]
Please enlighten me as to why they are all duped morons, and you and Paulo are the whistle blowers on their stupidity, or even conspiracy to fraudulently hide failed shale gas economics.
TIA.
Natural Gas: 67 Bcf Storage Injection Continues On A 'No Containment' Trend [View article]
What seems the most likely is that utilities will build dual fuel plants that can switch to either fuel depending which is cheaper. Hence, unless Coal is completely banned in the US (which is unlikely during a bad economy and while the EU is madly burning coal like there is no tomorrow) it seems like coal will set the marginal price for NG for many years to come.
Hence, IMO, there are many downsides to depending on NG for base-load power demand, and the trend to use more NG will inevitably be VERY slow, and hedged against coal, unless there are government mandates, which the petro-chem industry has already warned Washington NOT to do if they are to invest big and depend on cheap NG, and Utilities are likely to lobby for the same position. Right?
What's Moving Coal Today? [View article]
cheers!
Ari
Natural Gas: Sell Producers, Buy UNG [View article]
The Fall Of The Electric Car... And The Rise Of The NGV [View article]
Natural Gas Momentum Likely to Continue - Blackmont [View article]
"Investors, however, are clearly looking 'across the valley' to the winter months when cold weather will stimulate demand for gas and when economic growth is expected to return to North America."
Did you know it gets cold in November, not October? October is probably the worst demand month of the year, no cooling and no heating. So, why would an October deliverable contract trade on November and beyond demand dynamics? Please enlighten us.
thanks,
Ari
Plenty of Natural Gas: Exploration and Production Companies Keep Increasing Oversupply [View article]
The current pop up is just massive short covery and rabid bull sector rotation desperation. Why can't Nat Gas (NG) go under $2? If most of the producers are 100% hedged for '09 (hence likely why their stock prices are not in the toilet w/ NG price) and they have to produce to keep their valuable leases and we have a 100 year supply, then why stop production at any price when you're getting top (hedged) $ any how??? Someone needs to explain to me why will they given these (and many other simar) factors.
Besides, did you notice that rig counts bottomed in early June and actually started to uptick in July-Aug. Also, day rates never came down enough. Not a good sign if you believe in major production cuts.
Also, if you look at the last recessions NG droped to around $2.5-2.7 in real terms (adjusting for inflation); however, that was when US NG production was believed to have peaked, which is why we later created infrastructure for LNG imports- and those lows were before we became the Saudi-Arabia of NG with massive supplies. So, it would stand to reason that we'll see below $2 easy; esp. since we got so quickly to $2.5 w/o resistance.
Moreover, I'm very concerned about the long term pricing of NG. I'm trying to see it as bullish as you do, but many long-term factors seem like it might keep it very low- not the least of which is LNG imports from Russia and Arabs when NG gets back over $4.
Have a look at the LNG import spike between end '06 and early '07 and it tracks *exactly* with a step down of NG price from 7 to 5. This is insane that LNG could crush prices during a robust US economy. I'm very scared now that with the paltry 2% trend growth expected for the US (and EU?) going forward that they'll dump excess Euro LNG onto the US and repeat that '06/'07 event. This would almost certainly keep NG prices under $4 in the expected weak situation for '10. This is a huge uncertainty in playing '09 weakness esp. if buying into NG driller/services securities to play the "perfect storm" against NG. That is, the LNG would dump just enough supply to easily keep the storage full, thus keeping NG exploration and cap ex down to a minimum, and b/c most NG producers are only partially hedged for 2010 (maybe 30% or less?) then they would get killed in 2010 making there hedged supported stock prices 2009 quite high. This uncertainty really sucks! Can you discount this scenario?
the EU is expected to recover more slowly than the US so why (in the context of those reports/articles I sent you) won't the LNG plays dump what ever they can on the US. As I analyze the charts, the LNG chart tells me a very bad story. That is, the June '09 LNG was sold at only ~ $4.3 while volumes where a little above that just before the '06 event (see above) when NG price in '06 was ~7, and then dumped 2X the volume for 6 months and were more than happy to collect only $5 in that time. Again, this was when the EU and US were heading into a peak earning cycle. This tells me that the LNG players will keep US NG prices in the toilet (<$4) until the US (and EU?) are in a full recovery. Very, very bad for NG sector stocks for 2010. Please debunk this gloom and doom scenario! It seems all too possible if the magal V-shape recovery does not materialize in early 2010. Hence, why with a weak EU they'll dump there LNG at a (double? june '09) high rate and keep the US storage near max, thus NG prices in the toilet.
I'd really hate to additionally bet on a V-shape recovery on top of the structural NG risks I've discussed. There are much more (risk adjusted) profitable bets on a V-shape recovery in the market.
Betting on a V-shape recover is over the top for a NG bet at this point. Also, how can you be so sure that that '06/'07 event (see above) won't repeat in 2010?
In summary, NG prices seem destined to go well under $2 well into November, and while it may rebound next year LNG will keep it near $4 and kill/hurt most US NG producers until the economy fully recovers (1-2 years) and get NG price in the $5-6 range.
So, you can try catching a falling knife or put your money in soaring NG stocks which will collapse next year when there hedges are gone and NG is kept too low b/c of LNG. Seems like NG is a bad bet until at least Nov.
Cheers,
Ariel-
On Sep 11 08:34 AM mekats wrote:
> another nat gas expert......just watch storage and production and
> you have all the answers. author conveniently overlooks the years
> of lead time involved in the capital decisions to drill, develop,
> hookup wells, pipelines, etc. E&P companies try not to turn it
> on and off like a light switch which paper shuffling analysts would
> recommend as optimal "economic behavior". After buying your puts
> you may be treated to a lesson in self correcting economics as reduced
> drilling and depletion "take care" of soft demand and low prices.
Natural Gas Production Outlook: Decreases Are in the Offing [View article]
Besides, did you notice that rig counts bottomed in early June and actually started to uptick in July-Aug. Also, day rates never came down enough. Not a good sign if you believe in major production cuts.
Also, if you look at the last recessions NG droped to around $2.5-2.7 in real terms (adjusting for inflation); however, that was when US NG production was believed to have peaked, which is why we later created infrastructure for LNG imports- and those lows were before we became the Saudi-Arabia of NG with massive supplies. So, it would stand to reason that we'll see below $2 easy; esp. since we got so quickly to $2.5 w/o resistance.
Moreover, I'm very concerned about the long term pricing of NG. I'm trying to see it as bullish as you do, but many long-term factors seem like it might keep it very low- not the least of which is LNG imports from Russia and Arabs when NG gets back over $4.
Have a look at the LNG import spike between end '06 and early '07 and it tracks *exactly* with a step down of NG price from 7 to 5. This is insane that LNG could crush prices during a robust US economy. I'm very scared now that with the paltry 2% trend growth expected for the US (and EU?) going forward that they'll dump excess Euro LNG onto the US and repeat that '06/'07 event. This would almost certainly keep NG prices under $4 in the expected weak situation for '10. This is a huge uncertainty in playing '09 weakness esp. if buying into NG driller/services securities to play the "perfect storm" against NG. That is, the LNG would dump just enough supply to easily keep the storage full, thus keeping NG exploration and cap ex down to a minimum, and b/c most NG producers are only partially hedged for 2010 (maybe 30% or less?) then they would get killed in 2010 making there hedged supported stock prices 2009 quite high. This uncertainty really sucks! Can you discount this scenario?
the EU is expected to recover more slowly than the US so why (in the context of those reports/articles I sent you) won't the LNG plays dump what ever they can on the US. As I analyze the charts, the LNG chart tells me a very bad story. That is, the June '09 LNG was sold at only ~ $4.3 while volumes where a little above that just before the '06 event (see above) when NG price in '06 was ~7, and then dumped 2X the volume for 6 months and were more than happy to collect only $5 in that time. Again, this was when the EU and US were heading into a peak earning cycle. This tells me that the LNG players will keep US NG prices in the toilet (<$4) until the US (and EU?) are in a full recovery. Very, very bad for NG sector stocks for 2010. Please debunk this gloom and doom scenario! It seems all too possible if the magal V-shape recovery does not materialize in early 2010. Hence, why with a weak EU they'll dump there LNG at a (double? june '09) high rate and keep the US storage near max, thus NG prices in the toilet.
I'd really hate to additionally bet on a V-shape recovery on top of the structural NG risks I've discussed. There are much more (risk adjusted) profitable bets on a V-shape recovery in the market.
Betting on a V-shape recover is over the top for a NG bet at this point. Also, how can you be so sure that that '06/'07 event (see above) won't repeat in 2010?
In summary, NG prices seem destined to go well under $2 well into November, and while it may rebound next year LNG will keep it near $4 and kill/hurt most US NG producers until the economy fully recovers (1-2 years) and get NG price in the $5-6 range.
So, you can try catching a falling knife or put your money in NG stocks which will collapse next year when there hedges are gone and NG is kept too low b/c of LNG. Seems like NG is a bad bet until at least Nov.
Cheers,
Ariel-
Bakken Update: Mississippi Lime Well Design Improvement Is Increasing Estimated Recoveries, Part 3 [View article]
James D. Palm - Chief Executive Officer and Director
We have a well called the Darla that we're going to drill. After we drill these 2 wells on the Wagner, we'll take that rig up to the new location that's just barely north of the Wagner. And this one, again, it's like "throw the kitchen sink" worth of science, but we think it's money that'll be well spent at this stage of the game. We talked about -- we're trying to figure out the best way to frac the wells, and we're trying to figure out the best way to him space the wells. And so the Darla is sort of a unique situation because we're going to drill 3 wells off of that 1 pad, and they're going to be sort of fan-shaped array when we drill the wells. In other words, the -- as compared to the middle well, back near the heel, one of the laterals will be 300 feet away from that well. And when we go to the toe, it'll be 1,300 feet away. So we're obviously going to have -- when we frac the well, we're going to have quite a wide range in there of the distances between the wellbores. Then when we frac it, we're going to use 3 different frac designs. Two of them will have 550,000 pounds of sand per stage. Stages are about 240 feet long. And the other one will have about 300,000 pounds of sand in that stage. But the -- one of the -- one's that 500,000 pounds will have CARBO Ceramics in there, which may make a better well. We also will be putting in radioactive tracers, so we can go back after we frac the wells, seeing where the frac actually went. So there'll be different tracers for different stages. We're also putting in chemicals that will allow us to see if there's communication between the wellbores and whether or not we communicated at 1,300 feet or whether we communicated at 300- or 400-foot spacing. So we're also putting in optical fiber, and that optical fiber will allow us to tell from temperature readings, which intervals are producing. Right now, we frac a well and we have all these perforations down there and we don't really know whether we're producing from the heel, from the toe, whether it changes from day-to-day, from month-to-month. Now we'll be able to real-time what's going on down the hole and which perfs are actually giving up the hydrocarbons. And another thing we'll do with optical networks, we'll be able to put a pressure transducer down there. So today, all we know is what the -- what's going on at the surface on the well. And so we will be able to fill now what our flowing bottom hole pressures are for the well. So that gives us more valuable information that we don't have today. So just the pressure transducers and the optical cables that go down there, that'll be about $600,000 per well. And then we'll also do microseismic while we're frac-ing it, and that's going to give us valuable information about where our fracs go according to be microseismic. And if it says the fracs are reaching out and touching the other wellbores, the chemicals will tell us if they really produce, even though the frac may have -- we might see frac energy going out there, but may or may not connect the wells. So that's going to help us figure out how far just apart to space them. So if -- it's really key, though, that we get in here and figure things out like the spacing on the wells and the best frac design early. If it turns out that we can give less sand and still make as good a well, just think how much money we can save in the future as we frac them. And if we can space them closer together, then we can drill that many more wells on our acreage. So I know this sounds like a lot to spend, but that's why -- we're not through the development stage yet. When we do, we'll see it go -- we'll see the cost go down. But right now, we're still doing -- I know it seems like we've done a lot of science and we have, but we're not through yet, and that's kind of what we're concentrating on this first 6 months.
U.S. LNG Exports: Increasingly A Reality [View article]
I strongly suspect that b/c Cheniere (et. al) is so absolutely desperate, and its consumers have LOTS of other options, that the buyers most likely negotiated VERY favorable terms for themselves, and put all/most of the risk on Cheniere and their investors.
For example, how do proponents figure that US LNG is predictable enough to engage in long term contracts when the cost side of the business model is not locked into equally long term contracts? LNG has to buy the nat gas from somewhere right? So, did they lock in 100% of their 20 year contract by buying equal volumes in futures 20 years out? So, are they are locking future commitments on terms during today's horribly low HH prices while buying $5-8 futures NG if you go out 10-20 years? Even if the contracts have some kind of indexing mechanism as HH goes up, has anyone read the contracts to know that it is as favorable as they assume.
What gives me great pause is that I know that company executives are famous for front loading profits and back-loading risk and massive losses so they can exit with lots of $ before the company explodes and goes down in flames (as we saw this is the norm via the 2009 financial catastrophe, right?). So, unless one can have an attorney go through those long term contracts and advise us small time investors of the (multitude of?) loop holes, seems to me LNG export proponents/investors are professing pipe dreams....
Many LNG proponents cite something like a Blackstone investment as some kind of proxy for their own due diligence. After seeing the smartest of the smart investment firms blow up in the last financial (scam) debacle, forgive me if I'm less than impressed with assumptions that investment firms do brilliant due diligence before they dump billions of their clients $ into risky bets w/o much, if any, DD. I always recall how GS said Nat gas prices were heading to $7 back in 2010, and I laughed my head off, and later saw their call blew up, as we know. These firms 'invest' billions in many very over capacity (in the red) industry like solar and iron ore projects too. What LNG proponents might be missing here is that such big investment firms are obliged to invest a certain amount of $ in a sector (e.g., energy) so they just place their (risky?) bets across the board, and likely don't dig deep into any single investment b/c even the industry experts are clueless.
What do we know about the structure of those contracts? If nothing, then LNG proponents might want to refrain from a lot of high confidence future profitability assumptions.
Other issue that LNG proponents fail to address is how Cheniere (et. al) cannot lock in the cost of extracting US Nat gas, so when we burn through the current dirt-cheap "sweet spot" gas their costs will soar. As we all know those wells mostly deplete within a year, so unlike Q'tar who knows their extraction costs and future supplies out to 10-20 years, the US E&Ps are COMPLETELY clueless. Moreover, as US Nat gas demand volumes increase, the service fees of all aspects of E&P services will rise dramatically. How can Cheniere hedge against all these risks? Unless US LNG export proponents can show me otherwise, I tend to be of the view that they are essentially betting on an AIG kind of sub-prime loan insurance bet, pre-bubble burst; i.e., get the insurance payment money and investor hype $ now, and defer crash and burn for later as they escape on their golden parachute....
Bakken Update: Williston Basin Estimated Ultimate Recoveries In North Dakota - Part I [View article]
http://bit.ly/UD2aTd
I can't imaging how CRR can keep high margins in the face of increasingly similar alternative suppliers. That is a lot of R&D risk to stay ahead of that curve. I don't know enough about that tech area to even know how hard it is to work around their design/formulation, or even if they have enough patent protection. Seems like a binary risk outcome to me....
How Big Of A Threat Can Intel Be To ARM's Mobile Dominance? [View article]
At this point, re INTC, don't you have to figure that they will create a standard mobile chipset around the ARM core which will standardize the ARM MCU's interface to all the mobile platforms, then that would open the door for INTC doing to arm, what AMD did, except with 800 lbs Gorilla muscle behind it, which can grab HUGE market share from ARM. Right? That is what I'd do if I were INTC. I would not be surprised either, if Intel does a deal with MSFT to create a WinTel reference smartphone design platform that commodity Tier 2 and 3 cellphone makers can use and dump on the market, which would do to Samsung, what they did to Nokia and Ericson. Poetic justice...right?
Haynesville Production Increased In June According To Latest Data - Part II [View article]
How do you explain that?
Looks Like Iron Ore Is Back In Business [View article]