The Impact Of A Looming Natural Gas Supply Problem

Jun. 08, 2012 2:46 PM ETARCH, APC, BTU, PCXCQ, JRCCQ, ANR99 Comments
Mark Anthony profile picture
Mark Anthony

Few people have noticed that there is a looming North America natural gas supply crisis that could come within 6 months. A shortage in NG (natural gas) will occur due to a production collapse in Canada, and inability of US shale gas producers to sustain drillings.

Capital Destruction in Natural Gas

US natural gas was over-supplied due to a shale gas production boom that will turn bust. The hydraulic fracturing (fracking) in shale gas production injects a toxic liquid with undisclosed chemical ingredients. But shale well drilling also requires another liquid very harmful to a corporation's health: cash liquidity from debts.

Cash liquidity is the lifeblood of all businesses. Shale gas wells are expensive to drill. NG producers took huge loans from banks to drill shale wells, hoping to recoup the costs from product revenues to pay back the loans and to use the money to drill more wells.

All conventional and shale gas wells are in continuous production declines. Another SA article discussed such declines. Read how Halliburton (HAL) explained (on page 22) "Why do we need to keep drilling". The NG industry must keep drilling to fight against the continuous declines of existing gas wells.

However, as current NG prices are deeply unprofitable, producers cannot recover their costs from gas sales. This results in capital destruction at an astonishing rate. With heavy debts, it's difficult for NG producers to borrow more. So they may not continue to burn cash and drill new wells. Soon the production decline will catch up, leading to a collapse of NG supply. Wolf Richter suggested that scenery. He stated:

The plight of natural gas driller Chesapeake Energy could almost make you feel sorry for the board of directors and CEO Aubrey McClendon. He lost his chairmanship after his conflicted entanglements and an in-house hedge

This article was written by

Mark Anthony profile picture
Mark Anthony, a pseudonym, is an IT professional and former physics Ph.D. student. Visit his blog: Stockology (

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