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Page added on February 3, 2014
The New Wildcard in the US Energy Poker Game
Talking to countless energy executives in recent years, I can vividly recall conversations with various senior leaders of major energy companies who adamantly told me the price of natural gas would remain depressed for years to come. Ever a ‘glass half full’ debater, I often posed the very simple question: What if natural gas prices were to suddenly rise? The responses would typically vary from “well, they won’t,” to “we are swimming in gas so that’s not likely,” and my favorite, “we’ll worry about that when the time comes.” That last one is great management, right?
In any event, thinking natural gas prices would remain at 40-year lows is foolish. The sheer fact we are using or planning to use more and more natural gas in residential heating, in cogeneration plants, and in transportation suggests demand is rising and supply can’t and won’t stay in a nirvana-like state. Why? Pipeline disruptions can and do happen from time to time, there is increased discussion about exporting natural gas, and natural gas will likely be used in conjunction with renewable energy sources to help offset older coal plants that are retiring.
So who wins and loses if the new wildcard is dealt to the American people? Well, producers of natural gas such as Chesapeake Energy (NYSE: CHK ) , Devon Energy (NYSE: DVN ) , and Anadarko Petroleum (NYSE: APC ) are surely beneficiaries of higher natural gas prices, but utilities like Duke Energy (NYSE: DUK ) , NRG Energy (NYSE: NRG ) , and others may be hard-pressed to raise consumer prices. They may suffer before blessing the passing of costs along. I’m all for electric vehicles, but unless storage solutions develop sooner than later, consumers may begin to think twice about charging their vehicles, especially if they just switched over to natural gas in their homes and escalating natural gas prices hit their wallets.
With natural gas prices now at the highest levels since August 2010, the wildcard of continued rising prices could disrupt a lot of “hopium” that this power source was the ultimate key to our energy independence. Without emphasizing more renewable energy sources here at home, the bridge fuel that is natural gas is a dangerous trip for consumers, especially if that bridge is not leading them to the diverse, low-carbon power sources that really should come next.
15 Comments on "The New Wildcard in the US Energy Poker Game"
Northwest Resident on Mon, 3rd Feb 2014 3:38 am
“…the wildcard of continued rising prices could disrupt a lot of “hopium” that this power source was the ultimate key to our energy independence.”
It was never my “hopium”, that’s for sure. Or anybody else’s that did any amount of thinking and reading on the subject. It WAS the “hopium” previously being pumped out to the masses by MotleyFool dot com and other “propaganda” outlets. Now they changed their minds, or what?
Totally off topic: Did anybody else watch the Super Bowl? What a slaughter. But how about that long and patriotism-inspiring intro — so many notables all joined in reading the US Constitution — the conspicuous praise of our armed forces and highlighting how they have always fought to protect the ideals expressed in that Constitution. I thought it was a powerful presentation, and one that is sure to inspire a lot of patriotic feelings. You’d almost guess that TPTB are pumping us up for “tough times ahead” — and you might be right.
rollin on Mon, 3rd Feb 2014 4:19 am
Higher gas prices at the wellhead would promote more drilling. Higher gas prices at the customer (which is what just happened) will only cause economic harm and force some conservation and switching to other fuels.
NWR, could be the reading of the Constitution was a reminder to Congress and the President.
GregT on Mon, 3rd Feb 2014 4:28 am
“Did anybody else watch the Super Bowl? What a slaughter.”
Sure was, good for the Seahawks!
“But how about that long and patriotism-inspiring intro…….”
Glad to hear an American saying so. My wife and myself were saying exactly the same thing. Tough times ahead, or maybe another false flag, or both??????
DC on Mon, 3rd Feb 2014 4:52 am
The super bowl and circuses have become as much a showcase of 6-pack patriotism and militarism, as much as selling crappy GM gas-burners and watery beer-like liquids.
Ive read a few good takedowns of the ‘super-toilet bowl’ but this one is one of the better ones.
http://www.counterpunch.org/2014/01/31/the-xlviii-super-brag/
GregT on Mon, 3rd Feb 2014 5:25 am
DC,
From your linked article:
“Why do American sports fans feel comfortable with calling the winners of the “Super Bowl,” the winners of the NBA and MLB titles “World Champions”?”
Hmmm. I was thinking the same thing when the announcer said that at the end of the game tonight…….
Northwest Resident on Mon, 3rd Feb 2014 6:59 am
DC — speaking of GM gasburners… Did anyone else notice or was it just me? It seems like EVERY Super Bowl commercial was an automobile advertisement. What’s the message? Are they THAT desperate to sell cars these day? Sure seems so.
Greg — My guess is: both.
DC on Mon, 3rd Feb 2014 8:01 am
You know NWR, a similar thought occurred here in this (brief) article, one of my ‘favorite’ websites, over at Mans Greatest Mistake.
Its from 2011, but, totally relevant. Enjoy.
http://www.mansgreatestmistake.com/in-the-media/automotive-advertising-spend-in-us-2011
mike on Mon, 3rd Feb 2014 8:37 am
That strange sport played at the super bowl apparently decided who are the “world champions”, even though no other country on earth enters the competition. The sport is called “football”, even though the feet are scarcely ever used, unlike in the sport the rest of the world plays – proper football (aka soccer)which uses the feet almost exclusively and has a genuine world championship competition – the World Cup – in which ALL the countries of the world play. Nothing better demonstrates the solipsistic life of the USA and the divorce of meaning from words in the USA. This divorce of meaning from utterance that so characterises current American public discourse is also manifest in the reading – no – mindless ritual chanting – of the Constitution of the USA at a time when the operation of that constitution by a dysfunctional Congress and an emasculated Presidency is apparent to all observers. The same divorce from reality is to be found in the flood of garbage hype for “Saudi America” and energy independence and Peak Oil is Dead etc, so I suppose the Super Bowl is a good metaphor for the state of America at this time of impending energy crisis.
Davy, Hermann, MO on Mon, 3rd Feb 2014 2:00 pm
Boys, watch that documentary on Frontline about the brain disease being caused by concussions and repetitive brain impacts. These guys are getting permanent damage. They are developing Chronic Traumatic Encephalopathy (CTE). OK these guys are getting paid well so it is part of the job description. What I have a problem with is the cover up. They have been doing the typical tobacco lobby to suppress this information. The real damage is our kids all over America playing the game. I read where if 10% of moms would know about this it could bring an end to football.
On gas prices the issue is we are being sold snake oil on gas supplies. Just witness Shell pulling out of their gas to liquids plant in LA. That is a plain and simple answer to where gas prices are going. All this talk about exporting gas?? Lets see how many Liquefied Natural gas facilities get built. When the huge sums of money are needed to back up the hype it usually tells you how much of the hype is real. We here know the truth about shale gas that is high cost and high depletion. It is a sunset industry that luckily American found to buy it some time. Lucky that is unless you have taps that burn.
Makati1 on Mon, 3rd Feb 2014 3:23 pm
What Super Bowl? I didn’t notice anything in the news here in Manila about ‘world champions’. Oh, do you mean the mindless, commercial drenched, gladiator game staged by the Ministry of Propaganda for that ‘exceptional’ group of brain damaged sheeple called Americans? I haven’t paid any attention to that for most of my life. Never will.
GregT on Mon, 3rd Feb 2014 5:30 pm
NWR,
I read the local newspapers daily, most of the time just to read between the lines, but occasionally there is a small tidbit of factual information, usually well hidden somewhere. The thing that is very telling, is the amount of auto advertising. Out of 53 pages in todays rag, 22 of them were selling cars and trucks, and the entire drive /consume lifestyle.
Also, reading between the lines, the SuperBowl pre game stuff left me with some very disturbing thoughts. Anyone paying attention, I’m sure, must be thinking along the same lines. I am also sure, that most people, are simply not paying attention. They are only listening to what they are being led to believe.
It was a good game though.
Northwest Resident on Mon, 3rd Feb 2014 5:42 pm
GregT — I just posted this:
http://www.zerohedge.com/news/2014-02-03/ford-gm-car-sales-tumble-weather-blamed-usual
Car sales are WAY, WAY down — and still a lot of 2013 inventory sitting on the lots. It is No Surprise why they are pumping automobile advertisements at us, trying rather desperately I think to induce us to go out and buy new autos. As I’ve pointed out, significant drops in auto sales will lead to very bad consequences for the global economy — very bad.
And I am with you on that SuperBowl pre-game stuff. Anybody who does NOT see the hidden but obvious intent behind that patriotic call to arms is equally unlikely to understand that we are teetering on the edge of a very steep drop-off.
Dave Thompson on Mon, 3rd Feb 2014 5:57 pm
What says America more then a spectacle of over consumption and the fact that the ad-men can get people not even interested in the “game” to pay attention to the damn commercials. Hearing people say “I don’t watch the game so much as I do those TV commercials” is the tell. WEEEEEE!!!!! are gonna be energy independent!!!!!!!!!!! They told me so!
rockman on Mon, 3rd Feb 2014 6:56 pm
“In any event, thinking natural gas prices would remain at 40-year lows is foolish.” No…trying to convince folks that the “executives” believe such an absurd statement is foolish. This is what I do for a living and no one with their boots on the ground have such expectations. Lots of difference opinions when the prices will rise significantly but certainly not 40 years.
“So who wins and loses if the new wildcard is dealt to the American people? Well, producers of natural gas such as Chesapeake Energy, Devon Energy, and Anadarko Petroleum are surely beneficiaries of higher natural gas prices…” No, they aren’t. The beneficiaries with be those companies with large AND SLOWLY DEPLETING NG reserves. It doesn’t matter how many shale gas wells Company A drills this year or next those reserves will be greatly depleted by the time NG prices significantly increase. Whatever that time frame is a long as it’s several years out. The caped investment in every shale drilled is based upon NG prices project forward several years out. Consider the illogical assumption they make: even if the economics of a shale project is poor a company will drill it because they expect a jump in NG prices in 5+ years…long after that well has produced the great majority of it’s reserves.
This is a different dynamic to what will happen to unconventional drilling AFTER NG prices booom. The large heritage produces will see huge profits. Just as they did in ’08 when NG was selling for at least 4X the priced used to justify their development. So high do prices need to go for another shale gas drilling boom? I won’t guess but here’s a first hand account of recent history.
I was at Devon working as a pore pressure anly
rockman on Mon, 3rd Feb 2014 7:13 pm
Accidentally hit the button. I was at Devon working as a pore pressure analyst working for the drilling department that was doing the east Texas shale drilling boom. Great enthusiasm as prices were heading north of $10/mcf. They contracted 18 drill rigs. And then the slide in prices began. I was in the department’s daily review every morning and watched the panic grow. When prices dropped under $7/mcf the panic began to set in very hard. And that’s about 50% higher then current prices. Devon’s response: they paid $40 million in cancellation penalties to drop 14 of those 18 rigs. And that was when NG prices were higher then they are now. But they did have a few sweet spots still worth drilling. But 75% of all the shales gas rigged pulled out.
I don’t know what the magic price will be or when it will happen. But I doubt it will be below $7/mcf and will not take 40 years. And the elephant in he room is the demand factor. And that adds more uncertainty of any prediction.