Peak Oil is You
Donate Bitcoins ;-) or Paypal :-)
Page added on January 19, 2014
Why Natural Gas Should Stay Cheap — For a Long Time
Natural gas prices are likely to stay low for at least the next 20 years, with a long term annual average price of $4 to $5 per million Btu, a new study says.
Even with new demand, the quantity of U.S. gas resources is so vast thanks to unconventional drilling techniques that average Henry Hub prices should not rise dramatically from the $4 to $5 range, though they could fluctuate. (Henry Hub, based in Louisiana, is the delivery point for physical natural gas traded in the Nymex futures market.) Henry Hub prices averaged $4.24 per million British thermal units in December, and hit a high above $13 per million Btu in October 2005.
“We now have knowledge and comfort that we have an incredible resource base-technically recoverable resources of 3,000 trillion cubic feet,” said Rita Beale,
IHS senior director of power, gas, coal and renewables. “We have 900 tcfs of gas that can be recovered for $4 or less.”
Natural gas futures were trading Friday at $4.34 per million Btu on the Nymex.
Beale said the projection is a long term average and that higher demand in some years could mean increased pressure on prices, like in 2015-2016, when a large number of coal-powered plants will shut down.
“There will be more gas in the power grid, and we’ll have more chemical plants coming on line,” she said in an interview. “We do think we’ll have prices rising gently, not spike.”
She also does not expect U.S. gas prices to rise to prices elsewhere in the world, once the U.S. begins exporting gas, expected to begin in 2019. Prices in Asia and elsewhere can be in double digits, and they are linked to oil prices.
The study says that challenges to natural gas use include conversion costs and regulations that can discourage economical natural gas projects.
The report also looks at the opportunity for natural gas in transportation, now in its infancy, and notes that never before has oil’s dominance in vehicles been challenged by such low gas prices.
For instance, retail gasoline and diesel prices are expected to be double the cost of equivalent natural gas.
Thanks to cheaper supply from shale gas production, projects are already underway to convert to natural gas.
6 Comments on "Why Natural Gas Should Stay Cheap — For a Long Time"
Matthew R. Carroll, Ph.D. on Sun, 19th Jan 2014 1:48 am
Please see the items below:
“Chesapeake Energy has not only reduced drilling, but sold off hundreds of millions of dollars’ worth of assets to cover unsustainable debt loads. BP has been forced to write off nearly two billion dollars in assets. Rex Tillerson, the CEO of ExxonMobil, told the Council on Foreign Relations in New York City in June 2012, “We’re losing our shirts [on shale gas production]. We’re making no money. It’s all in the red.”
In a New York Times investigative article (“After the Boom in Natural Gas,” October 20, 2012), Clifford Krauss and Eric Lipton wrote, “Like the recent credit bubble, the boom and bust in gas were driven in large part by tens of billions of dollars in creative financing engineered by investment banks like Goldman Sachs, Barclays and Jefferies & Company.” The article details how this “creative financing” forced drillers to keep drilling even when each new well represented a financial loss.30
( Richard Heinberg, SNAKE OIL: Chapter 5 – The Economics of Fracking: Who Benefits?,
“ . . . energy giant Royal Dutch Shell shocked Wall Street by taking a whopping $2 billion write-down in the value of its North American shale assets”
Philly.com, Pa. fracking boom goes bust, September 12, 2013, WILL BUNCH, Daily News Staff Writer bunchw@phillynews.com, 215-854-2957
http://articles.philly.com/2013-09-12/news/41974274_1_fracking-boom-penn-state-marcellus-center-marcellus-shale
“North American oil and gas deals, including shale assets, plunged 52 percent to $26 billion in the first six months from $54 billion in the year-ago period, according to data compiled by Bloomberg. During the drilling frenzy of 2009 through 2012, energy companies spent more than $461 billion buying North American oil and gas properties, the data show.”
Claire Thompson, Fracking frenzy slows as oil and gas assets plummet in price, 20 Aug 2013
http://grist.org/news/fracking-frenzy-slows-as-oil-and-gas-assets-plummet/
“Free cash flow of Continental Resources, a big player in the Bakken, has dropped from a loss of ($430M) to a loss of ($2.4B) since 2010. And Continental is not the only one. Devon Energy’s free cash flow has dropped from ($1.2B) to a significant ($3.5B) over the same time frame. Range Resources, who are drilling primarily in the Marcellus, booked a negative free cash flow of ($556M) in 2010 and this has deteriorated to ($1.0B). Kodiak Oil and Gas, another Bakken player, had negative free cash flow in 2010 of ($170M). It has now deteriorated to ($1.0B). Chesapeake is interesting because its free cash flow for 2012 ($3.3B) is now roughly equivalent to its level in 2010, ($3.4B). But over the last two years Chesapeake has liquidated approximately $13 billion in assets with no commensurate gain to free cash flow. Management still needs to move outside the company to generate cash to continue operations. And yet, shareholders have had their underlying assets disappear to the tune of $13B to pay down debt.”
JOHN WARD, ANALYSIS: How Fracking hype disguises the sector’s dangerous financial losses to date, AUGUST 21, 2013, (Quote from Energy Policy Forum),
rockman on Sun, 19th Jan 2014 4:47 pm
Doc – Good post but let me update you: “Chesapeake Energy has not only reduced drilling, but sold off hundreds of millions of dollars’ worth of assets”. Actually since the beginning of the shale gas bust CHK has old over $20 BILLION in assets. But even that number is at least 6 month old…got bored with beeping track. Even with that liquidation they might not have survived had they not hedged a large volume of their NG. When prices dropped below $6/mcf their futures hedge was still earning them over $10/mcf. But a couple of years later they made a hedge bet that prices were going to go up quickly and lost $billions. What the futures God giveth the futures God can also quickly take away.
DMyers on Sun, 19th Jan 2014 5:07 pm
Good rebuttal, Thomas R. Carroll.
Same old song. Natural gas supply approaching infinity. Yahoo!
The Natural Gas Answer, Which God Has Lain at our Feet, Along With A New Technology of Exploitation.
The straight and simple answer to how The Natural Gas Answer has been blown out of proportion is as follows. All Western economies and all aspiring-to-be-Western economies (most of the balance) have adopted energy intensive systems. The proposal is to feed this energy consumer with natural gas, which is abundant, and therefore relatively inexpensive.
The next important consideration which arises, and is usually ignored, is depletion. But there lies the truth of the matter. When the energy sucking pipes are hooked into the The Natural Gas Answer, depletion will occur at a rate far greater than that built into our expectations.
The Natural Gas Answer is not new. It has arisen before in various regions. The pattern is set in the historical record: (1) great and exaggerated expectations, (2) massive competitive extraction, and (3) rapid exhaustion from over extraction.
Right when the conversion to NG is complete, in the wake of all the huge costs in money and energy already applied, the remaining gas will not be sufficient to supply the anxiously awaiting network. Nothing to do then but convert the network to a museum or amusement park and take a shot at converting the system to coal generated electricity. At least we’re sure there are hundreds of years of coal around. (LOL)
rockman on Sun, 19th Jan 2014 5:19 pm
Interesting that in a piece predicting a 20+ year NG price stability they also offer a offer the sense of the great volatility we’ve seen in the last 8 years: “averaged $4.24 per million British thermal units in December, and hit a high above $13 per million Btu in October 2005.” And they conveniently leave out the low of $2/mcf during this period. I wonder what these clever folks would have predicted just 10 years for NG prices in the coming 10 years…forget the 20 year prediction: 2003/$3 – 2004/$7 – 2005/$5 – 2006/$10 -2007/$6 – 2008/$10.50 – 2009/$3 – 2011/$5.70 – 2012/$2.20 – 2014/$4.30.
And now these “experts” are predicting a $.50/mcf range for the next 20 years. Mighty brave of them. Or foolish? Time will tell. And I suspect it will take far less than two decades to test the validity.
Dragon Oil on Mon, 20th Jan 2014 4:34 pm
This is ridiculous! Gas is a lousy mobile fuel and a great “stationary” fuel. Thus pipelines serve multiple functions and “stranded” gas was born. This planet is overrun with “stranded” gas. Nobody seems to be talking about the gas giant in the china shop — methane hydrates. How long do you really think it will take India, China, The scandinavian countries, South Africa, Japan and eventually the USA to develop this stuff. It’s a lot closer than most of us think and will take most of those countries off the market. The price of NG? How about <$1.00/MMBTU in <10 years. The long term planners should be busy now getting ready for this with GTL technology.
AWB on Mon, 20th Jan 2014 7:58 pm
Hey folks, easy now. I assume you saw that this report was written by IHS, the ultimate Big Fossil shill. Unbelievable BS.