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Page added on July 24, 2014
Robert Rapier: The US and Russia are Gas Giants
This is the 2nd installment in a series that examines data from the recently released Statistical Review of World Energy 2014. The previous post – World Sets New Oil Production and Consumption Records – delved into world oil production and consumption figures. Today’s post looks at the global natural gas picture.
In 2013 global natural gas production advanced 1.1% to a new all-time high of 328 billion cubic feet per day (Bcfd). Except for a one-year decline in 2008-2009, global gas production has risen fairly steadily for about three decades, and production has more than doubled during that time span:
The US is Still Gas King
The US continues to dominate both natural gas production (and consumption). In 2013, the US set a new all-time high production record for the third straight year, with gas production rising to 66.5 Bcfd to lead all countries. In fact this was once again more natural gas than any country has ever produced in one year.
Natural gas production in Russia reached 58.5 Bcfd, good for 2nd place globally. The US and Russia cumulatively produce 38% of the world’s natural gas. Far behind in third place was Iran at 16.1 Bcfd — good for 4.9% of global gas supplies. Rounding out the top five were Qatar at 15.3 Bcfd and Canada at 15 Bcfd.
However, US natural gas consumption was still greater than consumption, rising to 71.3 Bcfd as utilities continued to look to natural gas as a cleaner alternative to coal. Despite an increase in the past 8 years of 17 Bcfd — an increase of nearly 35% — the US remains a net importer (and the largest consumer) of natural gas.
Russia and Iran were second and third in natural gas consumption. They consumed, respectively, 40 Bcfd, and 15.7 Bcfd. The US and Iran consumed at least as much gas as they produced, while Russia produced nearly 50% more than it consumed internally. The rest of Russia’s gas is piped primarily to Europe, but China recently signed a $400 billion deal with Gazprom that will supply China with Russian gas for the next 30 years. In 2013 China was the world’s fourth-largest consumer of natural gas at 15.6 Bcfd. Rounding out the top five among consumers was Japan at 11.3 Bcfd.
Natural Gas Reserves
Despite the surge in US natural gas production, US proved reserves have increased substantially over the years. Proved gas reserves in the US reached an all-time high of 334 Tcf in 2011, fell in 2012, but surged in 2013 back to 330 Tcf. The increase in reserves is primarily a function of the pairing of hydraulic fracturing with horizontal drilling, which turned a big volume of natural gas resources into natural gas reserves for the first time (i.e., the “shale gas boom”). After two decades of declining to flat natural gas reserves, US reserves have now risen 86% since 2000.
Global proved natural gas reserves have grown more consistently than US reserves over the years, albeit not as sharply. Over the past decade global gas reserves are up 33%, and just eked out a new record in 2013 of 6,558 Tcf. While this record is a fraction of a percent higher than the previous record in 2011, global reserves have been effectively flat for the last two years.
Price and Differentials
The surge in US gas production has had a dampening impact on domestic gas prices, but internationally prices have risen substantially over the past decade:
This combination has resulted in enormous differentials that have developed between US natural gas prices and liquefied natural gas (LNG) prices in Europe and northeast Asia. These high differentials have resulted in a rush to build LNG export terminals in the US.
US natural gas production is up 11.4 Bcfd in just the past five years. However, there are presently 13 pending proposals awaiting approval from the Federal Energy Regulatory Commission (FERC), with a total proposed export capacity of 17.9 Bcfd. Two projects have already been approved by FERC. Cheniere Energy (NYSE: LNG) and Sempra Energy (NYSE: SRE) have had projects approved with a combined proposed capacity of 4.46 Bcfd.
Conclusions
The global natural gas picture is dominated by the US and Russia, and this will likely continue to be the case for the foreseeable future. But the US is in 5th place globally in natural gas reserves, far behind countries like Iran and Russia. Ultimately the US will probably yield its position as the top gas producer back to Russia.
Nevertheless, the shale gas boom in the US has expanded natural gas production rapidly, which has led to a number of LNG export terminal proposals. But unless US natural gas production continues expanding at the pace of the past five years, it is almost a certainty that these export facilities (among other drivers) will lead to higher US natural gas prices.
Consumer Energy Report » R-Squared Energy Blog by Robert Rapier
56 Comments on "Robert Rapier: The US and Russia are Gas Giants"
Nony on Thu, 24th Jul 2014 3:09 pm
Rapier predicted a gas prize squeeze in March (which did not occur) followed by higher prices rest of the year. Which has not occurred either. Two weeks later as we scraped by the close call, he kind of wrote a rowback column where he said “no, I never said that”. Bottom line: gas prices are at ~$4 looking out for the next 1.5 years. Lower than what he predicted. And this is with a healthy consumption growth.
The Marcellus IS might!
😉
JuanP on Thu, 24th Jul 2014 3:15 pm
After the price of gas crashed a few years back because of excess supply and the number of rigs drilling for gas went down significantly, I expected that by now falling production from depleting wells would have put a break on production and raised prices back. Instead we have record production and low prices. I obviously still have a lot to learn about gas production.
Joe Clarkson on Thu, 24th Jul 2014 3:33 pm
RR’s last sentence is important. If a significant fraction of US gas production enters the high-priced global market, this will tend to push up prices in the US and put downward pressure on prices for LNG purchasers.
Higher prices will make fracked gas more profitable to produce and also raise reserve estimates. Right now, US reserves would only last 12-13 years at current rates of US consumption.
Higher prices due to exports will raise reserves significantly but also promote more production for export. The US faces the prospect of suffering all the side-effects of increased fracking, plus much more rapid gas depletion, all so that the rest of the world can get cheaper gas and thereby burn more of it.
This is just another example of how the global market optimizes increasingly rapid consumption of fossil fuels. One can only despair at our dwindling prospects for mitigating CO2 and methane pollution.
Plantagenet on Thu, 24th Jul 2014 3:54 pm
Having more NG in the global economy would help REDUCE CO2 production levels. NG releases much less CO2 then oil or coal, which currently dominate the global energy scene.
JuanP on Thu, 24th Jul 2014 4:12 pm
Plant, I beg to disagree. Having more NG would just increase growth and pollution further.
We will burn all the oil, coal, gas, wood, and anything else that burns in our attempt to keep the appearance of BAU for as long as we can, and then continue causing further destruction for the rest of our lives.
Nony on Thu, 24th Jul 2014 4:38 pm
The Marcellus really is mighty.
Rock is right to talk about how high oil prices helped build the Bakken/EF (although I think he overdoes the idea of preknowledge, why didn’t peaker forecasters plan on them).
But in any case, the Marcellus has enabled low price AND during expanded consumption. It really is a supply story. Not a price story. Very different from oil.
P.s. Better watch out Texas…PA has passed LA. It sounds crazy, but you could be next…
Nony on Thu, 24th Jul 2014 4:40 pm
Berman and Rogers were so, so, soooo wrong with their naysaying on the Marcellus (based on 18 months of Haynesville data from 2008-2009)
J-Gav on Thu, 24th Jul 2014 4:58 pm
Berman is hardly the dumb-ass he’s made to out be to in some of the comments here … It’ll only be a few years before that becomes painfully obvious, perhaps even to the Cornies.
bobinget on Thu, 24th Jul 2014 5:29 pm
Because coal represents such major health hazards
worldwide (climate change issues aside) NG is the natural, well, quickest, inheritor.
Unless prices go higher soon, there won’t be oversupply much longer…
rockman on Thu, 24th Jul 2014 7:41 pm
Oversupply, Bob? The US is both a net NG and LNG importer. Perhaps you mean a global oversupply. But check out what I just found out about Trinidad LNG imports to the US. There are huge NG reserves in the Caribbean with little local market:
http://www.eia.gov/dnav/ng/hist/n9103td3m.htm
From Oct 2013 to April 2014 LNG imported from Trinidad increased from $3.45/mcf to $17.34/mcf. But only $8.47/mcf in March. Very strange. During this spring, so far, the Trinidad LNG is much more expensive than it was during this past harsh winter. Go figure. LOL.
Nony on Thu, 24th Jul 2014 8:22 pm
Rock:
1. LNG imports are as small as a mosquito’s butt.
“LNG imports decreased by 45% from the 2012 level to 97 Bcf in 2013, the lowest level since 1998.” -EIA
That is for a market of about 26 TCF. It’s almost rounding error. Probably guaranteed delivery contracts running out.
2. No, we aren’t exporting now. But all the experts (real honest to God experts like EIA, not peak oil blog writers) predict it. Date has moved up from 2020 to 2016. The day is a coming:
www dot youtube dot com/watch?v=KYbJ3d20B-c
3. That mighty Marcellus is coming atcha. Shutting down GOM drilling. Shutting down LA drilling. Turning TX into casinghead gas producers. And pushing back Canadian product. It is MIGHTY! I love it.
Nony on Thu, 24th Jul 2014 8:56 pm
Utica stepout to the East?
www DOT bizjournals DOT com/pittsburgh/blog/energy/2014/07/eqt-to-tap-pennsylvanias-utica-shale DOT html?page=all
hiruit nguyse on Thu, 24th Jul 2014 10:54 pm
Can we seriously lose all the topless posers that appear on the “peak oil is you” photo?
eugene on Fri, 25th Jul 2014 11:39 am
If I understand the NG situation correctly, all gains are in shale which means ever more and ever faster drilling to stay even let alone production gains. It appears to me there are different “interpretations” of our energy situation. Some simply look at “reserves” (and there’s different interpretations of reserves” and scream halleluiah. we’re saved. Others, capable of a bit deeper thought processing, look at things like costs, speed of production, drilling rig counts, etc and the picture is a lot different. The halleluiah folks then debate the deeper thinkers. In between are the algae, nuclear, etc people who, again, are screaming halleluiah. I need to include the folks who believe the US is the world in this group. Personally, I prefer the deeper thinkers.
Nony on Fri, 25th Jul 2014 12:53 pm
Production per rig has increased.
oilprice DOT com/images/tinymce/James%207/AE3029 DOT png
Northwest Resident on Fri, 25th Jul 2014 1:22 pm
“Production per rig has increased.”
For now. Enjoy it while it lasts. Or, better yet, enjoy it while lasts AND make the best possible use of this brief window of time as you can to prepare for the coming storm.
Northwest Resident on Fri, 25th Jul 2014 1:29 pm
Eugene — One of things I really enjoy about this forum is that there are some truly deep thinkers here. And a few not-so-deep thinkers, we know who they are.
When it comes to NG, the logic is fairly simple:
As long as there is enough oil at even a marginally affordable price, the oil companies can keep producing NG.
When the supply of affordable oil goes down, NG production will almost assuredly go down along with it.
When there is no more (or very little) affordable oil, then there will be correspondingly very little or no NG production.
In other words, from my point of view, NG production is like almost everything else in our modern world (food, plastic, transportation, mechanized warfare, etc…) entirely and solely based on an adequate supply of affordable oil.
No more oil, no more NG, no more anything else.
Simple. Or not?
Nony on Fri, 25th Jul 2014 4:44 pm
Marcellus gas starting to compete with coal straight up (in region)?
rbnenergy DOT com/oh-so-handy-could-fuel-switching-fix-falling-natural-gas-prices
RobertRapier on Mon, 28th Jul 2014 2:18 pm
“Rapier predicted a gas prize squeeze in March (which did not occur) followed by higher prices rest of the year.”
Quote me. You will see that you are wrong about the details of what you are trying to regurgitate. What I predicted is that due to the deep inventory hole, year over year prices would be higher. (I never claimed, for instance, that middle of summer prices would be higher than winter prices; in fact I wrote an article explaining the seasonal rise and fall in prices). And prices have been higher year-over-year, consistently, all year. And I predicted gas producers would report higher year over year earnings as a result of both higher prices, and the need to produce full out to refill inventories. Which has happened quarter after quarter.
“Two weeks later as we scraped by the close call, he kind of wrote a rowback column where he said “no, I never said that”.”
Again, quote me and link to it. Let’s test your recollection here, or see if you are happy to just let your faulty recollection smear me — even though this has played out just like I said it would. The only thing that has kept it from being a lot worse — something else I said could always be a factor — is that we have had a mild summer.
RobertRapier on Mon, 28th Jul 2014 2:24 pm
“Bottom line: gas prices are at ~$4 looking out for the next 1.5 years. Lower than what he predicted.”
Again, what? Please source these claims. Quote what I “predicted.” I can help you. Google my article “My 2014 Energy Predictions.” Let me know whether my prediction on gas prices is holding up. And please, double-check your source before you post things that are demonstrably false. Direct quotes might help on that count.
Nony on Mon, 28th Jul 2014 3:30 pm
Yes, we did have a mild summer. But it wasn’t the “only reason”. In addition, to the mild summer, the Marcellus has outperformed even the optimistic (e.g. Morningstar base case) estimates. So opposite of comments that supply would be turned off because of pricing or would have decline issues (I’m not saying you said that, but people have), we’ve had the opposite…boosted supply at ~4.50 pricing.
Cites coming…
Nony on Mon, 28th Jul 2014 3:47 pm
1. The title of your 26FEB piece was “Natural Gas Inventories are Headed Toward Zero”. Quite a title, huh? Not depressed, not “will reach zero”. But “headed to zero”. Sure seems like you predicted a price squeeze, so…let’s see:
2. “If withdrawals continue at the current pace, the inventory level would reach zero the week of March 28th (see the figure below), which is usually around the time inventories start to recover. This may lead to more spiking prices in the weeks ahead, but more importantly it will probably support higher than normal natural gas prices for the rest of the year.”
You predicted BOTH higher year over year pricing AND a price squeeze.
3. “Natural gas prices have been falling in recent days, but I think that sell-off is premature.”
Uh…no, no, it wasn’t. 🙂
4. “I got a number of questions and comments about that essay…First, I want to deal with some misconceptions that a few people had.”
Looks like I wasn’t the only one who thought you called for a price squeeze. When a lot of people think something different from you, maybe it’s you…
5. [commenter] “The thing I don’t understand about your analysis is the statement that “If withdrawals continue at the current pace, the inventory level would reach zero the week of March 28th”. What are the chances of that? Tomorrow’s report will be around 100 Bcf withdrawn. After that a couple of heavier weeks, not likely 20+, and by then it will be spring. Warmer weather will keep nat gas inventories from going to zero.”
[you] Historically inventories haven’t turned up yet as of March 28th. We won’t go to zero; prices will make sure of that. But one more really cold snap and it will send inventories near zero. This has been the fastest draw down over a winter in history, and with a month still to go in the season the record low will be threatened.”
Me: Commenter was right. We did not even have a squeeze.
6. (I could go on…that’s enough.
7. “My point was that this winter marked the sharpest decline trajectory and we have made the largest ever withdrawals from storage in history, and barring a sudden warm spell we are going to go into injection season with very low natural gas inventories.
This has implications. Why? Because historically a significant deviation of inventories from normal will have a lingering impact on natural gas prices.
To address the second misconception, that doesn’t mean I believe natural gas is going to be $10/MMBtu for the rest of the year. It could spike to that level briefly, and has already spiked above $8/MMBtu twice (February 5th and 10th), but this is not my thesis. Natural gas prices have pulled back somewhat in recent days, leading one person to essentially say to me on Twitter “See, you were wrong about natural gas prices. They are pulling back and will probably settle in between $4 and $5 for the year.”
But we did NOT have a squeeze. Prices in late FEB were down from early FEB and we never got the squeeze.
8. There was a great RBN Daily Energy post in the spring where they talked about how the market was pricing in a chance of next winter being tight, but then after that the slope returned to normal. Go look it up…great insight. Really. [In any case, injection has been so strong, we’re not even getting the winter priced high this year.]
——————-
Net, net: If we HAD had a squeeze in March, would you have said “oh…I never predicted that”? Yeah…right. 😉
——————–
The Marcellus kicked your butt. You’re better than the average peaker…but you still have some of that, not facing the music about you.
—————–
Oh…and the year over year futures look great. sub 4 for next year to two and then slowly up into the 4s. You predicted that? Yeah…right.
RobertRapier on Mon, 28th Jul 2014 3:52 pm
Right off the bat, I see how you operate and why you come to incorrect conclusions:
“Natural Gas Inventories are Headed Toward Zero”. Quite a title, huh? Not depressed, not “will reach zero”. But “headed to zero”.
Headed “toward” was quite accurate, which you have “carelessly” switched for “to” — essentially changing the meaning. The one prediction I was incorrect on was that we would end up seeing the lowest year end inventories on record. It wasn’t quite the lowest ever, but it was the lowest in over a decade (and not far from the lowest ever.
More to follow.
Nony on Mon, 28th Jul 2014 3:53 pm
Bottom line: gas supply looks great. Even at $4-5 pricing. Even below $4 pricing. Those Marcellus wells really do produce a lot. And it’s just going to get better with more takeaway. And there’s a slew of shutin or drilling but uncompleted wells waiting. Productivity per rig is huge. Sounding a caution for gas supply didn’t make much sense, Robert. And we haven’t needed a price signal to drive supply.
Nony on Mon, 28th Jul 2014 3:55 pm
Both spot AND years out futures are down from where they were when your column was posted on the FEB 26th. Things have gone in the opposite direction.
Nony on Mon, 28th Jul 2014 4:12 pm
www DOT cmegroup DOT com/trading/energy/natural-gas/natural-gas DOT html
Futures are at 3.75 and stay below $4 out to JAN 2016. [Site auto-updates, so that is the price at the time of this post.]
Is this is the ‘higher prices in the years out’ picture that you predicted? Really, honestly?
RobertRapier on Mon, 28th Jul 2014 4:15 pm
“You predicted BOTH higher year over year pricing AND a price squeeze.”
Check EIA spot prices for gas. The week after I wrote that article, gas prices spiked above $7 (from $4 something). Check. Further, year over year prices have consistently been higher, yes? Was I correct on that (regardless of what you believe about the future)? Yes, I was.
“Uh…no, no, it wasn’t.”
Again, check your EIA spot prices. Overall premise was with inventories that low, there would likely be volatility — especially if there was more cold weather (an unknown). Prices spiking from $4.80 when I wrote that article to $7.98 the next week was exactly as I said.
“Looks like I wasn’t the only one who thought you called for a price squeeze. When a lot of people think something different from you, maybe it’s you…”
Or, the percentage of people with misconceptions was low, but they were repeating the misconception — the main one of which was that we were going to run completely out of gas. Some people connected those dots, but I wanted to explain that this wasn’t going to happen.
“Me: Commenter was right. We did not even have a squeeze.”
I said “if we have one more cold snap.” We did not. Sorry, I can’t predict the weather. But I can tell you what the implications will be. I couldn’t predict a mild summer, but I could tell you that if we had a mild summer inventories would be able to be replenished faster.
“But we did NOT have a squeeze. Prices in late FEB were down from early FEB and we never got the squeeze.”
That’s your misinterpretation. The things I said were correct. We have higher year over year prices. I was clear that I didn’t believe prices were going to go way up and stay there. I said that several times. You quote me above saying that.
“The Marcellus kicked your butt. You’re better than the average peaker…but you still have some of that, not facing the music about you.”
This is where you really lose the plot. I have been recommending Marcellus gas producers for 2 years — and those recommendations have done extremely well. At Investing Daily, I run a portfolio of energy companies. I cover the entire energy space (with one publication devoted to MLPs), and my track record is documented. I have consistently outperformed my respective indices since I have writing for them.
If you want to believe that I have been totally wrong about gas prices — knock yourself out. But all of my natural gas picks have double-digit gains over the past year (because I was correct on higher year-over-year gas prices and higher production to make up the winter deficit).
I have been very thorough explaining my thesis for longer term higher natural gas prices. In the short term, weather can always trump the longer term bullish factors (EPA phaseout of coal, LNG export terminals, etc.)
Nony on Mon, 28th Jul 2014 4:20 pm
Historic HH spot price
www DOT eia DOT gov/dnav/ng/hist/rngwhhdd DOT htm
24FEB: 6.08
25FEB: 5.21
26FEB: 4.81
Your column came out on the 26th (I wonder when written). And it talked about ‘higher prices in the out years’.
We sure as heck ain’t higher than those prices, Robert.
And the commenter who talked about the recent selloff was SPOT ON. And you saying the selloff didn’t make sense were WRONG.
RobertRapier on Mon, 28th Jul 2014 4:23 pm
“Sounding a caution for gas supply didn’t make much sense, Robert.”
My warning has been on the demand side. This winter caused a short term supply issue, but I have always focused on the things that are going to drive demand — not on those that will lower supply. But, if the skeptics are right and supplies do fall faster than forecast, it still supports higher prices.
“Is this is the ‘higher prices in the years out’ picture that you predicted? Really, honestly?”
Ha! So futures always accurately reflect what actually happens in years out? I see your confusion now. I don’t try to predict what futures are doing in years out. I predict what is actually going to happen, and act upon those predictions. If gas is really trading at $4 in 3 to 5 years (the time frame I have typically specified) then you can say “Robert, you were dead wrong about what would happen with gas prices.” But the futures markets have been wrong before. It’s a bit early to declare victory on that one.
Nony on Mon, 28th Jul 2014 4:23 pm
You could be bullish on the producers because of thinking prices would be higher. Or you could be bullish because of thinking they would produce more product than expected.
So far, it looks like the latter reason is a better fit for why to be bullish on Range or Cabot. Not the former.
Nony on Mon, 28th Jul 2014 4:27 pm
3.75 right now. Yum, yum. Lot below 6.08 of the 24FEB. I’ll take an ice cream cone for now. If we are below $6 on 24FEB2016, you can buy me a Ruth Chris steak dinner with lots of Tanq and tonic. 😉
Oh…and if you really don’t believe in the futures, we can bet on it and I will just hedge and make it riskless for me. WOOOOOT! 🙂
Nony on Mon, 28th Jul 2014 4:28 pm
I declare Internet victory.
RobertRapier on Mon, 28th Jul 2014 4:29 pm
“Your column came out on the 26th (I wonder when written). And it talked about ‘higher prices in the out years’.
We sure as heck ain’t higher than those prices, Robert.”
Are you visiting me from the future? Because unless you are, using future’s prices to determine what prices will actually be at a given time is sort of silly don’t you think? Why do you think future’s prices go up and down? Do you think anyone bought $6 gas futures last summer for winter delivery? Yet some paid that when the future actually arrived.
Nony on Mon, 28th Jul 2014 4:31 pm
3.75. Yum…yum.
RobertRapier on Mon, 28th Jul 2014 4:32 pm
“You could be bullish on the producers because of thinking prices would be higher. Or you could be bullish because of thinking they would produce more product than expected.”
I have said both would happen. Producers were going to be producing full out all summer to refill inventories, but because of the inventory hole they would get higher prices than they did a year ago. Thus, quarterly profits will be higher. Every bit of that has been true.
“So far, it looks like the latter reason is a better fit for why to be bullish on Range or Cabot.”
I own Cabot, among others. It’s a no-brainer at this price.
Nony on Mon, 28th Jul 2014 4:33 pm
I gotta do some work. Have an interview for a 6 month, 1600/day project. [I’m not a rich master of the universe like you, have to work to support myself.] You can have last word and wish me luck on my little contract.
RobertRapier on Mon, 28th Jul 2014 4:43 pm
What is it that you do? I understand your argument now, but I don’t agree. Your argument is “You are wrong about what gas prices will be in a few years because of future’s prices in those out years.” I don’t agree with those future’s prices any more than I agree with the current market valuation of Cabot.
Nony on Mon, 28th Jul 2014 5:09 pm
Point stands on the squeeze. You can say “I never said a number”, but that’s kinda weak. When I look at the totality of your remarks and then what unfolded during the spring, we were far from any extreme squeeze (like ‘would have hit zero except for price holding it back’).
We’ll see about the out years also, but it’s not looking good for you. Again, you can talk it off, based on not having given a number. But I think any reasonable commenter who saw your columns the days they came out would think you were off, if prices end up averaging in the 4’s or below.
I’m nobody important, Robert. No oil/gas time. Jack of all: chemistry, M&A, military, plumbing engineering, ski instructing, consulting. Normal American male.
See ya.
RobertRapier on Mon, 28th Jul 2014 5:46 pm
“Point stands on the squeeze.”
Believe that if you want, but the totality of my comments come down to “prices will be higher year over year.” I did say that prices could spike higher in coming weeks — particularly if there is more cold weather. They went from $4.80 to nearly $8 the following week, but you seem to have interpreted my comments as if I thought gas would be $6 all summer. My actual prediction for the year — made in January — was higher average natural gas prices in 2014. Not $8. Or $6. But trending higher. It will take a total collapse for that prediction to end up being false. If you want to compare predictions, I would be glad to look at yours.
You are seeing my comments given some preconceived notions. For instance “would have hit zero except for price holding it back” isn’t an accurate reflection of my comments. In no context would I say that inventories would go all the way to zero, because as they got really close prices would skyrocket.
That’s why I have always said that the timing of peak oil is further out than many people think because there are supply and demand responses to higher prices.
Nony on Mon, 28th Jul 2014 8:11 pm
I agree that you acknowledged price would skyrocket to restrain shortfalls before we “ran out”. That you recognize that. But we didn’t even see that. March averaged in the 4s.
Not looking good so far in the out years either. Betting money is not with you. And the reason is unlikely a projection of lower demand. It’s a supply story. Marcellus is already ahead of even the cheerleading March 2014 Morningstar base case.
Nony on Mon, 28th Jul 2014 8:23 pm
It’s OK to have a different opinion than the futures. But then what is your basis? We had a cold winter? You predicted a squeeze that didn’t happen? Huh?
What’s the basis for expecting systemically higher gas prices?
1. The Marcellus is slowing? (can’t be that…it just keeps beating forecasts even after they get raised.)
2. Your gut?
RobertRapier on Tue, 29th Jul 2014 12:09 pm
“It’s OK to have a different opinion than the futures. But then what is your basis? We had a cold winter?”
I feel like you are trolling me at this point. I have stated in this thread the basis of my prediction, and I have written some quite detailed articles on it. In those articles I talk about long-term and short term trends. Over the long term, as LNG export terminals come online, the price of gas will rise — unless production can continue to rise at the current pace. Further, the EPA is essentially phasing out coal-fired power, which will benefit gas. That’s just a couple of things. Demand side. Long term. I am betting on it. Now, if there are any stumbles on the supply side in the next 3-5 years — not a part of my bet (yet which you seem to believe is) but a possibility — that also supports higher prices. The only thing that keeps prices in check is a continued production rise at the current pace (or even faster, with the export terminal applications that are being processed).
“You predicted a squeeze that didn’t happen? Huh?”
Definitely trolling me. What I have said repeatedly is that short term factors can temporarily trump long term trends. Just like this winter. I repeatedly said “This is a short term factor, but one that is likely to have a lingering impact given historical responses to these sorts of inventory draws.” That “lingering impact” has been higher gas prices than a year ago, consistently this year. Only recently have the price differentials significantly narrowed.
But I don’t ever say “Gas prices will rise and remain high this summer.” What I do say is “Given the current inventory situation, it is a good bet that year over year natural gas prices will be higher, and producers will need to produce full out to refill inventories while getting better prices. Thus, natural gas companies are a good bet.” Which is exactly what I did say, many times, and which proved to be exactly true.
I can’t make it any clearer than that. My predictions have almost all proven correct to this point. Quarterly reports of the gas companies are coming in as I said they would, for the reasons I said they would. If you want to continue to believe that I was wrong, or that I am basing my beliefs on future gas prices on one cold winter or my “gut”, then knock yourself out.
RobertRapier on Tue, 29th Jul 2014 12:23 pm
“I agree that you acknowledged price would skyrocket to restrain shortfalls before we “ran out”. That you recognize that. But we didn’t even see that. March averaged in the 4s.”
Compare to year over year prices. You seem to want to completely ignore that I said over and over that it would be year over year prices that would be higher. Just eyeballing it, March of this year averaged around $4.50, almost a buck more than a year ago. I don’t know what else to say.
Northwest Resident on Tue, 29th Jul 2014 12:40 pm
Nony? A troll? Who would have ever thought it!
RobertRapier — If this is your first go-around with Nony, please allow me to advise you that Nony has on several occasions expressed his surprise that he has not been banned from this website as he has from others. I like Nony because he is a rascally rascal. But he is argumentative and it often times seems that his goal is to keep an argument going, rather than resolve it. I have been tracking your “conversation” with Nony, trying to stay out of it, but you are now reaching the same conclusion that others have made about our friend Nony. Just FYI.
Nony on Tue, 29th Jul 2014 1:12 pm
If you had said prices would be higher than a year ago, that would have been fine. But you didn’t. And we definitely dropped from those 6 scares. I’m just not seeing it. Both spot and futures (and spot of what was the futures) are lower now than they were on 26FEB. If you wanted an accurate prediction, you should have predicted no squeeze and prices improving.
You are hiding behind not having given a numeric prediction.
RobertRapier on Tue, 29th Jul 2014 1:53 pm
“If you had said prices would be higher than a year ago, that would have been fine. But you didn’t.”
I wrote many articles on this theme. Here is what I wrote in that particular article:
“This may lead to more spiking prices in the weeks ahead, but more importantly it will probably support higher than normal natural gas prices for the rest of the year.”
Gas prices this year have averaged higher than they have for several years. Thus, that prediction is correct.
I have written more than half a dozen articles on this at Investing Daily, and gave a presentation based on this theme this year at their annual conference. Here are some excerpts from one that I have repeated again and again:
“What I have argued is that historically low inventories will lead to higher natural gas prices and higher year-over-year profits for natural gas producers. But we have to compare apples to apples, and compare, for instance, a June 2013 contract to a June 2014 contract. As I write this, the June 2014 contract is trading at $4.37 per million British thermal units (MMBtu), which is $0.50/MMBtu higher than the price a year ago. So indeed, low inventories have driven natural gas prices higher and, as we have been predicting for months, natural gas stocks are rallying in response.
If history is any guide — and thus far it has been accurate — this will be supportive of higher year-over-year natural gas prices, and subsequently higher profits for natural gas producers. But if you compare the June contract to an April contract you will end up with a distorted picture that won’t tell you anything about the year-over-year earnings boost for natural gas producers.”
Again, exactly what happened. Further, the bottom line is that my natural gas picks — based on the theme that natural gas was undervalued — all returned double digits over the past year. 10 double digit gains out of 10 picks.
“You are hiding behind not having given a numeric prediction.”
I don’t have to hide behind anything, because what I said would happen (many times) did happen — and investors who acted upon my Buy/Sell recommendations made money. Don’t take my word for it. Write to Investing Daily and ask for my track record. I put my predictions on the line, and despite the fact that you believe with all your heart that I was wrong, somehow they all made money. So perhaps the misunderstanding is in your court.
RobertRapier on Tue, 29th Jul 2014 1:59 pm
I made 5 predictions in January. Here is what I wrote. How do you think it’s going to turn out? This should give you all the context you need. Prediction 3 for 2014:
“3. The average Henry Hub spot price for natural gas will be higher in 2014 than in 2013.
I also made this prediction last year, and it was correct. Last year it was pretty obvious that gas prices couldn’t sustain 2012’s low average price, but this year the picture is less clear. The long-term fundamentals favor gas prices creeping higher in my opinion, but on a year-to-year basis, it’s going to be heavily influenced by whether we have an exceptionally cold winter (as has been the case thus far this winter).
Over the next three to five years I expect natural gas prices to rise beyond $5/MMBtu as liquefied natural gas (LNG) projects come online. The first exports from the Lower 48 will most likely happen in 2016 when Cheniere Energy (NYSE: LNG) starts the first two liquefaction trains at the Sabine Pass Liquefaction Project. Two more trains are scheduled to come online in 2017. I think it’s likely that investors will start to bid up the price of gas as these projects move closer to completion. The EPA has also proposed regulations that would effectively preclude new coal-fired power plants from being built in the US, so as older coal-fired power plants are retired, natural gas will pick up some of that capacity.”
Nony on Tue, 29th Jul 2014 4:00 pm
I think anyone reading your FEB 26 column would see a much stronger call. You sure did not say in your FEB 26 article, I just see prices higher in 204 than 2013 (a very unremarkable prediction when on 24FEB we were at $6.)
Yeah, you didn’t make a specific number call, so you can weasel if you want to. But you definitely discussed a squeeze (which did not happen) and tried to come up with some implications for overall gas prcing based on the inventory, which in hindsight look pretty wrong.
Last word to you.
RobertRapier on Tue, 29th Jul 2014 4:21 pm
The “squeeze” is your incorrect interpretation. When I say “Given the low inventory picture, if we have another cold snap, gas prices will rise sharply” — which I said — I am saying X will happen if Y happens. You are simply saying I said “X will happen” — not intellectually honest. Your whole discussion has been intellectually dishonest. You made an incorrect interpretation and have been repeating that. I am showing you copious evidence that your interpretation is incorrect, because I have a large body of work outside that article saying much the same thing. You clearly have not done your homework, so you have made one erroneous conclusion after another.
I am an engineer. I discuss things in terms of probability, risk, and risk management. “Here’s what can happen, and here’s why it might not happen.” And I will often say “But here’s what I think will happen.” If you want an actual prediction, look at the one I made in January. That is a specific prediction. I made 5 of those, as I do every year in January. They are documented. They are specific. I leave no room for interpretation. You don’t have to guess what I meant.
“But you definitely discussed a squeeze (which did not happen) and tried to come up with some implications for overall gas prcing based on the inventory, which in hindsight look pretty wrong.”
Yes, and black is white. Year over year gas prices have been higher all year long, for the reasons I have outlined repeatedly since my January prediction. Year over year profits have been higher for natural gas producers, as I have argued all year they would be. Q.E.D.
RobertRapier on Tue, 29th Jul 2014 5:44 pm
“You sure did not say in your FEB 26 article, I just see prices higher in 204 than 2013 (a very unremarkable prediction when on 24FEB we were at $6.)”
I made that prediction in January. Does that impress you more? Probably not.
Having said that, I have made wrong predictions. In that post you like to cite, gas inventories didn’t bottom out as low as I thought they would. In my 2014 predictions, I am probably going to be wrong on average oil prices for the year. (I thought they would soften a bit). I discuss my predictions at the end of the year. When I am wrong, I own it. I discuss what went wrong.
But your comments that I called for a gas squeeze are your interpretation after you filter through all of the times I wrote “if”, “maybe”, or “probably” in that post (as an engineer is apt to do). You took all that, processed it, and concluded “Robert is predicting a gas squeeze” But you are wrong. I said that it could happen, and I talked about why it could happen. And if we had one more cold snap — as I mentioned — gas prices would have spiked very high. But we didn’t.
Nevertheless the takeaway from what I wrote was this, and this is how I advised investors: “Low inventories will mean that gas producers are scrambling to refill storage during injection season, so they will be producing full out and getting better prices than they did a year ago. Buy natural gas producers.” That’s it in a nutshell, but believe what you want to believe. You chastise people for not owning their predictions, but here you seem unwilling to concede that you may have interpreted my post too aggressively.
I made 1 prediction in that post: “I predict that we will drop below the previous all-time low of 642 bcf from 2003” — and that was wrong. But if I say “I think X may happen, based on Y” and then you say “Robert predicted X” — you just aren’t being honest. When I make a prediction, I write “I predict…” or specifically indicate that I am writing a list of predictions.