IEA: A New Superabundance of Game-Changing Shale Gas Will Provide 250 Years of Natural Gas
Studies are underway into newly-recoverable sources, Ms. Corbeau said. "The gas story is huge. A few years ago the United States was ready to import gas. In 2009 it had become the world's biggest gas producer. This is phenomenal, unbelievable."
The U.S. achieved the change through a technological breakthrough in which firms found a way of using tiny explosions to free gas previously trapped in a common rock - shale. Miss Corbeau said other nations were now rushing to replicate the U.S. success by exploiting gas currently trapped in various types of rock where it was thought to be impossible to access."
MP: The chart above shows monthly natural gas production in the U.S., which just set a new all-time record high in October last year.
HT: CME Group Twitter
HT: CME Group Twitter
40 Comments:
.....in which firms found a way of using tiny explosions to free gas previously trapped in a common rock - shale......
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I worked on explosive well fracking back in the late 70's, but then the price fell too low to make the technology usable.
Sometimes a "breakthrough" just needs the right price.
Impressive -- I live in Pennsylvania and the Marcellus Shale project is a fascinating initiative for our region -- in fact, the economic dynamics of Western Pennsylvania have changed fundamentally away from coal toward natural gas in only the last couple of years.
But we won't hear about this tonight in Obama's State of the Union speech. I wonder why.
Advocates call compressed natural gas, or CNG for short, one of the nation's best-kept secrets when it comes to powering cars. "It bugs the hell out of me" that more isn't being done to get the word out, says Mike Eaves of the California Natural Gas Vehicle Coalition.
Honda Civic GX: Natural Gas Powered Vehicle
GM Places Bet on Natural Gas-Powered Vehicles
Compressed natural gas is a big PIA. Some yachts use it (for heating and cooking) because, unlike propane, it is lighter than air and won't cause an explosion by collecting in the bilges. But it has low power density, so not many miles per tank, the tanks are heavy, and if you rupture one, you are prone to have a fireball on your hands.
Natural gas for powering cars is a well kept secret because it is a pretty lousy idea.
Hdra-
There are 17 million CNG cars on the road already, globally, and they are common in Thailand. (I live part-time in Thailand). The number is growing rapidly.
CNG is generally safer than gasoline--in a crash, the natural gas floats upwards. Gasoline pools around the vehicle, in a rupture. Death by immolation in a car is common in USA.
BTW, there is a guy in Oklahoma selling CNG trucks off the lot today for under $10k--see cngvehicles.net. I have no connection to this guy, but it would make a great post for Dr. Perry.
Hydra, CNG cars and trucks are here already, working without problems.
BTW, you can make methanol form natural gas, and Methanex does that and sells it for $1.25 a gallon. The BTUs are about half of that of gasoline. Still, you are getting more BTUs per dollar than gasoline.
We has gas up our rear ends for decades upon decades.
We can run trucks and cars on CNG or methanol, or combo with PHEVs.
Peak Oil is a non-issue.
Peak Demand for crude might be an issue.
If natural gas were such an economic play why are the shale gas drillers moving to liquids? Why are they bleeding red ink?
Vange-
The world is awash in natural gas, and will be for decades, that is why some drillers are losing money. It is called a glut.
Huge strikes are being made everywhere (thnk Indonesia) and then add to that shale. Eni just announced a shale deal with China. China has a large land mass, crickey-almighty who knows what they have?
Right now, Methanex sells methanol at $1.25 a gallon (roughly $2.50 a gallon BTU equivalent).
That's before the enormous economies of scale that would occur if methanol ever went mainstream.
Peak Oil is a non-story. Peak Demand for fossil crude may the story of the next 20 years.
That's the old, old story on all commodities--they go bust sooner or later.
Pop goes the balloon.
Looking at a monthly chart of the Nat Gas index (XNG) one wonders, with an increase in supply, why natural gas prices are rising. A weaker dollar partly explains but the extraction technology is, apparently, not providing enough supply at prices advantageous for consumers and end users. Any thoughts? http://davidgallionforexblog.blogspot.com/
There are 17 million CNG cars on the road already, globally, and they are common in Thailand. (I live part-time in Thailand). The number is growing rapidly.
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I didn't say it isn't possible, just that it is a PIA.
How many of them are supported by some kind of subsidy?
The world is awash in natural gas, and will be for decades, that is why some drillers are losing money. It is called a glut.
It is only a glut if they keep drilling the uneconomic marginal plays, which is the shale formations. You assume that companies will keep wasting investor capital by producing natural gas at a loss. I do not believe that can go on for very long in a world where gas depletion for new wells is running at 50% per year and the ultimate recovery rates are much lower than assumed. This is why the gas players have gotten killed and are now trying to raise capital to drill for shale liquids.
Huge strikes are being made everywhere (thnk Indonesia) and then add to that shale. Eni just announced a shale deal with China. China has a large land mass, crickey-almighty who knows what they have?
I am very interested in the conventional gas strikes but do not believe that the shale gas is economic. That means that I would rather be looking for gas in Mexico rather than ND or New York. The idea is to make money by getting a decent return, not to keep producing for a loss and letting management siphon off your capital through high salaries.
The problem with many remote locations is transport. You need to be close to your market or to have huge amounts of capital for GTL or LNG conversion. Both tend to reduce returns significantly, which means that around one third of the energy will be wasted during the conversion process.
Right now, Methanex sells methanol at $1.25 a gallon (roughly $2.50 a gallon BTU equivalent).
Methanol is used as feedstock in chemical production. It would not surprise me to see Methanex take advantage of some of these discoveries and build a plant near the fields as it has done in the past. But the gains to the producers and consumers will not be as great as they are for Methanex or similar players that take advantage and move their plants to where the gas is.
That's before the enormous economies of scale that would occur if methanol ever went mainstream.
Unless you are a drag racer or Monster Truck driver chances are that you will not be using methanol as a fuel due to its volatility and corrosive properties.
Peak Oil is a non-story. Peak Demand for fossil crude may the story of the next 20 years.
But it isn't even a story yet. And that is even though we know that the production of light sweet peaked in 2005 and have seen prices near $100 in the past week.
That's the old, old story on all commodities--they go bust sooner or later.
I think that the fiat currencies and the sovereign bond markets are more likely to go bust sooner or later. If you are not ready and refuse to take steps to protect yourself you have nothing to blame but your own ignorance.
Looking at a monthly chart of the Nat Gas index (XNG) one wonders, with an increase in supply, why natural gas prices are rising. A weaker dollar partly explains but the extraction technology is, apparently, not providing enough supply at prices advantageous for consumers and end users. Any thoughts?
Look outside. We have a very cold winter coming. Look at depletion rates. Shale wells decline at very rapid rates and given the massive amount of drilling there is a need to keep production flat the market may be anticipating a supply problem once the red ink becomes too difficult to overcome. Then there is the issue of the currency depreciation. We live at a time when the US government wants to see the dollar lose some of its purchasing power to help exporters. Add it all up and you have a number of factors that could be responsible for the increase.
Vange-
Ethanol is corrosive too--yet we are seeing E85 flexfuel cars on the market. I rented and drove an E85 V-10 GM van recently.
So cars can be made to run on methanol or ethanol--those challenges wewre surmounted generations ago. Obviously, they used methanol at Indy 500 until they switched to ethanol a few years back.
China, with a gigantic land mass, produces about as natural gas as Great Britian. I suspect we see robust development there. But natural gas seems to be everywhere--many, many countries profitably produce natural gas.
Shale gas costs are going down, and people get better and better at producing it--the same old story.
There still may yet be a run in crue oil--after all, thug states ared effectively clamping down on production. Nigeria, Venezuela, Mexico, Libya, Iran, Russia, Saudi Arabia--a role call of butt-uglies. Backward pinheads all.
But, sometimes, nations do get better. Libya is upping production now. Iraq could go to 12 mbd. Maybe Chavez will get the boot. Even Mexico could find leadership...okay, not Mexico.
We would have a global glut of oil now, except for thug statism. But that same thuggism will lead consumers to better alternatives...and gluts. Just a matter of time.
Vange-
Another reason to look skeptically at commodities--they are hot right now. The investment fad of the season. ETFs are forming etc.
Whenever an asset class is favored, it tends to be overpriced.
Ethanol is corrosive too--yet we are seeing E85 flexfuel cars on the market. I rented and drove an E85 V-10 GM van recently.
That is because the government has forced manufacturers to offer E85 cars. Ethanol is too corrosive and requires special handling. That makes its distribution too expensive. It also has a lower energy density so it reduces mileage and increases overall costs. Its production is a net energy loser so it requires massive subsidies.
So cars can be made to run on methanol or ethanol--those challenges wewre surmounted generations ago. Obviously, they used methanol at Indy 500 until they switched to ethanol a few years back.
Nobody said that they can't be made to run on methanol or ethanol. But when you use them as a fuel you need to make major investments that will increase costs without getting a positive energy return. That is why nobody wants to use them as fuel and the government has to mandate use and subsidize production.
China, with a gigantic land mass, produces about as natural gas as Great Britian. I suspect we see robust development there. But natural gas seems to be everywhere--many, many countries profitably produce natural gas.
Conventional gas can be very profitable. But shale gas is not profitable.
Shale gas costs are going down, and people get better and better at producing it--the same old story.
Yes, it is the same old story that was told in the 1930s, 1950s, 1970s, 1980s, 1990s, and now. Yet, the story was always the product of wishful thinking. If shale gas were profitable the producers would be making a positive return, not burning through cash and going to the market with a new story about drilling for shale liquids.
There still may yet be a run in crue oil--after all, thug states ared effectively clamping down on production. Nigeria, Venezuela, Mexico, Libya, Iran, Russia, Saudi Arabia--a role call of butt-uglies. Backward pinheads all.
I think that many of those 'pinheads' were stupid. They would have been better off holding oil from the market and taking advantage of the revaluation that would take place at the back end of Hubbert's Peak. Unless demand collapses you will be looking at $200 oil within two years because there is no supply response that can meet the projected demand growth.
Another reason to look skeptically at commodities--they are hot right now. The investment fad of the season. ETFs are forming etc.
If you are talking about the short term I agree that there could be consolidation for a while. The sentiment for gold and silver is very negative and every newsletter writer is being very negative about the short term action. But this is what happens during bull markets and what needs to happen for the virtuous to make money. You need to shake out the weak and stupid who only buy and sell because of sentiment and have no idea bout the fundamentals and no conviction. As they sit there looking at their screens and see the supports being taken out they are selling at precisely the time when they should buy. Some time in the next few weeks we will see a bottom for the PMs and the bull market will start its relentless climb once again. The price declines may actually be just the excuse that some companies need to close their marginal production facilities that rely on low grade ores. As that supply goes off-line we will need new production going on line but I do not see enough of it to turn me bearish on the commodities unless there is a demand collapse that comes from an economic contraction. Of course such a contraction could mean the death of the USD and could be a signal for those that missed the ride to get on as soon as they can. But that is a story for another thread.
Whenever an asset class is favored, it tends to be overpriced.
How many people do you know that have 5% of their net worth in gold? If you are like most people you will not know many. That means that gold is not favoured and that it is far from a peak. What about silver, agricultural commodities, coal, oil, or natural gas? I am in Canada where there are many commodity companies but have yet to see many of my friends and neighbours take an interest because all of them are claiming that the run is over and that the companies are over-owned.
You will know that the run is over when all those people buying scrap gold from people are selling gold coins to the public. We have a long way to go before we are there.
"CNG cars and trucks are here already, working without problems"...
Well that's pretty much non-starter in 'some situations'...
CNG in a vehicle has some parallels to using electricity to powering a vehicle...
In hilly/mountainous areas it can be a drag...
CNG tends to be a drag in cold climates also when used in a vehicle...
Though the octane count to CNG is rather decent hydra points out its volumetric problem vs actual usable energy...
So the mpg can be a bit questionable...
BTW filling up the tank is a rather slow process when compared to gasoline...
St. Louis's Lambert Field has about a half a dozen 3/4 ton pick-ups in their fleet and the airport employees tend to leave them parked when its cold (below 40 degrees F) since they tend to run unevenly and can't haul to much...
Vange-
Look at page b3 today's WSJ.
Huge players, such as Freeport LNG and Cheniere Energy, want to build gigantic facilities to export natural gas fom Houston to the world. So these guys are not clued into the fact that shale gas is a no-go?
Daniel Yergin, chairman of IHS CERA, call shale the energy story of the century, or something to that effect. I think you need to re-assess this issue. You seem to know something that no one else knows.
From an industry conference...
Natural Gas From Shale Plays Create 'New World' for Energy Industry
By MIKE SORAGHAN of Greenwire/NY Times
Published: March 11, 2010
HOUSTON -- Every day is "gas day" here at one of the energy industry's biggest get-togethers.
The CERAWeek conference has been dominated by talk of natural gas produced from shale. Talk of vast new reserves in Pennsylvania's Marcellus Shale and Louisiana's Haynesville Shale has filled the corridors and even the keynote speech Tuesday on what had been billed as "oil day."
ConocoPhillips CEO Jim Mulva used that keynote to tout shale gas as "nature's gift to the people of the world." He praised the ingenuity of an industry that learned how to employ horizontal drilling and hydraulic fracturing to open up shale, a rock that had long been considered too difficult to drill.
Now the gas-laced rock has doubled the discovered gas resources of North America, providing 100 years of supply to a country that a few years ago was planning a host of new terminals to import liquefied natural gas, or LNG. Shale gas now accounts for 20 percent of the country's gas supply, up from 1 percent in 2000.
"Some people even forecast the U.S. becoming an LNG exporter," Mulva said.
The conference organizers, IHS Cambridge Energy Research Associates, have dubbed the expansion of unconventional resources as the "shale gale." They released a study authored by IHS CERA Chairman Daniel Yergin, who called shale development "simply the most significant energy innovation so far this century"(E&ENews PM, March 10).
Even today, as the conference was to turn to electric power generation, International Energy Agency executive director Nobuo Tanaka, led his remarks by saying, "Shale gas in the North American market is very important."
Nearly every presenter at the conference has found a way to describe shale as a "game changer."
Vange-
Man, a whole group of deluded lulus with a different point of view than yours.
Or, then, you might be talking about something you don't really know anything about.
I rented and drove an E85 V-10 GM van recently.
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Was it running on E85? otherwise, why worry about corrosion?
Actually, I think the Indy cars used a mix of methanol and nitromethane. Plenty of horsepower with that stuff.
Hydra-
The van, which I drove to Las Vegas, could have taken 85 percent ethanol, if need be. I assume it was designed not to corrode.
The only ethanol I saw was in a cocktail glass. I frankly do not know what I pumped into the van.
There are losts of things we "can" do. That doesn't mean any of them make any sense.
We can haul freight at sea under sail, like we used to do, but not many are doing it, now. Someday, it might make sense again, but it will probably be Flettner Ships and not square riggers. And we won't necessarily be better off as a result.
It's probably not a big deal to make them flex fuels, until we decide what the ethanol market looks like. But, higher percentages probably won't burn gasoline, and that means a much bigger commitment than hedging your bets on E85.
Yep, start compressing gas in that tank and it gets hot, raising the pressure. You think the tank is full and drive off, when it cools off you find you only have half a tank.
I'd probably have to increase the displacement on my tractor engines by 50% to have the same slogging power. Thats an expensive way to save money.
Next we will hear that CNG is the perfect fuel for airplanes because the fuel weighs much less.
Hydra-
At $3.50 a gallon, gasoline may be better for most apps right now.
At $5 a gallon, you might decide your pick-up truck can be a CNG. Sure, you have to fill up mor often. But you cut your fuel osts in half. Just depends on how much driving you do.
At $6 or $7 a gallon o' gasoline, the decision is made for you.
Benji,
How much will that conversion cost me, and how long will it take to recover that cost at various gas prices?
"So cars can be made to run on methanol or ethanol--those challenges wewre surmounted generations ago. Obviously, they used methanol at Indy 500 until they switched to ethanol a few years back."
Yes. Cars can be made to run on almost any fuel. In fact, Henry Ford's 1908 Model T would run on both ethanol and gasoline, as neither fuel was as widely available as gasoline is today.
What you have to ask yourself, is why gasoline became basically the only fuel used instead of ethanol, or some other fuel? The answer is, that the market chose gasoline as the better, cheaper fuel. No politics involved. It remains the best choice to this day. You can see that this is true, because ethanol requires lots of mandates and subsidies to even be considered. Without them, ethanol use would shrivel like my junk does when I see a picture of Nancy Pelosi.
Ron-
It is the Red State Socialist Empire that is behind ethanol, not me.
What I am saying is that due to free markets, CNG and methanol may eclipse gasoline in the years ahead--unless the corn states simply win a mandate that we have to use ethanol. As they have.
As for CNG, you can buy one off the lot now in Okalohoma for $8k, used pick-up truck. See cngvehicles.net.
Oklahoma and Utah are going into the CNG game more quickly than other regions. They have a lot of natural gas in those states, and they fart a lot too.
Huge players, such as Freeport LNG and Cheniere Energy, want to build gigantic facilities to export natural gas fom Houston to the world. So these guys are not clued into the fact that shale gas is a no-go?
Tell me when they raise the capital and then we can argue about it. When it comes to investing my own money I prefer to look at actions rather than listen to words.
Daniel Yergin, chairman of IHS CERA, call shale the energy story of the century, or something to that effect. I think you need to re-assess this issue. You seem to know something that no one else knows.
CERA underestimated the depletion rate by 50% and was late to understanding the actual status of the world's producing fields. It works for its clients, not for general investors so I would be careful buying into the hype until I see some serious profits for the shale gas sector, not a few companies that happened to get very good locations where shale gas can actually produce a profit for a while.
Man, a whole group of deluded lulus with a different point of view than yours.
They sound just like the people at the housing sector conferences not all that long ago. Talk is cheap because my goal is to make money. Given the fact that there is no profit to be made from shale gas at $5 I am not interested in the hype.
When master of natural gas hype, Aubrey McClendon, tells Chesapeake Energy shareholders and analysts that he needs $5 per million BTU on the NYMEX in order to break even on his wellhead cost of $3.50 you better pay attention rather than get fooled by the hype. (Of course, I do not buy the $3.50 cost because I do not believe that the ultimate recovery assumptions are supportable by the production profile data.)
Or, then, you might be talking about something you don't really know anything about.
That may be possible. After all, my experience as an investor in the sector may be wrong because we could have that breakthrough in shale energy that we have been hoping for since the 1930s. It could be that the shale gas companies are diluting shareholders because they want to do the new shareholders a favour and cut them in on the new riches that will come their way some time in the future. Of course, if I am wrong I will still make a lot of money because I own companies that can produce gas and oil at half the cost of the shale players and have reserves that will last for decades. If I am wrong I will make less than the shale investors. But if I am right they will lose everything and I will still be around collecting dividends for the next few decades.
I notice that the big noise is actually being made by many of the same fools who bought into the alternative energy story and had their heads handed to them. These are speculators who are hoping to win the lottery by betting on a dream. But when too many people have the same dream I find that the price paid makes the risk far too high for an old coward like me and is afraid of it turning into a nightmare. So good luck fellow speculators. Hopefully you will get back some of the money that you lost on internet stocks, housing stocks, and alternative energy stocks. And thanks for improving the profits of the drillers that I own.
Was it running on E85? otherwise, why worry about corrosion?
Ethanol needs to be mixed with gasoline. It can't use the same pipelines because of the corrosion so it needs new investment that will make its use more expensive. If you don't care about the extra costs that is fine but for cheap people like me having to spend so much more on corrosion protection makes little sense unless the economics worked out.
They don't.
It's probably not a big deal to make them flex fuels, until we decide what the ethanol market looks like. But, higher percentages probably won't burn gasoline, and that means a much bigger commitment than hedging your bets on E85.
You have to look at the bigger picture. Ethanol needs fertilizers, more growing area, and lots of energy. When you add the energy used to produce it it comes out about the same as what you get when you burn it. That is not a solution.
Vange, I agree that ethanol is not an answer, but I'm not sure I agree with your argument.
After all, it takes more energy to grow a cow,than we get back from the cow, but we still grow cows.
The statement is frequently made that it takes more energy to make ethanol than you get back from it, but that statement is often disputed. I have not seen a definitive argument one way or the other.
It will take a lot more area, and that by itself means a lot of fuel use. But we have a lot of fallow farm land, so the area itself is not an issue. And, as a non-food product, there is no reason we have to use fertilizers (usually made from natural gas) to grow corn or other ethanol crops, we can use sewage sludge, which has to go someplace anyway.
Again, I don't think ethanol is going to be a player, nor do I believe CNG is a done deal, but that doesn't mean the problems are insurmountable.
Who knows, maybe someone will invent a hybrid photovolaic still that takes in mash and produces eectricity, water, and higher chain hydrocarbons as output.
Like you, I'm not putting money on it.
As for CNG, you can buy one off the lot now in Okalohoma for $8k, used pick-up truck. See cngvehicles.net.
=================================
I'll bet there is a reason it is only 8k.
I could use a new pickup, what will be my fuel and other savings after I have to drive it 40 miles (one way) to fill it up?
Vange, I agree that ethanol is not an answer, but I'm not sure I agree with your argument.
After all, it takes more energy to grow a cow,than we get back from the cow, but we still grow cows.
The reason why we choose to spend more energy raising cattle is because we want the protein and the taste that beef provides to us. We spend the energy to make Scotch because of the taste, not the energy we get back when we consume it. But when it comes to fuel ethanol the only reason we make it is for the energy we get out of it. That is why it makes no sense and why nobody will be making ethanol without subsidies.
The statement is frequently made that it takes more energy to make ethanol than you get back from it, but that statement is often disputed. I have not seen a definitive argument one way or the other.
The truth is in the price. Without subsidies for ethanol the producers could not sell it for as much as it cost them to make. If we get more BTUs out than we put in you should be able to make a profit in the energy markets without subsidies. You can't. That tells us who is right.
It will take a lot more area, and that by itself means a lot of fuel use. But we have a lot of fallow farm land, so the area itself is not an issue. And, as a non-food product, there is no reason we have to use fertilizers (usually made from natural gas) to grow corn or other ethanol crops, we can use sewage sludge, which has to go someplace anyway.
First, I thought that the environmental movement liked fallow land. Second, without fertilizer and irrigation you would not get enough product to maximize your return and would be running at a much bigger loss. Third, sewage sludge is not economic because if it were someone would already be making a lot of money from the process. People like to make money and will take advantage of any opportunities that the markets provide. Since they haven't we know that the technology is not there to convert sewage to energy and make a profit in the absence of subsidies.
Again, I don't think ethanol is going to be a player, nor do I believe CNG is a done deal, but that doesn't mean the problems are insurmountable.
No. But it means that today they make no sense. Which means that subsidies are a waste and that they divert resources to a dead end at this time.
Who knows, maybe someone will invent a hybrid photovolaic still that takes in mash and produces eectricity, water, and higher chain hydrocarbons as output.
I do not believe in hope and prayer investing. If something is viable then someone will eventually come up with it without the help of government. Bureaucrats are not good at allocating capital or else they would not be bureaucrats. We need to move on from top down planning and let the market do its bottoms up work instead.
Hydra,
"But we have a lot of fallow farm land, so the area itself is not an issue."
Why is it fallow? Either someone is being paid to leave it unplanted, or it isn't economic. With corn prices high due to high demand as food and fuel, I would expect every acre that is profitable, to be under cultivation.
Consider also that if every bit of corn grown in the US was used to make ethanol, at most, 15-20% of gasoline could be replaced.
Without mandates and subsidies, ethanol couldn't compete as a fuel, which tells you what you need to know.
Even Al Gore now admits ethanol is a bad idea.
If shale gas were such a sure thing why is Chesapeake Energy selling its Fayetteville shale assets as well as its shares in companies in the shale sector?
Here is another commentary that begins to ask the right questions about reserves, profitability, and cash flows.
http://www.energybulletin.net/stories/2011-02-09/what-gas-glut
What happens to the inflation story once the price of natural gas begins to reflect the cost of extraction in marginal fields? Even the BLS will not be able to spin $8 gas as mild inflation.
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