Tuesday, October 25, 2011

Natural Gas Can Put Americans Back to Work

ConocoPhillips CEO James Mulva in the WSJ

"Even after 103,000 jobs were added during September, unemployment remains at 9.1%. Counting those who have given up the job search or accepted a part-time job, economists calculate actual unemployment at a staggering 16.5%. Where will the growth come from that can help get people back to work?

One source is the natural gas industry, which is already generating jobs by the thousands, all without government subsidy. And it can generate even more, if we unleash this resource's full potential.

More than 600,000 Americans already explore, produce, store and transport natural gas, according to consultancy IHS Global Insight. For example, in Texas the Barnett shale gas field has created 100,000 jobs since the mid-1990s, and the Eagle Ford field is expected to create 68,000 jobs by 2020. In addition, IHS Global Insight estimates another 2.2 million jobs nationwide are sustained indirectly by the incomes of natural gas workers, or in companies that service the industry.

At least 15 states now produce shale gas and others may join them. The largest shale area, the still-emerging Marcellus, covers much of the Northeast and already supports 140,000 jobs in Pennsylvania alone.

Natural gas and shale gas heat homes, schools and factories, generate electricity and serve as feedstock in plastics, chemicals and fertilizer. They are familiar, safe and affordable. Abundant reserves—North America has an estimated 100-plus year supply, according to the Department of Energy—mean natural gas prices will remain reasonable, giving energy-dependent American manufacturers an edge in competing for global business. 

The natural gas industry is growing, and its growth can help put the country back to work." 

MP:  The chart above shows the significant growth over the last five years in natural gas production in the U.S., which recently surpassed Russia to become the No. 1 producer of gas in the world.  

21 Comments:

At 10/25/2011 10:25 PM, Blogger Tom Catino said...

Pickens Plan http://www.pickensplan.com/

 
At 10/25/2011 10:33 PM, Blogger VangelV said...

MP: The chart above shows the significant growth over the last five years in natural gas production in the U.S., which recently surpassed Russia to become the No. 1 producer of gas in the world.

Come now Mark. If you looked at a chart of Netflix you would have seen a massive increase in revenues, sales, and stock price. But most of that all happened while the company was burning through cash and destroying capital. The party went on for a long time but the market eventually caught on. When it did the shares collapsed as they should have.

The same is true of the shale scam. Companies are growing production but cannot generate positive cash flows. Eventually the market will catch on and there will be a huge collapse in real terms. And you will claim that it could not have been foreseen or that there wasn't enough information to see the bubble.

 
At 10/25/2011 11:25 PM, Blogger Rufus II said...

I read, yesterday, that the drillers are pulling out of the Barnett play. Gas is just too cheap to make "Dry" gas-fracking plays profitable.

All of the professional drillers I've read say it takes gas in the $6.00 and up range to make a pure gas fracking play profitable.

 
At 10/26/2011 5:22 AM, Blogger rjs said...

the real question to ask is does mark have his own money in these gas & oil plays?

 
At 10/26/2011 7:08 AM, Blogger Larry G said...

anyone know where the increased production is sold?

do we export it and does this increase mean we export more of it or or we using more domestically ?

If we use more of it domestically, what do we use it for?

does it replace other forms of energy or is there increased overall demand for energy and natural gas is filling the gap rather than other forms of energy?

 
At 10/26/2011 7:57 AM, Blogger VangelV said...

I read, yesterday, that the drillers are pulling out of the Barnett play. Gas is just too cheap to make "Dry" gas-fracking plays profitable.

All of the professional drillers I've read say it takes gas in the $6.00 and up range to make a pure gas fracking play profitable.


I heard Aubrey McClendon on a conference call where he suggested that Chesapeake will be transitioning to being a shale liquids play. It is important to understand that Aubrey was Mr. shale gas for a long time. He was hyping up the shale prospects as can't miss even after he lost all of his stock due to a margin call that wiped him out.

What I have also noticed was the change in some of the assumptions that were being made. Even though Chesapeake was producing single digit returns on the average capital employed at $6.50 gas we were supposed to believe that the company could be profitable at $4.50 gas. But as Art Berman has pointed out, the math simply does not work. The only way to claim profitability is to ignore the real depletion curves and assume EURs that are not supported by the production data coming from existing wells.

My problem is that people like Mark are ignoring the analysis that is based on the actual data even while they give a lot of time to the hype that is not supported by that data. We read all kinds of comments about how the boom is creating jobs, which it is, how hookers and strippers are making a killing, which they are, and how housing is going up in shale areas, which it is. But the fact that all of these are supported by operations that consume cash and capital is not being brought up except by a few readers.

So what happens when the shale boom turns to a bust or gas prices explode because there isn't enough shale production to meet demand? Will Mark write about how the bubble that he encouraged people to believe in destroyed so many who drank the Kook-Aid? Will he write about how the inability of the shale sector to produce enough gas has caused prices to explode and the standard of living of Average Americans to collapse? Will he write about how the industry fooled people into believing lies? Or will he simply ignore the fact that he helped blow up a bubble that was obviously a bubble to anyone willing to spend a few hours and look at the disclosures?

 
At 10/26/2011 8:00 AM, Blogger VangelV said...

the real question to ask is does mark have his own money in these gas & oil plays?

That is not important because one can be a believer and still be wrong. Exhibit one is the Chairman of Chesapeake, who had to sell all of his stock due to a margin call.

 
At 10/26/2011 9:11 AM, Blogger Buddy R Pacifico said...

Larry asks "anyone know where the increased production is sold?"

The U.S. will export liquified natural gas(LNG) to Asia where prices are four times that of the U.S.

Here is a huge LNG export project just announced.

 
At 10/26/2011 9:14 AM, Blogger Cabodog said...

Why is my automobile still burning gasoline?

 
At 10/26/2011 9:14 AM, Blogger Larry G said...

okay Buddy..that answers my question and I appreciate it.

thank you.

 
At 10/26/2011 9:21 AM, Blogger Larry G said...

re: " Why is my automobile still burning gasoline?"

part of the problem is that NG is about 1/2 as energy dense as gasoline.

Propane is better but still not equal and has to be extracted from the NG.

but I also had asked a similar question which is given the size of the projected reserves - how long would they last if we used it to replace gasoline?

Would it be 400 years, 100 years or 20 years?

 
At 10/26/2011 9:25 AM, Blogger Buddy R Pacifico said...

Larry, glad to provide the info.

BTW, in the link to the article I cited above is a very interesting quote:

"Terminal developers like Cheniere are scrambling to turn their idle import facilities into export plants to ship U.S. natural gas abroad after a revolution in shale gas production left the United States with 100 years of supply."

Yep, Cheniere will transition from an energy importer to an energy exporter, thanks to the efforts of Shale Gas producers.

 
At 10/26/2011 10:59 AM, Blogger Rufus II said...

The United States is the world's Largest Importer of Natural Gas.

We are a Net Importer of Natural Gas.

 
At 10/26/2011 11:17 AM, Blogger Buddy R Pacifico said...

Rufus states "We are a Net Importer of Natural Gas."

Yes, but the amounts have been steadily falling and it is mostly from Canada.

The U.S. also exports natural gas to Canada and those amounts are steadily increasing.

Both the U.S and Canada have recently OK'd deals to export Liquified Natural Gas to Asia. The market price of ~$17 in Asia vs. ~$4.50 in the U.S./Canada market drives the recent LNG export deals.

 
At 10/26/2011 12:32 PM, Blogger Rufus II said...

We Imported a larger percentage of our nat gas This year than we did Last year.

 
At 10/26/2011 1:02 PM, Blogger Trey said...

CNG has a slightly higher energy density than gasoline. (54 MJ/kg vs. 46 MJ/kg).

http://en.wikipedia.org/wiki/Energy_density

I assume that the energy density of CNG depends on the pressure, so this value may vary. CNG tanks are also more beefy than gas tanks, so the effective energy density is reduced. (This is the killer of electric cars, since even the best batteries have an energy density 50 times worse than gasoline.)

 
At 10/26/2011 1:12 PM, Blogger Larry G said...

thanks... check this also:

http://en.wikipedia.org/wiki/Gasoline_gallon_equivalent

 
At 10/26/2011 1:28 PM, Blogger Trey said...

To allay the skeptics, here is Matt Ridley’s take on NG (with the inestimable Freeman Dyson’s seal of approval)

Some highlights from point 22 to point 27:

The key question about shale gas is not therefore whether it exists in huge quantities, but whether it can now be exploited on a large scale at a reasonable price… Not everybody agrees with these [high] estimates…What makes it possible for prices to fall while production expands in an industry is unit cost reduction through innovation… even though there is a speculative bubble leading to low prices and some bankruptcies, a large and sustained increase in gas production from shale is none the less likely.

 
At 10/26/2011 1:29 PM, Blogger Buddy R Pacifico said...

Rufus further states:

"We Imported a larger percentage of our nat gas This year than we did Last year.

No Rufus, this is not correct. The U.S. imports of nat gas peaked in 2007. Look at this chart and stats, for U.S. imports of nat gas.

If you look at Prof. Perry's chart for gas production, you can see that 2007 was the year U.S. production started to soar.

 
At 10/26/2011 2:34 PM, Blogger VangelV said...

The U.S. will export liquified natural gas(LNG) to Asia where prices are four times that of the U.S.

The project is based on economic analysis that expects gas prices to stay low enough to pay for the depreciation, operational costs, and compression losses. But there is no indication that there will be sufficient gas at such low prices to make the project economic. Get back to me after a terminal is built and the companies are showing positive cash flows.

 
At 10/26/2011 3:00 PM, Blogger Larry G said...

just a for instance...

if we were to replace all coal plants with natural gas - how long would the new reserves last us?

4 years,40 years or 400 years?

 

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