Nat Gas Brings Economic Boom and Hope to Ohio
HT: Mike W.
CARPE DIEM
Professor Mark J. Perry's Blog for Economics and Finance
Friday, November 18, 2011
About Me
- Name: Mark J. Perry
- Location: Washington, D.C., United States
Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan. Perry holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University near Washington, D.C. In addition, he holds an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota. In addition to a faculty appointment at the University of Michigan-Flint, Perry is also a visiting scholar at The American Enterprise Institute in Washington, D.C.
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10 Comments:
How wonderful. The steel pipe manufacturers and the cement makers are doing well because the drillers are busy working 24/7 so that the producers can get $3.00 for their gas while $7.50 is the breakeven point. Why isn't anyone asking about the lack of profits in the sector? And how long can producers continue to burn through loans and capital so that they can sell at a loss?
Washington Examiner:
"President Obama's United States Department of Agriculture has delayed shale gas drilling in Ohio for up to six months by cancelling a mineral lease auction for Wayne National Forest (WNF). The move was taken in deference to environmentalists, on the pretext of studying the effects of hydraulic fracturing."
The public labor gangs are back; SoOhio is dead with exception of the moving industry..
Obama blocks Ohio shale oil drilling, kills 200,000 jobs :
http://campaign2012.washingtonexaminer.com/blogs/beltway-confidential/obama-usda-delays-shale-drilling-200k-jobs
#1. There is oil and natural gas liquids in this play. It's similar to the Eagle Ford Shale play in south Texas, which has become the hottest oil play in the US after the Bakken. Drillers aren't going to care too much about the (dry) natural gas.
#2. The article on Obama blocking the drilling is 100% pure propaganda. For starters, oil companies have already leased millions of acres on PRIVATE land in Ohio, which Obama can do absolutely nothing to stop even if he wanted to. Second, the best parts of the Utica Shale aren't even over the Wayne National Forest (which is mostly located over the dry gas part of the play - see #1), and the National Forest itself only covers a small percentage of the shale. Even if Obama managed to stop all drilling in the Wayne National Forest, it would have ABSOLUTELY ZERO effect on employment in the play, and would only affect a very small amount of natural gas drilling, at best - which drillers won't even care about. The only reason someone writes an article like that one is out of a combination of ignorance, and because they'll write anything to make their hated political figure look bad.
Oh, and I just read the (not so fine) print on that Obama-Wayne National Forest article.
Did anyone who posted it actually pay attention to what it said????
THREE THOUSAND ACRES!!!!
WOW!!! *rolls eyes*
That's like nothing. Chesapeake Energy has already leased something like 1.2 million acres in the play. Do you really think a whopping THREE THOUSAND ACRES is going to make a hill of beans of difference???
*laughs*
Some people are so gullible.
Hans said...
No, Ohio rejected the big-government overreach of someone that thought he was a king. This has also happened in 1958, where the failed attempt of RTW threw out the extremist politician. You want Ohio, you dont go extreme anything.
As for the environmentalists that want to block drilling - shame on them.
#1. There is oil and natural gas liquids in this play. It's similar to the Eagle Ford Shale play in south Texas, which has become the hottest oil play in the US after the Bakken. Drillers aren't going to care too much about the (dry) natural gas.
No they are not going to care about natural gas. Which means that the shale gas production trends will not remain as they are. But Mark and others are talking about a shale gas revolution even as the drillers are abandoning shale gas. There is a clear disconnect here. Either the production falls off a cliff or the price explodes.
The only reason someone writes an article like that one is out of a combination of ignorance, and because they'll write anything to make their hated political figure look bad.
That is why the politics should take a back seat to the economics. The problem is that other than a few very good plays in the sweet spots of the formation the average shale oil property is not economic.
Plays like these are going to attract more than just pipeline factories. Among other things, chemical and petrochemical companies will be seeking to take advantage of the large and steady supplies of ethane and other hydrocarbons found in the oil, NGL's and dry natgas. Shell, for example, is looking in the area for a multi-billion $$ petrochemical complex. I think I read somewhere that another large company was looking to do the same thing in the same area. Things like these will increase demand for the products drilled from these plays, and maybe VangelIV will get the $7.50 natgas he's expecting and can finally shut up about how uneconomical they are.
Plays like these are going to attract more than just pipeline factories. Among other things, chemical and petrochemical companies will be seeking to take advantage of the large and steady supplies of ethane and other hydrocarbons found in the oil, NGL's and dry natgas.
You are missing the point. You can't have "large and steady supplies of ethane and other hydrocarbons found in the oil, NGL's and dry natgas" unless the producers can make a profit. At the current prices they can't.
Shell, for example, is looking in the area for a multi-billion $$ petrochemical complex. I think I read somewhere that another large company was looking to do the same thing in the same area.
There was an interesting quote in your reference. It read, "If you're building a cracker in the Appalachians you have to be absolutely certain that the supply is there. It's a heck of an endorsement of the Marcellus resource." This means that the companies will be looking for long term contracts to ensure that the supply will be there and that they can decrease their risks. What this means is that we have to take a look at the contracts and see what prices producers/refiners agree to before construction begins. Right now there is nothing but noise.
Things like these will increase demand for the products drilled from these plays, and maybe VangelIV will get the $7.50 natgas he's expecting and can finally shut up about how uneconomical they are.
But at $7.50 gas the producers only break even. They need much more than that to provide a decent return. And costs will have to be contained even though more and more drilling activity is needed every year, just to keep production from falling. But if you talk to the insiders you find that the supply chain is in big trouble. The people who work the rigs and are producing the specialty equipment have a demographics profile that signals trouble. As more and more of them retire the companies will struggle to find replacements. But if you look at the sector you find that the very high pay still is not good enough to attract enough skilled people to fill the positions that are still open now. What happens to costs when demand for those positions explodes?
I suggest that you boys get out and talk to a few people in the industry. If you do, you will find that the picture is not as the analysts and PR people say it is. Once you look at the actual decline curves, input costs, and the environmental and manpower hurdles it is clear that the problems are huge. Add to that the fact that the returns on energy investment are either zero or negative for the sector as a whole and it is hard to spin this as a positive at this period of time.
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