Friday, December 16, 2011

Nat Gas Drops in Price, Thanks to Abundant Supply

One interesting factoid from today's CPI report:

The item in Table A with the largest monthly decrease from October to November was the 4.4% decrease for piped natural gas (that compares to a 2.9% monthly drop in gasoline prices), and it's the only item that has fallen in price over the last 12 months (-1.3% vs. a 19.7% increase in gasoline from November 2010 to November 2011).  

Welcome to the shale gas revolution, where thanks to modern, advanced drilling technologies, we've become the "Saudi Arabia of Natural Gas," which translates into lower prices for U.S consumers.

5 Comments:

At 12/16/2011 11:24 AM, Blogger VangelV said...

Welcome to the shale gas revolution, where thanks to modern, advanced drilling technologies, we've become the "Saudi Arabia of Natural Gas," which translates into lower prices for U.S consumers.

Aren't you missing something? Oil companies in Saudi Arabia are profitable because the costs are low and the market price is high. The opposite is true of shale gas. So unless you were taught something else in your economics classics I would have to argue that shale gas will turn out to be a huge loser over the next few years. Or that the price decrease is caused by storage issues and a late start to the winter cold, which means $6.00 gas by February. But even if we do get that price there is no way for the shale producers to be profitable in any of the non-core areas.

What we are seeing today is probably a huge capital destroying process that is being ignored by the economists. But if they can't figure out what is going on given the ample data why should anyone pay attention to what economists are telling us when the data is far less clear?

 
At 12/16/2011 11:53 AM, Blogger Benjamin said...

The CPI is flat this month and down last month.

Why Bernanke is being cowed by the Chicken Inflation Littles is beyond me. His feeble dithering is straight from the bank of Japan.

The USA economy no longer inflation-prone, quite the opposite.

Bernanke, like the US military, is ever prepared for the last war.

 
At 12/16/2011 2:04 PM, Blogger Che is dead said...

"Oil companies in Saudi Arabia are profitable because the costs are low and the market price is high. The opposite is true of shale gas ... there is no way for the shale producers to be profitable in any of the non-core areas ... What we are seeing today is probably a huge capital destroying process ... blah, blah, blah." -- Vange

Repeating the same nonsense over and over again, thread after thread, does not make it true. The oil companies are currently drilling and capping gas wells while covering their costs and making a profit on the oil and natural gas liquids that they are getting from the same formations. They could give the gas away for free and still make a profit:

"... a lot of the new gas being brought on line now is what’s called associated gas — that is it is produced from wells alongside oil or natural gas liquids like propane and butane. With petroleum selling for $90 a barrel, drillers in places like the Eagle Ford shale or the Bakken can give away their natural gas for nothing and still make 100% annual returns on their drilling dollars." -- Forbes

"No one would argue that with today's natural gas prices the economics of dry gas projects have lower rates of return than they do at prices of $5.00-$6.00 per thousand cubic feet (mcf), which we believe will ultimately be the prevailing price when higher natural gas demand arrives in the years ahead from the utility and transportation sectors. The primary focus of our current drilling program - as we've said on numerous occasions through our various press releases and conference calls - has been on identifying and developing new natural gas plays in the U.S. wherein natural gas liquids and oil will add significantly to the overall project economics." -- Chesapeake Energy Corp.

"ExxonMobil’s investment approach is disciplined and based on a long-term view of global market conditions. We invest through market cycles and are not driven to hasty decisions because of day-to-day commodity market volatility.We have been able to maximize long-term ultimate recovery with longer lateral lengths and improved drilling and completion efficiency. And our net unit development cost in this shale play is about $1 per thousand cubic feet equivalent, a 50 percent improvement in the last five years, which is yielding attractive drilling program returns. Our confidence in per-well recoveries in the Barnett is underpinned by a decade of production history of early vertical wells drilled in the play – hardly a flash in the pan." -- ExxonMobile

 
At 12/16/2011 3:35 PM, Blogger VangelV said...

Repeating the same nonsense over and over again, thread after thread, does not make it true. The oil companies are currently drilling and capping gas wells while covering their costs and making a profit on the oil and natural gas liquids that they are getting from the same formations. They could give the gas away for free and still make a profit:...

That is not what the 10-Ks are showing or what we hear on the conference calls. Chesapeake, which is down around 30% over the last six months, used to be the biggest advocate for shale gas in the US. But after getting its brains blown out after the market price fell well below its costs the company has now announced that it is moving away from shale gas to shale liquids. And if you pay attention to what the other players are saying you hear the same thing. There is a lot of talk about 'funding gaps' and assets sales.

What I am looking at is the same type of hype as I saw in the late 1990s when I was accused of not knowing what I was talking about when I was pointing out that most of the internet companies could not generate any cash and pointed out that once the write-offs were included even a company like Nortel was unable to make a profit during the greatest boom for the sector. Two or three years after the accusations were made the fools who ignored the evidence were looking at massive losses and were blaming everyone else but themselves.

 
At 12/16/2011 4:38 PM, Blogger Marko said...

So, it looks like a good bet to short natural gas prices in the short run.

 

Post a Comment

Links to this post:

Create a Link

<< Home