Wednesday, January 18, 2012

Natural Gas Updates; Here Comes Super-Fracking

1. Domestic production of natural gas set another new all-time record high during the month of October at 2.48 trillion cubic feet of gross withdrawals (see chart below, data here).


2. Due to the record levels of natural gas production and the unseasonably warm weather this winter, prices keep falling.  The price for U.S. natural gas futures contracts dropped to a ten-year low of $2.47 per million BTUs in trading on the NYMEX yesterday, see chart below.


3. The shale gas revolution that has produced record-setting levels of domestic production has been made possible by advanced drilling technology known as "fracking," which has unlocked vast supplies of gas from deep shale formations around the country.  As effective and successful as fracking has been for unlocking deep shale gas and tight oil, it might soon get even better with new technologies that are under development and being called "super-fracking." According to a Bloomberg article, "Industry scientists are studying ways to create longer, deeper cracks in the earth to release more oil and natural gas." If "super-fracking" becomes a reality, it might be the case that the "shale revolution" is just getting started. 

Thanks to Benjamin Cole for the Bloomberg article.


13 Comments:

At 1/18/2012 2:18 PM, Blogger Dan Morgan said...

So when will natural gas cars become more economical than gasoline cars? A side benefit is greatly reduced pollution.

See the Honda Civic using natural gas here:

http://content.usatoday.com/communities/driveon/post/2011/10/honda-prices-next-tragically-ignored-natural-gas-civic/1

 
At 1/18/2012 2:34 PM, Blogger Paul said...

Shall we thank Obama, Larry? Clearly, this is his creation.

 
At 1/18/2012 2:51 PM, Blogger Benjamin said...

We have heard blah-blah that natural gas prices are "low."

Low compared to what? Not low compared to where they are going to be.

Super-fracking will eventually go global, where labor is cheap, and capital is already cheap and abundant.

The real question will be, "Can you make money at $1 mcf?"

And yes, Mark Perry needs to check his use of apostrophes on his headlines. But thanks for the mention!

 
At 1/18/2012 4:07 PM, Blogger VangelV said...

We have heard blah-blah that natural gas prices are "low."

Low compared to what? Not low compared to where they are going to be.


Low compared to the cost of production. You do understand that you can't make money by selling for $3 something that costs you $7 to produce, don't you?

And let me guess; you were one of those NASDAQ or housing cheerleaders telling us that we did not 'get IT' because things were 'different this time' and what we knew no longer applied. I made a lot of money taking the opposite side of that bet. How did you do?

 
At 1/18/2012 4:11 PM, Blogger al fin said...

Obama would kill this if he could.

 
At 1/18/2012 5:27 PM, Blogger Benjamin said...

Vange-

When superfracking goes global, in addition to abundant "conventional" supplies, and continuing improvements in energy efficiency, you will have to deliver at $2 mcf or go out of business.

You are right--lots of investors will lose money, for a generation. But gas wells keep bringing up valuable liquids, and oil shale wells keeps bringing up gas. Gas everywhere.

We have natural gas up our rear ends to the moon, and will for generations.

In the private sector, people deliver more for less every year. In the public sector, including militaries, people deliver less for more every year.

You know this--why are you fighting this?

You will get more natural gas for less money in the future.

I never said investors would make money. In fact, i think plenty of investors will lose money. I think we will see lots of creative destructionism going on.

You are the one who seems to think there is money to made at $4 mcf in natural gas. Not me.

 
At 1/18/2012 5:45 PM, Blogger rjs said...

translation of the japanese link at the bottom of these comments:

"Pray for the arrival of cold gas speculators" | Share stories, talk of the economy, will talk about what?

 
At 1/18/2012 7:34 PM, Blogger Marko said...

I need to figure out how to short natural gas prices.

Just as people [wrongly] think that human activity affects the weather, people are going to be arguing that fracking and super fracking affect earth quakes. Just ask for long term trend lines to see if that is true.

One more thought - rising temperatures mean we use less fuel - so the cure to 'global warming' is more warming!

Regarding natural gas cars, my father in law, that lives in south eastern europe, retrofitted his Yugo to work on natural gas years ago. Apparently that is very common there because gasoline is so expensive. The conversion is easy, but potentially dangerous I suppose, so it will be long before our paternalistic government lets us do it, I am thinking.

 
At 1/18/2012 8:08 PM, Blogger Cabodog said...

In converting gasoline vehicles to natural gas, folks in the USA have a major force to contend with: the EPA.

Tampering with pollution controls -- required for the conversion -- can land the conversion shop in very expensive hot water with the EPA.

Otherwise, I'd think we'd have tons of conversion shops at this point.

 
At 1/18/2012 8:36 PM, Blogger VangelV said...

When superfracking goes global, in addition to abundant "conventional" supplies, and continuing improvements in energy efficiency, you will have to deliver at $2 mcf or go out of business.

I think that you and Mark don't read very carefully. Try again.

If "super-fracking" becomes a reality, it might be the case that the "shale revolution" is just getting started.

First, the word if matters. Second, costs certainly matter. Using two straws to your super-sized cola may help you finish it faster but it won't produce more cola. What matters is how much gas you will get out of the ground and at what cost. The marginal producer needs more than $8 per mcf, which means that production will have to fall.

You are right--lots of investors will lose money, for a generation. But gas wells keep bringing up valuable liquids, and oil shale wells keeps bringing up gas. Gas everywhere.

This is the same type of BS when people were telling me that I was not getting the internet companies and their monetization of eyeballs. When the liquidity dried up the companies died. The same will happen in the oil patch just as it has many times before.

The only way your argument holds up is if we hear on the conference calls about how the producers are generating positive cash flows by drilling shale formations. But do not hold your breath waiting for that to happen because the next time you hear that will be the first time.

 
At 1/18/2012 8:43 PM, Blogger VangelV said...

We have natural gas up our rear ends to the moon, and will for generations.

Actually, you don't have much gas that can be produced economically. The glory days are far behind us.

In the private sector, people deliver more for less every year....

But that has not been true in natural gas. The costs have not gone down very much and you still need more than $7 per Mcf to make a profit.

You know this--why are you fighting this?

I am not 'fighting' anything. I am simply pointing out that companies that sell something for $3 that costs $7 can't stay in business for very long.

You will get more natural gas for less money in the future.

If demand collapses you may be right for a while.

I never said investors would make money. In fact, i think plenty of investors will lose money. I think we will see lots of creative destructionism going on.

I don't believe that you understand. The shale industry can't survive at $3 gas. To keep production level it needs at least $7 gas and if it wants to grow production it will need a lot higher prices than that.

You are the one who seems to think there is money to made at $4 mcf in natural gas. Not me.

First, I don't think that you can make money in shale at $4 per Mcf. Second, if you believe that there is no profit to be made how can you expect production to be maintained?

 
At 1/18/2012 11:25 PM, Blogger Hydra said...

Cars can run cleanly on natural gas, I doubt anyone will get busted for making the conversion.

But, liquid natural gas is cryogenic, so that is impractical for autos. Compressed natural gas gas much less energy density than gasoline, so you need a bigger tank and you have to fill up more often. Seen any natural gas stations lately?

 
At 1/19/2012 2:53 PM, Blogger Ron H. said...

"Cars can run cleanly on natural gas, I doubt anyone will get busted for making the conversion."

You are missing the point. Whether or not nat gas burns cleaner is of no consequence. Tampering with or altering existing smog controls is a violation of EPA clean air act. Prosecution can result.

Remember, you are dealing with a government regulatory issue, not a common sense one.

All newer cars will provide error codes to indicate problems with emmission systems, and in areas of the country where inspections are required, the registration can't be renewed until a car passes the inspection, which it would not, if any system wasn't working.

That said, there are EPA approved kits for converting to nat gas from gasoline for some cars. Not sure you if can do it yourself.

 

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