Saturday, March 03, 2012

December Natural Gas Production Sets New Record

Last year ended with another record-setting month for the world's largest natural gas producer, as the U.S. produced all-time record amounts of both gross withdrawals and dry production (consumer-grade gas) in the month of December, according to new data released this week by the Energy Information Administration (see chart above).  The record-setting gross volume in December (2.56 trillion cubic feet) was above its year-earlier level by 7.1%; and the all-time high for monthly dry gas production was 8.2% above last December, and surpassed two trillion cubic feet for only the second month ever.

Over the last five years as unconventional shale gas has become increasingly more available due to advanced extraction techniques (fracking and horizontal drilling), domestic production of natural gas has increased by more than 30%.  Welcome to America's new age of energy abundance with enough natural gas to last into the 22nd century, according to some estimates. 


According to a study by PricewaterhouseCoopers, "Shale Gas: A Renaissance in U.S. Manufacturing?" the global consulting firm predicts that abundant, cheap shale gas will spark a U.S. manufacturing renaissance over the next several years, with the potential to create a million new jobs by 2025 and reduce annual energy costs for American manufacturers by almost $12 billion over the next decade.   

Update 1: Here's another benefit from the shale revolution: In the last two years, 106 coal plants (319 units) in the U.S. have either closed or are scheduled for pending closing, partly due to abundant shale gas and low natural gas prices.  

Update 2: Does the U.S. really have a 100-year supply of natural gas? Yes, according to this recent Reason article "100 Years of Natural Gas." 

20 Comments:

At 3/03/2012 11:54 AM, Blogger juandos said...

I wonder how many uses of large quantities of natural will take advantage of this situation and make some futures contracts?

 
At 3/03/2012 12:40 PM, Blogger Buddy R Pacifico said...

New natural gas records but also new records in Extraction Loss. :>)

Natrual gas producers end up with "Dry Production" after losses.

First, production is lost to processes such as venting and flaring.

Then, Extraction Loss is removed from the remaining Marketed Production of nat gas.

The remainder is Dry Production.

Is the money for producers in Dry Production? Less than before the fall in nat gas prices.

Where are producers hoping to make money then?

From Extraction Loss. Huh?

The EIA states Extraction Loss is: "The reduction in volume of natural gas due to the removal of natural gas liquid constituents such as ethane, propane, and butane at natural gas processing plants."

Extraction Loss 1939 -> 2011.

 
At 3/03/2012 1:25 PM, Blogger Ron H. said...

juandos: "I wonder how many uses of large quantities of natural will take advantage of this situation and make some futures contracts?"

Interesting thought. Contracts could lead to the early demise of marginal producers and a rapid rise in nat gas prices as contracts are filled at a loss, or broken.

 
At 3/03/2012 2:23 PM, Blogger Buddy R Pacifico said...

The old St. Paul High Bridge Power Plant WAS a coal burner since 1923. It has been replaced with new natural gas fired High Bridge Power Plant.

The new plant provides enough electricity for 300,000 homes.

 
At 3/03/2012 2:39 PM, Blogger Benjamin said...

The sniveling naysayers say the good times in the gas fields cannot last. Actually, prices are not that low, and may go lower. Sure, there will be shake-out, but all over the world natural gas is abundant and cheap. Man will only get better and better at extracting it, lowering costs.

People forget oil also would be abundant, save of the unlucky constellation of thug nations that control the bulk of the world's crude, such as Venezuela, Mexico, Saudi Arabia, Russia, Iraq, Iran, Libya, Nigeria etc etc etc. No contract law, no property law, no free enterprise and massive corruption--P.U. to the whole lot.

But gas is everywhere, ergo gas is going to be cheap. A free market, and free enterprise make the price signal a wonder.

CNG cars and possibly PHEVs (see Envia batteries) are going to expand from here on out.

The future is brighter, cleaner and more prosperous.

 
At 3/03/2012 5:06 PM, Blogger arbitrage789 said...

Better to go long nat gas futures... or short?

 
At 3/03/2012 6:42 PM, Blogger Henry H said...

Juandos,

Eventually, coal inventory will explode and the coal miners will be mining at a loss, also. I wonder how much of a hit coal futures will take or if it is already priced in.

 
At 3/03/2012 8:32 PM, Blogger juandos said...

"Interesting thought. Contracts could lead to the early demise of marginal producers and a rapid rise in nat gas prices as contracts are filled at a loss, or broken"...

Its the potentially 'broken' part that interests me ron h...

You can see the present day players in Texas in hot pursuit of that field of gold...

Lot's of players at Eagle Ford

It could end up a real mess and have it all head to 'litgation city' for years on end...

 
At 3/03/2012 8:53 PM, Blogger juandos said...

"Eventually, coal inventory will explode and the coal miners will be mining at a loss, also"...

Good point henry and considering that the Illinois coal fields are less than 100 miles away from where I live, I missed that point entirely...

The state of Illinois has less than 30 mines at work it seems and they used to have hundreds...

Missouri has only 2 mines left out of the 200 or so that used to be active...

I see that federal tax dollars are being used to reclaim mines that closed from '77 and earlier...

 
At 3/03/2012 9:44 PM, Blogger VangelV said...

Interesting thought. Contracts could lead to the early demise of marginal producers and a rapid rise in nat gas prices as contracts are filled at a loss, or broken.

If the shale gas producers cannot deliver the companies that used capital in the expectation of available low price gas will have to write off the malinvestment. If the price goes up they will still have to write off the malinvestment. The point is that while you might be able to get a free lunch someone somewhere always has to pay. In the end just for us to stay even mans that our return on the energy invested has to stay the same. But as more and more shale gas is produced the return gets lower and lower. That can't go on for very long and is not very profitable.

Doesn't anyone actually read the 10-Ks any more or listen to the conference calls? If they did they would know that the shale gas bubble was very costly and was a net negative.

 
At 3/03/2012 9:55 PM, Blogger VangelV said...

The sniveling naysayers say the good times in the gas fields cannot last.

They were right. Shale gas was a huge loser for most investors and lenders because it destroyed capital.

Actually, prices are not that low, and may go lower.

They are much lower than what the producers need to break even. Even if prices doubled most shale producers would still go out of business.

Sure, there will be shake-out, but all over the world natural gas is abundant and cheap.

That is not true. Natural gas is much more expensive in most of the developed countries. It is cheap in producer nations that have an abundance of conventional supply but after you move it to where it is needed the cost rises far higher than current American prices.

Man will only get better and better at extracting it, lowering costs.

No. The cheap gas has already been produced at a very low cost. Shale gas is not cheap and marginal shale formations, which make up more than 95% of all shale formations, will not be economic because the energy return is negative.

People forget oil also would be abundant, save of the unlucky constellation of thug nations that control the bulk of the world's crude, such as Venezuela, Mexico, Saudi Arabia, Russia, Iraq, Iran, Libya, Nigeria etc etc etc. No contract law, no property law, no free enterprise and massive corruption--P.U. to the whole lot.

First of all, OPEC followed the same rules as the Texas Railroad Commission. Those rules were designed to keep prices under control as long as there was spare capacity. Second, there is no more spare capacity left. This means that volatility will increase substantially. Third, when the US places an embargo on Iranian oil it is in no position to whine about rising oil costs. When it funds al Qaeda rebels in Libya and occupies Iraq it should not be surprised if oil production is affected or that discontent spreads in other producing nations.

I also would not call the US as a good example of contract law, property law, or free enterprise.

 
At 3/04/2012 12:15 AM, Blogger Benjamin said...

Vange-

The fact that the USA has flaws---and I bellyache about the invasive anti-commercialism of most state and cloak governments---does not mean the globe;s oil-producing countries are somehow okay. They are worse, far worse.

Put it his way: yes, I would risk capital to drill for oil/gas in the USA, for the right deal. I would not risk capital in any nation I listed.

As for natural gas prices, I am sure they will be even cheaper in 10 years (relatively). In 15 years, energy bills will be an even smaller percentage of USA consumer bills. They have been shrinking all along, as pointed out by Dr Perry.

The Envia battery, or PHEVs, or CNG cars are going to lower out bills while cleaning the air too,

The future is cleaner and more prosperous.

We may be seeing Peak Demand for conventional crude right now, probably so if oil stays above $100. Other liquid fuels will boom, while total demand flattens and begins to shrink.

China and India could mandate electric vehicles. China has already mandated e-bikes and talking about e-cars,

There is a guy selling CNG cars and truck off the lot in Oklahoma right now fro under $15k. cngvehicles.net.

And if some used-car dealer can do it, how far is the herd behind? Unlike past eras, now you can use your i-phone to locate GNG stations. Range worries eliminated.

Things are looking up!

 
At 3/04/2012 8:21 AM, Blogger marmico said...

Last year the EIA estimated 827 trillion cubic feet of shale gas resources. But their latest January "early release" Annual Outlook downgraded that by nearly 35 percent to 482 trillion cubic feet. I suppose Carpe Diem either missed or ignored the news.

Now in 2011, the U.S. produced 24 trillion cubic feet of natural gas.

So the shale component of the total gas resource arithmetic says 482/24=20. There are only 20 years of shale gas resources at the current consumption rate. I would be hard pressed to describe that state of affairs as a "100 year age of abundance".

 
At 3/04/2012 8:38 AM, Blogger Mark J. Perry said...

See update in post about America's 100-year supply of natural gas.

 
At 3/04/2012 9:32 AM, Blogger PeakTrader said...

The abundance of natural gas is reflected in the UNG ETF (United States Natural Gas Fund), which fell from over $500 a share in 2008 to less than $20 a share today (and even exceeded the lowered $33 a share bearish price objective on the point & figure chart).

 
At 3/04/2012 10:04 AM, Blogger marmico said...

I wouldn't argue with the assumption that there are 2000 trillion cubic feet of total gas resource (of which shale gas represents 25%), therefore 100 years at the current consumption rates.

But I would argue with the consumption rate. Even if consumption does not increase, which is not happening in the short run, then in 100 years all transportation vehicles running on gas stop, most electric power plants stop, all feedstocks to industry stop, all residential heating stops, etc. ad absurdum. Civilization as we know it, is over.

Based on the available data there is no 100 year supply of gas in an economic sense. It is only in an arithmetic sense. However, I would concede that the shale gas discoveries have extended the fossil fuel era.

___________________________

Peaktrader, go back to school, google "UNG contango" and have your report back on line by opening of the trading day on Monday.

 
At 3/04/2012 10:24 AM, Blogger PeakTrader said...

marmico says: "Peaktrader, go back to school, google "UNG contango" and have your report back on line by opening of the trading day on Monday."

Why don't you explain how USO (crude oil) contango led to a fall from $115 in 2008 to $40 today, while UNG (natural gas) contango led to a fall from over $500 to below $20.

 
At 3/04/2012 10:49 AM, Blogger PeakTrader said...

It seems, contango is seasonal, and there's more volatility and liquidity with shorter contracts than later contracts (i.e. more sensitive to spot prices).

 
At 3/04/2012 12:38 PM, Blogger PeakTrader said...

Also, going back, I picked USL over USO, in part, because of contango and made the following comment on this blog:

"How N. Dakota Became Saudi Arabia: Interview with Harold Hamm, Discoverer of Bakken Oil."
October 1st, 2011

"Oil ETF - USL (currently a little over $35 a share).

USL - the United States 12 Month Oil ETF - tracks the changes in the price of light, sweet crude oil.

The actual changes in price are measured by changes in the average price of twelve oil futures contracts traded on the New York Mercantile Exchange."

 
At 3/04/2012 3:53 PM, Blogger VangelV said...

The fact that the USA has flaws---and I bellyache about the invasive anti-commercialism of most state and cloak governments---does not mean the globe;s oil-producing countries are somehow okay. They are worse, far worse.

The bottom line is that it is not your oil. And the US can hardly bellyache about other countries when it meddles in domestic oil production and will not let producers drill for oil that is known to be there.

 

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