Tuesday, February 14, 2012

Natural Gas Boom Energizing The Chemical Industry

"U.S. chemical companies are the latest beneficiaries of the nation's natural gas drilling boom. Long focused on cheap gas sources elsewhere in the world, companies are now looking to expand here. A surplus of natural gas has pushed down prices, making it more attractive for chemical companies that use lots of gas to reopen shuttered plants and build new ones.
"We wouldn't have to go back very far — literally just seven or eight years — and the picture for the industry here in North America was pretty uncertain," says Randy Woelfel, CEO of NOVA Chemicals in Calgary, Alberta. He says high oil prices sent a lot of petrochemical manufacturing overseas to the Middle East and Asia. But now, low natural gas prices and the ethane-rich Marcellus Shale have changed everything.

"That means ... that we'll be back in the hiring business, rather than the consolidation and survival/cost-cutting mode that NOVA was clearly in for much of the last decade," Woelfel says."
Related: This December 2011 study by PriceWaterhouseCoopers, "Shale gas: A renaissance in US manufacturing?" predicts the following:
  • U.S. manufacturing companies (chemicals, metals and industrial) could employ approximately one million more workers by 2025 because of abundant, low-priced natural gas.
  • Lower feedstock and energy cost could help U.S. manufacturers reduce natural gas expenses by as much as $11.6 billion annually through 2025.


At 2/14/2012 4:01 PM, Blogger Buddy R Pacifico said...

The natural gas boom is also a boom in the liquids produced in gas extraction -- for instance ethane.

From the Price Waterhouse Cooper's Study:

"The cost difference comes from less expensive ethane, a natural gas liquid derived from shale gas. Ethane is used heavily in U.S. chemical plants, while overseas competitors tend to rely on oil based naphtha."

A lot of the money in natural gas production is being made on the liquids produced, and not necessarily the gas itself.

At 2/14/2012 9:40 PM, Blogger VangelV said...

Chesapeake is bleeding cash and chewing through capital. It is the biggest producer of shale gas in the US. This makes it unlikely that shale gas production will continue to increase UNLESS shareholders and creditors have no problem with capital destruction.

The enemy is the high depletion rate and the negative return on marginal production. With most of the low hanging fruit having been picked in many formations losses are likely to increase in the future even if gas prices go up.

Why is it that you guys can't see a bubble that is so obvious? How many times will you fall for optimistic narratives and favourable interpretations before you learn your lessons? Shale gas is an old story that does not work. We did not solve our pervious problem by finding more whales to slaughter. We solved it by finding another source. We won't solve this problem by drying to go to marginal areas and throw money at them. We will need to find something else.

At 2/14/2012 9:44 PM, Blogger VangelV said...

A lot of the money in natural gas production is being made on the liquids produced, and not necessarily the gas itself.

But that is not true. Yes, the price of liquids is high. But you don't get enough liquids to pay for all of the costs to drill the wells and gather and transport the product. You have to add up all of the revenues and subtract all of the costs. You have to do your boe conversions by using the price ratio, not the energy content ratio. You have to use the actual production curve data to calculate the expected recovery, not use an estimated ultimate recovery figure that is not supported by the actual data. And knowing what we know about the accounting tricks we have to keep an eye on cash flows.


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