Berman: Gas Price Increase Inevitable in 2016 AND Shale gas revolution may save E&P industry
Every week, the EIA proclaims a new record for natural gas production. But their own forecasts show that the U.S. will be short on supply by October of this year. A price increase is inevitable beginning later in 2016.
Conventional Production to Decline
Conventional gas will continue to decline at about 5% per year because few companies are drilling those plays. Shale gas must, therefore, continue to grow by at least 15 bcfd per year just to offset annual conventional gas decline (~2.5 bcfd per year) and legacy shale gas production decline (~12.5 bcfd per year).
It will take 15 bcfd of new shale gas production in 2016 to keep U.S. production flat.
Shale gas production replacement and growth for 2015 were 14.5 bcfd, down from almost 18 bcfd in 2014. It will be difficult to match 14.5 bcfd in 2016 because shale gas production has been falling 0.72 bcfd (~2.2 bcfd annualized) for the last 4 months of data (Figure 4).
Exports Won't Be Helpful
Export plans of at least 7 bcfd by 2020 are not helpful considering the challenges of meeting domestic supply in coming years (Figure 6).
The prospect of exports increasing to 13 bcfd by 2030 is even more troubling absent some new shale gas play that we don’t know about yet.
Conclusion
The EIA’s STEO forecast calls for $3.17 per MBTU gas prices by December 2016 and for $3.62 by December 2017. Those prices will not support necessary drilling in legacy shale gas plays. EIA’s AEO 2015 reference case does not call for gas prices to reach $5 per mcf until 2025. We can’t afford to wait 9 years.
It is, therefore, inevitable that natural gas prices must increase sooner, preferably in the next 12 to 24 months. If oil prices remain low, a shale-gas revival may save the domestic E&P business. During the last supply deficit in 2014, gas prices averaged $4.36 per mcf compared to only $2.63 in 2015.
But it will take time for producers to reverse the decline in drilling and production. It may be difficult to raise capital for renewed drilling given the current distress in the oil and gas industry.
Something will have to give sooner than later. That will be natural gas export.
Read more: http://www.forbes.com/sites/arthurberman/2016/02/21/natural-gas-pri...
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Replies to This Discussion
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Permalink Reply by Skip Peel - Mineral Consultant on -
Mr. Berman has certainly found himself a niche in the energy media world. He's still the lone naysayer on unconventional gas. Considering that he has not been right with any of his predictions or pronouncements to date, as far as I can tell, it's a small wonder that media outlets like Forbes continue to give him space. I think that is a function of the struggle to produce sufficient content and to provide something different, a unique spin. I find it telling that Mr. Berman is basically alone in that particular niche. Contrast this with the other article Keith posted today that points out that there remains about 80% of economic Haynesville Shale wells yet to be drilled. Considering the "stacked" nature of the major unconventional basins, there does not appear to be a need for "new shale gas play(s)".
http://www.gohaynesvilleshale.com/forum/topics/economic-hope-for-th...
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Permalink Reply by CB on
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Lone naysayer? Numbers don't lie. Pretty much everything he has said is pretty much spot on. Keep on living in your dreamworld. I am a geologist and rely on facts. Wouldn't invest in the Haynesville. Economics don't work. Only people going to make $ are the land owners.
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Permalink Reply by Skip Peel - Mineral Consultant on
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Yes, Art has been the lone naysayer regarding Haynesville metrics. If not, please provide articles from others that support his conclusions. You may also wish to address the breakeven analysis in this discussion: http://www.gohaynesvilleshale.com/forum/topics/economic-hope-for-th...
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Permalink Reply by CB on
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Haven't got time to argue. The facts will speak for themselves in the future. Bankruptcies and drilling activity will determine who is correct.
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Permalink Reply by Skip Peel - Mineral Consultant on
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Mine and Jay's replies in this thread are informed by past discussions of articles by Mr. Berman. On several occasions, before the current conditions existed, he cherry picked Haynesville well subsets to base his assertions upon. So neither of us are saying that his current article to incorrect in it's conclusion, just in his continuing penchant for cooking the data to support an opinion he formed long ago and has struggled to support. The breakeven costs discussion is a reminder to those members following this discussion that there are many breakeven costs depending on the specific location within the shale portion of the basin. No need to argue. It gets complicated in determine what is "economic" without taking into account hedge positions, standby charges and a long list of other factors that operates must consider when they decide to deploy development capital.
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Permalink Reply by Skip Peel - Mineral Consultant on
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Thanks. IMO bankruptcies are over due. As much as I hate to see those companies, their employees and share holders go through that reorganization or liquidation process I think it has to happen to begin to turn around the supply imbalance. It's been far too easy for troubled companies to borrow money and use financial gymnastics to maintain operations.
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