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Permalink Reply by Skip Peel - Mineral Consultant on May 22, 2018 at 8:07

The gas glut will last well into the coming decade.  Don't expect any price north of $3 that persists for more than a few months.  Wall Street analysts that I have worked with in the past have dropped their monthly average NG price projection for 2018 from $3 to $2.75.  2019 from $3.25 to $2.60.

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Permalink Reply by Jesse Joyner on May 22, 2018 at 8:37

NG Nymex futures made a big move today. Before the close, it's up 9 cents to $2.90, which is a 3.24% pop in one day. This is probably due to the weather forecast where there's a projected increase in associated AC cooling due to higher temperatures, along with weak storage figures. In the macro, China is claiming, per the trade talks, that it'll be importing more U.S. NG. Plus, there's the Middle East turmoil, including the Iranian sanctions on oil exports and the Saudi   changes. Yeah, maybe that's why some call NG futures "widow-makers." Many have lost huge bets trying to predict NG prices. They've always been extremely volatile, and the pundits in NYC, many times, are hedging when they should be placing call options instead of put options. Still, there is a glut and an oversupply. The LNG exports are nothing but mosquito bites in this regard.   

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Permalink Reply by EastTexasFarmer on May 22, 2018 at 8:49

In my opinion, natural gas prices will be at (or above) $3 per mcf next year. This pricing will be sustainable. Since we are currently running a storage deficit, I'm more optimistic that a better market will occur shortly. The opening of additional LNG export capacity (Freeport LNG specifically), plus China's expedited fuel switch from coal to natural gas will drive the price increase. Additionally, longer term LNG contracts are still linked to the price of oil, with pricing that continues to be bullish.

For those interested, please read the Celsius Energy Blog:

Celsius Energy Blog

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Permalink Reply by Skip Peel - Mineral Consultant on May 22, 2018 at 10:33

The volume of gas coming out of oily plays:  Permian, Bakken and Eagle Ford are increasing now and will soon reach take away bottlenecks.  The price at WAHA will drop by at least $1.50/mcf.  Some industry analysts that follow that market closely predict the possibility of negative prices.  Marcellus/Utica production is breaking production records now with pipeline capacity to the Gulf Coast market increasing this year and newt.  The glut is here.  The increase in demand will not catch up until next decade.  Although increases in LNG export volume will help, not enough will be online by the turn of the decade.  Even with electrical generation fuel switching and export by pipeline to Mexico, there will be no balance reached between the supply and the demand for another five or so years.

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Permalink Reply by Skip Peel - Mineral Consultant on May 22, 2018 at 11:31

LNG Delays Worsen Permian’s Infrastructure Outlook

Susan Klann   Monday, May 21, 2018 - 6:00am

On April 19, Freeport LNG took some in the industry by surprise with the announcement that it would delay the projected start date for its $13 billion terminal by nine months, to September 2019 for the first train launch. The second two trains are projected to begin service in 2020.

According to Platt’s, the delay is due to “a combination of flooding following Hurricane Harvey of lay-yards where equipment, including steel pipeline, was stored, as well as contractor execution delays.”

In a report published on April 30, BTU Analytics took a look at the market’s reaction to the delay, noting that “it is a very fine line between LNG being important to the natural gas market, and the market becoming dependent on new LNG demand.”

LNG has become increasingly important in the natural gas demand mix. The report noted that since April 2017, “monthly average deliveries to the Cheniere facility in Cameron Parish, Louisiana, have consistently outpaced deliveries into the heart of New York City.” This was true even during the severe cold temperatures this winter, according to the report’s author, senior energy analyst Matthew Hoza.

How to keep the significant amount of associated gas being produced in the Permian Basin moving on pipes is a significant concern for producers. A delay such as the one announced by Freeport LNG “will cause some heartburn in the overall market,” according to the report.

“With the delay of Freeport’s first three trains by nine months, we have effectively cut out 30% and 20% of new LNG capacity coming online in 2018 and 2019, respectively,” the analyst said.

To determine the effect of the delay on pricing, Hoza looked at average annual Henry Hub forward curves, before and after the announcement of the delay. The 2019 curve fell by $0.07 day-over-day.

A separate BTU Analytics report issued on May 9 zeroed in on Permian price setbacks. Senior energy analyst Jake Fells noted that “over the last few months, almost every conversation is eventually related to what’s going on in West Texas, especially with both oil and gas prices blowing out.”

Making matters worse are the growth in oil production—up 30% in March vs. the year-ago period—and gas production, which has risen by about 20%, the report noted. The basin’s rig count has hit the highest point since January 2015.

Operators are looking for a way out for their oil and gas, “primarily the Gulf Coast,” Fells said.

Natural gas production is more deeply mired in infrastructure shortfalls than oil, of course. “For gas markets specifically, until infrastructure constraints are relieved, Waha could get really weak, potentially going to zero or even negative, as the Permian story evolves from a displacement story to a physical capacity story,” Fells said.

Rising oil prices provide the ultimate carrot for producers to keep on drilling, pushing cares about natural gas pricing into the background. BTU analytics expects the pipes could reach capacity for gas, in tandem hobbling oil production takeaway, later this year. Pipeline projects that could alleviate the situation—Gulf Coast Express, among others, and the recommissioning of Old Ocean Pipeline alongside a North Texas Pipeline expansion, could bring some relief in the next 18 months, according to the report.

In April, the Midland vs. WTI basis differential was more than negative $12; the Waha vs. Henry Hub basis was about negative $1.50.

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Permalink Reply by Skip Peel - Mineral Consultant on May 23, 2018 at 4:25

The glut is here to stay.  Are depressed prices in the short term an overall benefit or a drag on the economy in the long term?

The Gas Market Is in Serious But Stable Condition

A glut of supply means even unusual stimuli can’t spark higher prices.

by  Liam Denning May 23, 2018, 7:31 AM CDT Bloomberg.com 

Excerpt, link to full article at the bottom.

If the rapid recovery in gas production from shale crushed prices, though, it’s the shale oil boom that’s put them into a coma.

That’s because much of the increase in domestic gas output is a by-product of rising oil production in the Permian shale basin. In a report this week, Sanford C. Bernstein analysts estimate such “associated gas” will be enough to cover roughly two-thirds of the incremental supply needed in the U.S. between 2016 and 2025. Whether or not that gas gets produced is a function of oil prices; low gas prices won’t cause E&P companies to rein in supply as they normally would. As the Bernstein analysts put it: “The U.S. natural gas market is no longer a self-correcting market.”

https://www.bloomberg.com/view/articles/2018-05-23/the-natural-gas-...

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Permalink Reply by EastTexasFarmer on May 25, 2018 at 3:34

We agree to disagree. Thank you for the information.

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Permalink Reply by Skip Peel - Mineral Consultant on May 25, 2018 at 3:35

You're welcome.

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Permalink Reply by Bradley McWilliams on May 27, 2018 at 1:35

I think I have to agree with Skip on this one.  Too much excitement about drilling in oil plays that have pretty substantial associated gas with them.  I had been hoping for a relatively cold winter, got one this season, and it does nothing for the price.  Announcements of gas exporting records does nothing for the price. NG usage at record highs in the States, does nothing for the price.  Not sure about the Haynesville economics, I know it's been pretty steady down there, but where I'm at even prices going way up to $3 or so is pretty immaterial.  Prices need to double to make NG even mildly interesting, and that ain't happening...

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Permalink Reply by Skip Peel - Mineral Consultant on May 27, 2018 at 2:01

Haynesville gas can compete with Appalachian gas owing to the transportation cost differential.  That Marcellus/Utica gas still acts as a cap on Haynesville prices.  It is the tremendous volume of associated gas coming out of unconventional oil basins that is causing the majority of excess supply.  This will remain a problem for natural gas basis prices for the foreseeable future as long as the price of a barrel of crude is significantly above $50.  Without a decline in the price of crude, it is entirely possible that demand will not catch up to supply until the mid 2020's.

This is generally good economic news for the country and more broadly for global warming.  Cheap natural gas benefits consumers and end users such as the chemical industry and LNG exporters.  It's bad news only for gas-weighted oil and gas companies and for their royalty interests. So not good for my business and bpm's royalty checks.  Looking longer term natural gas appears to have a more certain future than oil.

Permalink Reply by Skip Peel - Mineral Consultant on May 30, 2018 at 12:35

The Natural Gas Monthly Settlement price for June is $2.88/mcf.  The average monthly settlement price for the first six months of 2018 is $2.49.

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Permalink Reply by Bradley McWilliams on May 31, 2018 at 6:54

For full disclosure, that price of gas has no affect on my royalty checks, cause I have no royalties...

However, as an owner of a service business that has spent the last 9 years focused on a gas weighted company in a dry gas field, it's absolutely been a roller coaster the last three years, with mainly downs and few ups.  We are finding work now with new customers, but none of it so far is any closer than 800 miles or so.  I can't even really say now that I worry about the price of gas.  With the area here for sale, there is no way of knowing when we will see the light at the end of the tunnel. Honestly I've kind of moved into the "not when, but if ever" line of thinking.

They put together a machine for this area.  We're now seeing that machine have the salvageable parts pulled off and the rest sold for scrap...

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