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Permalink Reply by Skip Peel - Mineral Consultant on November 13, 2014 at 9:03

Not all operators spend $8 - $10 million on a well.  Many spend about half that in plays other than the Haynesville.  And many of those wells are either oil or wet gas or some combination of the two that also produce natural gas.  Therefore their economics are not based on the price of natural gas.  Unfortunately for dry gas competitors like the Haynesville Shale, operators in those other plays can send gas to the Gulf Coast and sell it for less than the cost to produce an mcf in the Haynesville even after incurring transportation costs.  Natural gas produced from those "wet" wells is termed "associated gas".  As more regulatory agencies prohibit or discourage flaring of associated natural gas and as more pipelines provide the opportunity to send that gas to the most favorable market the more likely that natural gas in the Gulf Coast Region will remain low even in a period of increasing demand.

Seasonal cold snaps effect the price of gas produced in the NE more than in the South.  Such short term extra demand periods don't move the needle much for the longer term price range of natural gas.  Last February (the Polar Vortex) is a good example.

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Permalink Reply by john goodday on November 13, 2014 at 10:47

Sorry - my reference of $8-10 million wells was for Haynesville Shale.  With below freezing temps forecasted for 50 states throughout the country -  Nat. Gas prices closed at $3.98.  I imagine there will not be many profitable wells with prices declining in arctic-like conditions.

TMS is worse off - $18-19 million wells with oil falling equally as fast ($74.21).  Let's see how long those operators last under those conditions.

 

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Permalink Reply by Skip Peel - Mineral Consultant on November 13, 2014 at 11:25

Most natural gas is sold on the monthly contract price, not on the spot price.  The month is young.  Wait until later in the month when end users who run out have to buy on the spot market.  If cold temps remain or more are in the forecast you'll likely see a spike in the price.

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Permalink Reply by Joe Aldridge on November 15, 2014 at 3:30

Skip,

I agree. This price is very temporary. If the cold weather continues nation wide I would expect the price to be in the $6 range in January. There is always a lag between demand and price. The price will change quickly when the market factors in the demand and storage shortfall that exist.

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Permalink Reply by Skip Peel - Mineral Consultant on November 15, 2014 at 3:36

One possible scenario is that a colder than predicted winter is the only factor, including "freeze offs", that could cut off injection and decrease gas in storage.  The other side of that equation is that a warmer than forecast winter slows but does not stop injection and storage reaches 100% capacity.  I've read several recent articles laying out this possibility. 

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