NATURAL GAS PRICE COLLAPSE IN 2009
SOUNDS LIKE MORE BAD NEWS FOR NEAR TERM FUTURE GAS EXPLORATION AND PRODUCTION, HOPE NOT!
Market Insight: Winter spike won't prevent natural gas price collapse in 2009
PennEnergy
Even a sharp spike in US natural gas prices owing to colder-than-normal weather heading into yearend won't prevent a gas price collapse in 2009.
The supply fundamentals simply won't allow that to happen, according to Raymond James & Associates Inc. Put simply, there's just too much gas out there.
The summer gas storage season ended at about 3.5 tcf even with the continued shutin of nearly 300 bcf of gas caused by hurricane damage. To balance the US natural gas market in 2009 and 2010, the industry will have to cut back gas drilling activity and even shut in more wells.
Depending upon how cold it gets this winter, US gas producers will have to shut in anywhere from 500 to 750 bcf of gas to balance the market next year, according to RJA. That would be the case if gas prices slip below the analyst's 2009 price forecast of $6.75/Mcf.
Apart from excess supply, RJA is also concerned about stagnation in gas demand resulting from the economic slump. Its model shows the market drawing 600 bcf less from storage this winter than last winter.
RJA also insists that its outlook is fairly conservative, as gas production was on track to grow by 9% year-on-year before the hurricanes hit the Gulf of Mexico region in the hitrd quarter. Because production lags rig activity by several months, expect year-on-year gas supply increases to continue through 1Q 2009.
In other words, the analyst thinks its own model might be a tad bullish: If gas supply growth continues on its current trend and winter weather hews more to the 10-year (warmer) average for temperatures than to the 30-year average, then that $6.75/Mcf forecast might look pretty good to producers.
Contact Bob Williams at bobw@pennwell.com
Market Insight: Winter spike won't prevent natural gas price collapse in 2009
PennEnergy
Even a sharp spike in US natural gas prices owing to colder-than-normal weather heading into yearend won't prevent a gas price collapse in 2009.
The supply fundamentals simply won't allow that to happen, according to Raymond James & Associates Inc. Put simply, there's just too much gas out there.
The summer gas storage season ended at about 3.5 tcf even with the continued shutin of nearly 300 bcf of gas caused by hurricane damage. To balance the US natural gas market in 2009 and 2010, the industry will have to cut back gas drilling activity and even shut in more wells.
Depending upon how cold it gets this winter, US gas producers will have to shut in anywhere from 500 to 750 bcf of gas to balance the market next year, according to RJA. That would be the case if gas prices slip below the analyst's 2009 price forecast of $6.75/Mcf.
Apart from excess supply, RJA is also concerned about stagnation in gas demand resulting from the economic slump. Its model shows the market drawing 600 bcf less from storage this winter than last winter.
RJA also insists that its outlook is fairly conservative, as gas production was on track to grow by 9% year-on-year before the hurricanes hit the Gulf of Mexico region in the hitrd quarter. Because production lags rig activity by several months, expect year-on-year gas supply increases to continue through 1Q 2009.
In other words, the analyst thinks its own model might be a tad bullish: If gas supply growth continues on its current trend and winter weather hews more to the 10-year (warmer) average for temperatures than to the 30-year average, then that $6.75/Mcf forecast might look pretty good to producers.
Contact Bob Williams at bobw@pennwell.com
Views: 124
Replies to This Discussion
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Permalink Reply by Ron Jon on
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Unfortunately, you are correct; however, this is a incredibly shortsighted view. The low price is not sustainable when dealing with a depleting resource. The price will stay low if the economic downturn is deeper and longer than expected, though, but oil's price will recover with the global economy.
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Permalink Reply by The_Baron on -
The majority of people in this country can't see past their next paycheck. This why we have to have social security.
We have to hope our elected officials can see far enough into the future to make policyb to encourage energy indpendence.
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Permalink Reply by Bill G on
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To add to that Baron energy independence is the only thing that can get this country headed in the right direction again. We have a cash flow problem just as much as a credit problem. There is to much money going out of this country and not enough coming in. War War II brought this country out of the great depression because of the influence of cash flow into the country from the exporting mentioned above. World Wars are started for economic reasons not because some one did something wrong. Thats another big scare if you look back in history, which always repeats itself war was what brought this country out of its previous ruts. Lets hope are new leader isnt faced with that challenge along with the challenges that we face today!
Its really scary time for this country, scary scary times!
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Permalink Reply by Kurt Grussendorf on
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I agree that a worldwide recession and falling commodity prices will slow gas exploration down. But T. Boone Pickens, who supported Obama, must know something. He is going to wind power to generate 20% of our electricity generated by natural gas to free that up for transportation--trucking, et. al. He plans to make alot of money and is banking on more conversion to ng. I think domestic reserves will get the priority. Natural gas is the cleanest and cheapest way to go for transport--although most passenger vehicles will be hybrid battery/gasoline--there will be considerable conversion in the trucking fleet and other commercial/government vehicles. Heating will be exclusively natural gas. And I dare say we will continue to burn it to generate some of our electricity.
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Permalink Reply by Martin on
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Ole' T. Boone Pickens has announce in the past day or so that he is suspending development of his 400,000 acre wind lease holding because crude oil is so cheap. But I think he is being short sighted...
But I know, if I'm so smart, why aren't I a billionaire....
Crude oil was trading for $55.00 a barrel today. At least that's way below what Hugo Chavez needs to keep his petro-socialist government financed.
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Permalink Reply by The_Baron on
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There are more problems with his wind lease than low oil prices. W/o government subsidies it will not make money, and T. Boone won't do anything unless he makes money. He needs more transmision lines to areas with higher elec. rates like california. He of course wants the government to build these. The real problem is not the price of crude, but the relativly cheap price for coal and nat. gas our main fuels for electric generation. This is why he wants cng. If we convert to cng, nat. gas prices go up and wind looks better and better.
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Permalink Reply by hot on
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Have no fear, gas will go up and you will wish we were back on oil.
T Boone (oil man) and others like him have been part of the problem for years. GREED!
I'm sure if T. pads the right pockets in Washington he will get his plan off the ground and the wind and and gas will make him and others richer.
He says he doesn't have to money right now but if you open your eyes you will see that all rich and greed people never want to use their money. They want your tax money.
Your government will not let you down. They will continue to do business as usual and cost you out your rear while telling you they are doing the best they can.
Just enjoy the low prices now for soon it will be over.
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Permalink Reply by Alamo on
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If we are smart we will let the price of crude go to zero and finally take this opportunity to get the hell away from it. The OPEC cartel has held us hostage for the past 48 years.
With the massive natual gas reserves we have primarily in the US and Canada we now have the means to end our dependency on belligerent foreign countries for crude oil. Cutting production and manipulating world oil prices is their forte and enables that cartel to put our economy in a virtual stranglehold. This is not news--everyone is aware of the situation, but we have done little about it except talk since Richad Nixon claimed in 1972, he would make us energy independent in 10 years. Now 46 years later, we are more dependent --much more so than in 1972.
Boone Pickens says we are sending 700 billion dollars out of our economy right now and that figure is projected to exceed 1 trillion dollars in the very near future if we don't make enormous changes soon. The solution is to convert our national transportation system to compressed natural gas (CNG) and use wind energy to generate electricity while continuing to develop other forms of affordable renewable energy.
Shale derived natural gas gives us an abundant, cleaner, less expensive, superior fuel source that is practically 100 per cent American and with it the wherewithal to tell OPEC to kiss our collective butts.
We need to take advantage of this tremendous opportunity to gain energy independence which will bankrupt us otherwise.
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Permalink Reply by connie IIS on
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Might be wrong, but haven't some of our "great leaders" had personal/financial/business ties with oil production? If so, kind of a conflict of interest ( good for everyone vs. good for me ). Even a comment about Pickens notes that he will pursue his plan if he can make money. I have no idea whether that is the case, but it points out an underlying problem of motivation.
It makes sense for our country to be energy independent, there are ways and means to do it, but if everyone can't get rich in the process they'll wait and let someone else deal with it. It seems like the only people in our country that are still willing to sacrifice their personal issues for the greater good are serving in the military - not politics.
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Permalink Reply by Snake Stewart on
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You are right on, IMO, Ms. Connie,
If they didnt have ties to O&G , they will after they get in office.
Its sad but sacrifice does seem to affect everyone besides who is asking for the sacrifice in the first place.
Nice Post Ms. Connie
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Permalink Reply by Grillin' - MmmMmm on
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Yes, I know its sad but Mr. Pickens wants to make money on his investment! Gosh, what a horrible thing. Why would he pursue his plan if he were not going to make money? Losing money is why we pay some of our taxes, not why we invest. Pickens wants us to invest in alternatives because a) it is good and b) it will lead to investors making money. Problemo? none unless you are of the socialist bent.
Social security is a losing "investment" although I'd rather just call SS a tax and be done with it. It is not a retirement plan, it is not an investment (or if it is, it is a piss poor one). It is simply a welfare program for which we all need to pay a tax for. No problem; just call it what it is. Then we have taxes on our Social Security payments...taxes on taxes.
T. Boone wants everyone to chase an idea that is a great idea, regardless of who makes money off of it. This I know: someone will make money off of it. I'd rather it be T. Boone and his investors than Nancy Pelosi, Chucky Schumer, H. Waxman, Barney Frank and all of the other crooks in Congress. If it goes forward as "non profit", those crooks in D.C. will be the rich ones!
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