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Permalink Reply by tc on August 23, 2015 at 10:00

I think that the article is using wrong supply/demand numbers.  If supply is 72.2 per day and demand is 76.5 per day that means we have 4.3 deficit per day and I don't think that is happening, especially when it then goes on to say we are going to have the 2nd highest storage on record this fall.

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Permalink Reply by Skip Peel - Mineral Consultant on August 23, 2015 at 10:12

Could be but it does a good job of explaining why low prices have not translated to a decrease in production.although it omits the fact that well designs have made significant improvements in the percentage of hydrocarbons recoverable.  And it correctly points out that the Marcellus and the Utica are producing prodigious quantities of gas at surprisingly low costs per mcf.  That production will have an inhibiting effect on price increases associated with increased future demand in whatever markets it penetrates.

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Permalink Reply by Timothy Stepnowsky on August 23, 2015 at 11:42

Pipeline projects in Appalachia 2010 - 2013: $8B

Pipeline projects in Appalachia 2015-2018: $35B

Cracker plants, electrical plants converting from coal to gas (ongoing), LNG, industrial plants, fleet vehicles.  There is much demand coming online over the next decade, albeit, for that period of time, new supply will meet new demand, but there will be a point in the future, when supply does not keep up.  Then, prices will move higher. 

Canada is paying high $3s (USD) / mcf.  We need more pipeline heading north as well.  

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Permalink Reply by Skip Peel - Mineral Consultant on August 25, 2015 at 2:37

Before this discussion rotates off the Main Page I thought I would highlight the portion that I thought would generate some replies.  It is an amazing well.

"A recent well drilled in southwestern Pennsylvania posted an initial 24-hour production rate of a staggering 72.9 million cubic feet per day, equal to 22.6 million cubic feet per day per every 1,000 feet of lateral drilling. Wells such as this, and others that are nearly as productive, could generate break-even at near $2 per million BTUs. (A million BTUs is roughly equivalent to 1,000 cubic feet of natural gas.)"

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Permalink Reply by Badfish Ranch on August 28, 2015 at 4:59

The difference is made up by Canadian imports, and believe it or not, we still bring in a trickle of LNG. It would be far better to use a "Total Supply" figure than "Daily Production" figure. Canada still produces a chunk more than they consume, sending it across the border. The market is indeed oversupplied and is doing its' job of pricing in demand and trying to curtail drilling, although efficiency gains and targeting sweet spots isn't doing anybody any good. Why drill and sell off your absolute best holdings into a horrible pricing regime? One day, the E&P's will start to act like adults, or default/chap 11........

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Permalink Reply by Skip Peel - Mineral Consultant on August 28, 2015 at 5:38

I think the reasons for continuing to drill in a depressed price environment depends on the company.  Some wish to maintain a level of operations that allows them to avoid laying off their talented core employees.  They know they will be hard to replace when prices improve in the future.  Some companies have painted themselves in a corner with heavy debt requirements.  They have to maintain cash flow to service debt hoping to hold out until prices improve.

I find it somewhat surprising that there is little written and reported about how the industry is responsible for creating the current environment that has placed so many companies at peril.   In a industry that prides itself on assessing and managing risk, a majority of upper level managers accepted the perceived new paradigm of the Shale Haves and the Shale Have Nots.  The conviction that unconventional resources (not just shale) were the future of the industry drove decisions to implement very aggressive land acquisitions and the drilling programs required to hold all that land for many decades of lucrative and reliable reserves.  The financial industry made it easy for those companies to run up huge debt loads all the while their operations were creating a growing and obvious supply glut.  Now that depressed prices have forced companies to concentrate on operational efficiencies it makes obvious just how inefficient were the vast number of early wells drilled to hold leases. 

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Permalink Reply by tc on August 28, 2015 at 6:33

After the very aggressive land acquisitions it is now obvious that the actual size of these shale plays that are economical at rational prices are much smaller than originally published.  Remember GMXR with Harrison county and Goodrich with Panola county and how that area was included in the Haynesville Shale maps.  The original Eagle Ford shrank alot when the dry gas portion become uneconomical and if oil prices stay in the $50 range for a few years large sections of the oil window of the Eagle Ford will also disappear off the maps.

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Permalink Reply by Skip Peel - Mineral Consultant on August 28, 2015 at 6:45

The fact that unconventional resource plays often cover relatively large continuous areas provided room for multiple companies to race to get a piece of that rock even in the numerous cases where there was little or no reliable well control.  That was a high risk competition that ended up with a handful of winners.  Those late to the race paid the highest prices - for acreage and often for borrowed capital.

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Permalink Reply by Timothy Stepnowsky on August 28, 2015 at 7:16

Almost ALL of the nat gas in New England comes from Canada.

A decade in, there is still no direct pipelines from NE PA to New England, how is that for politicians doing there jobs?!?

Scary bad.

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