Replies to This Discussion

Permalink Reply by dbob on April 6, 2013 at 13:39

To be sure, I don't see anything above $6 mcf/ inflation adjusted, as a floor in the next 10 years.  

The gas vs coal issue is not simply a fueling flexibility issue, because of the regulatory realities, new NG is a lot easier to build than new coal.  old coal is being preferentially retired.  That said, I think coal still has a future, just a lot of it is about getting shipped to China or being burned at the most efficient plants.  

@ Skip - NG as a passenger car transportation fuel is a long way off.  NG for medium duty to heavy duty trucks is a snowball rolling down hill.  As long as the price of NG remains well below diesel on a BTU basis, it makes too much sense not to convert.  Just need to build out the infrastructure and refine it a bit more.  

Significant economic recovery, when it comes, will raise the demand for NG and oil, but NG development is much more able to respond to demand, and keep prices from rising too much.

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Permalink Reply by Skip Peel - Mineral Consultant on April 6, 2013 at 14:11

I don't see pricing above $5 excepting short term spikes for  some years to come.  All HS operators can generate sufficient returns to drive development drilling at ~$4.50.  I think we are already seeing an uptick in new drills just flirting with $4. The first of the mentioned new end users begins operations this summer.  New regional demand should be matched by increasing supply from natural gas with proximity advantage.

The answer, or the accurate projection, depends on how the question is framed.  I find it much easier to imagine the Gulf Coast regional market with the Haynesville, Fayetteville and Eagleford as the main beneficiaries.  Supply and demand on a national basis is much more complicated and will take longer to evolve.  It's not just a question of new demand such as vehicular fuel and utility use.  It's also a question of supply.  How many additional shale and unconventional resource plays will mature into major suppliers in the coming years?  How long will it take for optimal connections to market to build out?  What will be the global demand for LNG?  How will competition for market affect price?  Domestic and global.

Permalink Reply by Andrew on April 6, 2013 at 21:37

Perhaps I just haven't adjusted to the "new normal" for gas prices. That's probably because when I entered the oil and gas industry after college gas was $12 per mcf. Then again the Haynesville Shale was a punch line as well.

Permalink Reply by tony allen on April 7, 2013 at 13:44

I read an article last week about BNSF converting to gas. The article stated the railroads were 2nd only to the US Navy in diesel consumption. That should help.

Permalink Reply by adubu on April 6, 2013 at 14:36

with all the increase demand in commerial chemical plant use, electrical generation plants,Japan and others purchase of nat gas fields, LNG exports coming in next couple years, and other uses like vehicles, etc. the demand will increase from 71 Bcfd to 85 Bcfd by 2020 which the USA has the abililty to produce we will see gas stablize in the $5-6 range for next decade or two. Drilling will return to dry gas fields like HA.  At $5-6 all will be happy for operators can make good money, royalty owners will get wells drilled, and consumer can afford that price----WIN WIN WIN for all--------IMO

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Permalink Reply by Skip Peel - Mineral Consultant on April 6, 2013 at 14:41

Depends on how much of the global LNG demand is supplied by US production.  There are a number of countries that have F&D costs that domestic producers can not match.  And they are as close or closer to the major LNG markets.  The ability of US LNG to capture international markets is limited.

http://www.igu.org/igu-publications/LNG%20Report%202011.pdf

Permalink Reply by adubu on April 6, 2013 at 15:29

skip-- no one know answer to demand on USA LNG demand but Cheniere has already signed long term contracts for almost all it can export some  3-3.5 Bcfd.----~25 Bcfd LNG has been premitted to be build thru out the USA but most likely only about 10 Bcfd will come on line next 5-7 years but even that is a 15% increase demand from USA. Japan has purchased some of the Barnett field how much is not sure and only way to get it to Japan is via of LNG -- so LNG will be a major player for USA ---IMO 

Permalink Reply by Skip Peel - Mineral Consultant on April 6, 2013 at 15:41

Globally speaking Cheniere is small potatoes.  Of course US LNG export will grow.  My point is that it has competitive disadvantages in production and transportation costs.  For example Qatar has F&D costs of around $2.50/mcf last time I looked.  That's why it has 31% of the global market now.  The Australian facilities will have advantage in transportation costs over the US for East Asia.  As more exporters enter the global market place competition will impact price along the lines of what we have seen with domestic prices.  The shale gas revolution will not be limited to the US.

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Permalink Reply by adubu on April 6, 2013 at 15:58

skip---- i have no disagreedment with any of that you say-- the LNG that the USA will export yes will be small compared to world global LNG (yes Qatar can delivery at $2 and still be profitable ) except it will be a major player for USA demand and push our prices up IMO , and prices are more local to county not like oil prices are global.  Any demand source is good the USA can supply it. I think we will see demand in the 82-85 Bcfd range by 2020. And price will be in 5-6 range 

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Permalink Reply by Skip Peel - Mineral Consultant on April 6, 2013 at 16:19

Sorry adubu, I am unable to debate prices for 2020.  My crystal ball just ain't that good.  LOL!

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Permalink Reply by dbob on April 7, 2013 at 2:18

@ skip 

Most of the stuff I'm seeing in Texas right now, with a  few exceptions, is to either hold leases, replace marginal verticals, or make sure there is a continuation of production as shallower wells taper off.  

@ all - two other questions linger in my mind - how many super rich gas/gassy liquids plays will be found in the North American market, and will each of those generate a land rush?

second question - are we going to accidentally drill the price of oil into the basement or is the gap between production and our imports so large to prevent us from doing that?

One more comment related to GMX - More consolidations, land sales, and JVs, make sense, particularly as the economic picture firms up.  

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Permalink Reply by Skip Peel - Mineral Consultant on April 7, 2013 at 2:36

dbob~

IMO the evolution of technology related to recovery in unconventional reservoirs will surely continue.  And for new plays not involving HBP lands there will be a drill to retain development rights phase regardless of price.  The limiting factor for future production is price.  Deploying the required technology is expensive.  And plays that work at $90/bbl may not at $70/bbl.  Every time the price drops appreciably marginal plays will get a much reduced slice of drilling budgets.

I was just reading an article on the Wolfberry (Sprayberry/Wolf Camp combo) play in the Midland Basin.  It is a good example of significant new future supply and a play where the economics are good at $90 and not good at $70.

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