The Natural Gas Price Watch Thread

OilFinder2

$7.27. Down 47% from its peak.
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Abundance - what a concept!

seahorse2 · Expert Joined: Oct 18, 2004 Posts: 1966

At what point does dropping NG prices affect development of the most costly shale plays? I'm sure there is a break even point already calculated, maybe Rockman can let us know?

ROCKMAN

I can only offer a broad range given the cost variables between plays but last winter operators were charging ahead with high season NG selling for $7.50 or so. Since then drilling costs have spiked significantly but, then again, no one was expecting $13 NG this spring. In round numbers if expectations stay at $6+ drilling will still charge forward. As I've mentioned before, the public oils that dominate the unc NG can't stop drilling even if the profit margin narrows significantly. Everyone's (management. shareholders, staff) payoff will come from increased stock value and not the profit line. I don't have access to our pricing gurus but we've just received approval to expand to 14 long term rigs for 2009 in just one of our unc NG plays. Again, what makes these plays work is the quick payout (12 - 18 months). This produces a high ROI even though total cash flow may not be much more than 2 to 1 on a net present value at the low end of price expectations.

I hate to make this analogy but the unc NG has become the McDonalds of the oil patch. The value of the play is measured by the per well profit but by the aggregate: sell a few billion burgers or drill a few hundred thousand UNG wells. But what ever happens: don’t stop flipping burgers or drilling holes in the ground. If you do you’ll die. And that’s not a good thing.

ROCKMAN

opps...meant to say "not measured by individual well..."

ROCKMAN

Just saw a posting for the next geologic society meeting in Houston. Thought some might be interested in the view from the "inside".

Hot U.S. Plays: Mostly Shale
Stephen Trammel - Marathon Oil

Key U.S. onshore unconventional oil and gas plays and the Gulf of Mexico, especially the ultra deepwater, Lower Tertiary Trend, continue to attract high bids for acreage. Industry is evaluating potential shale gas reservoirs across the country, geographically and throughout the stratigraphic column—leaving no stone unturned, so to speak. With some notable exceptions for oil plays (Deepwater Gulf of Mexico the Bakken play in particular), the U.S. industry is focusing on gas. Here is the current situation: higher natural gas prices stimulated increased drilling activity, but gas production only has reached an undulating plateau. A shift to lower volume unconventional gas implies further drilling increases to sustain production.

Complications include: rising capital costs; uncertainties about the regulatory climate; questions whether high gas prices will hold; manpower/rig shortages and periodic transportation bottlenecks; energy security needs and growing anti-hydrocarbon sentiments and policies in support of climate change targets could restrict future oil and gas developments; access to potentially large resources currently is restricted due to these environmental and lifestyle issues. Concerns include: what are the implications of these trends on North America gas supplies?

Unconventional gas resources will continue to increase in importance in the U.S. energy mix. Most areas with strong drilling activity are targeting unconventional gas—about 75% of the current gas-related rig count. Of the top 25 U.S. gas fields ranked by production, 20 are classified as unconventional. A strong upside exists through relentless pursuit of new technologies and process improvements. However, a collaborative process among all stakeholders is critical: manage developments with local community concerns; balance climate change policies with gas supply needs, and reach a compromise on access restrictions to high resource potential areas. If the challenges are met, we may be reaching a tipping point in U.S. gas production where unconventional gas and gas from new Gulf of Mexico hubs like Independence, can offset the decline in conventional gas production. This presentation will focus on the activity trends in the lower 48 that industry appears most committed to developing, including both onshore plays and the Lower Tertiary Trend in the ultra deepwater Gulf of Mexico.

Starvid

Which are the main companies in the US unconventional gas sphere?

Owners, operators, independent drillers, other service companies and so on?
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Peak oil is not an energy crisis. It is a liquid fuel crisis.

mobin · Coal Joined: Sep 20, 2008 Posts: 1

Since natural gas is not a pure product, when non-associated gas is extracted from a field under supercritical (pressure/temperature) conditions, it may partially condense upon isothermic depressurizing--an effect called retrograde condensation. The liquids thus formed may get trapped by depositing in the pores of the gas reservoir. One method to deal with this problem is to reinject dried gas free of condensate to maintain the underground pressure and to allow reevaporation and extraction of condensates.

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Mobin

pass-along

OilFinder2

newman1979 · Heavy Crude Joined: Sep 25, 2006 Posts: 105

I guess the problem is that if it costs more than the market price to produce, it doesn't make sense to produce product. The last time CHK shut down rigs natural gas went up around 100% and CHK produced some more natural gas. They also hedge their production forward as prices are seasonally affected. Smart guys always are making money when they can. As far as I can tell the EROEI of this shale stuff is not that good and the fast decline of the field takes a lot of the hype off the "breakthrough".

ROCKMAN

I think the CHK announcement is nothing more than pure BS. Gas prices have not dropped 50% since they approved their 8008 budget. They are still higher now then the average 2007 price. NG is down 50% because it jumped almost 100% last spring compared to last Jan "peak prices". I've heard CHK was having borrowing problems. I consult for one of the other big UNG operators and two months ago they announced plans to increase rig count 50% in 2009. My folks are not stupid. They are also rather conservative in their economic analysis. There is something very smelly about the CHK announcement.

Remember what I've said about the public companies that were heavy into UNG: they have to keep drilling activity high in order to offset the high decline rate. The CHK release essentially says they may be seeing a y-o-y reserve volume decline. If this happens their stock will go down the toilet. Wall Street doesn't value companies on the profit margin. It's done on asset growth. No asset growth = no increasing value = no reason to buy the stock.

ROCKMAN

newman,

I forgot to respond to your comment regarding EROEI. I haven't seen it but Simmons has generated a curve highlighting just that fact. But as I've said elsewhere: companies do not make decisions on drilling UNG based on EROEI. It based strictly on $'s in vs. $'s out. I've been a petroleum geologist for 33 years. This has always been the basis for drilling, it's the basis now and will always be the basis for public companies. Though we may well be gaining little net energy by developing UNG that fact has no bearing on the process. Public companies were in a near panic trying to develop new drilling activity. As far as UNG goes, they consider it a an answer to their prayers....at least in the short term.

OilFinder2

BTW, kudos to ROCKMAN for his very interesting analyses in the TOD thread on this same topic. Well done!
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ROCKMAN

Thanks OF2. I can feel some sympathy for CHK if they are trying to put a good spin on bad news. I've been in that position myself with a public oil. You don't want to out right lie but there are different ways to explain a company's current condition. Mostly the dishonesties are ommisions.

OilFinder2

Interesting. Huge regional variations on NG prices due to pipeline capacity issues (caused, at least in part, by regulatory issues):

--> LINK <--
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Abundance - what a concept!