Nat Gas Price
2.82 is today's futures for Nat Gas. How low can it go before the gas companies pack up and leave. I realize they are all here for the long run, but its prob nearly unprofitable at some point. They do hedge quite abit, but still.
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Replies to This Discussion
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Permalink Reply by George Brown on
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Brian is correct. As the price goes lower, new applications will come online, thus driving demand and, eventually, higher prices. That is, unless we continue finding even more and more reserves. Although lower prices might not directly benefit those of us with gas beneath our land, they will fuel the economy which will benefit all of us.
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Permalink Reply by mark ayers on
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Permalink Reply by Chip Northrup on
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They have already left much of NYS north of I-88. And they won't be back until the price goes north of $4.50 mcf. Gastem has been unable to sell its leases, so it is simply not renewing them. Only gas that makes sense at these prices are the liquids - propane/butane etc in Ohio Utica, Eagle Ford, etc. Not dry shale gas. Not for years.
http://www.scribd.com/doc/74614768/Norse-Energy-and-Gastem-USA-Vood...
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Permalink Reply by Mike Knapp on -
I bet Mr. Northrup is shaking in his shoes, watching the price of natural gas drop. Every penny lower it goes drives the nail further into the viability of his alternative energy interests.
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Permalink Reply by 0l1a6laz7smpf on
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James, do you have any idea of the price involved in the enhancement cost to prepare the NG to make them as propane/butane. Some of the contracts out there have the Lessor absorbing the price of 'enhancement costs' but no idea what that may mean. Example if the NG sells for let's say $3.00 but enhancement could make it to $8.00 what percentage of the difference could be the cost for enhancement? further example...if the royalty percentage is given on the $8.00 if the enhancement cost exceeded the royalty payment or nearly matched it then the lessor wouldn't derive any benefit from 'enhancing'. Or is the 'enhancement' a very small amount...can you use the example to add any input in hopes to give an idea of what that could be?
anyone else also know the answer...pls help.
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Permalink Reply by Derek on
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I was told by a Seneca landman that they can turn a profit on NG down to a price of $2.00.
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Permalink Reply by karen brown on
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I would not get too worried. As oil goes up, so will gas. This year in Pa, our weather has not been extreme cold and as other places, people are not using as much oil to heat with. Sit tight, we will see it go up as the demand gets higher. Sure this may seperate the men from the boys in the gas industry but in the end the big boys are the ones with the cash to hang in there and drill. Remember, you don't want to flood the market with gas or the price per unit will drop like a rock. Furthermore, we have no idea what will happen in the middle East tomorrow, next month or next year, we cannot depend on the reliability of those countries.
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Permalink Reply by Philip Brutz on
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They are flaring wells in Texas because the pipelines are full. In a couple of years there will be so many Utica wells coming online that they may start flaring excess gas here in Ohio. I hope that I am wrong!
From: Wall Street Journal
By RUSSELL GOLD, DANIEL GILBERT and RYAN DEZEMBER
U.S. energy companies are pumping so much natural gas out of the ground that prices are plummeting, and the cheap gas isn't likely to evaporate anytime soon.
Natural-gas prices fell 5.7% Wednesday to their lowest level in over two years—good news for people who use gas to heat homes and for companies that use it to power factories.
For U.S. energy companies, however, the domestic natural-gas market is looking increasingly out of whack. Despite a 32% drop in prices last year, onshore production rose 10%, and it is expected to rise another 4% this year, according to Barclays Capital. As a result, prices are expected to remain low for at least the next couple years.
Many energy companies have shifted their focus away from natural gas to more profitable oil. Still, natural gas is often a byproduct of oil drilling, and some companies are opting to burn off the gas they find because they don't have a way to transport it.
For example, Goodrich Petroleum Corp.—reluctantly, it says—is flaring gas from an oil well on a ranch in South Texas because a nearby pipeline is already full.
U.S. energy companies are pumping so much natural gas out of the ground that prices are plummeting, and the cheap gas isn't likely to evaporate anytime soon, Ryan Dezember reports on Markets Hub. (Photo: Benjamin Sklar for The Wall Street Journal)
Oil production isn't the only factor boosting natural-gas supplies. Some gas fields produce so much ethane, a valuable liquid used to make plastics, that companies will drill regardless of gas prices. In addition, some companies need to continue drilling so they don't violate terms of leases on millions of acres of land—deals struck when gas prices were high.
Wednesday's price drop on the New York Mercantile Exchange, to $2.77 per million British thermal units for gas delivered next month, stemmed in part from new forecasts for warmer weather in several large heating markets, including New York and Chicago.
Earlier this week, Bank of America Merrill Lynch said gas prices could drop below $2 in the fall, a level unseen since 2002. Four years ago, it sold for around $9.
Eventually, the natural-gas market is expected to correct itself, either by forcing companies to further slash gas-development budgets or by luring in new gas customers. But industry observers say that could take many months, or even years.
The current glut partly stems from the U.S. energy industry's success with new exploration techniques—notably hydraulic fracturing of shale formations, or fracking. Shale formations full of gas keep turning up across the country, storage reservoirs are close to full and companies are now starting to try to export the excess gas.
The gas produced by oil drilling has only added to the surplus—and made it unlikely that it will end any time soon. Oil prices now top $100 a barrel, giving energy companies ample incentive to expand drilling and keeping pressure on prices consumers pay at the pump. High oil prices effectively subsidize the production of otherwise unprofitable natural gas.
"That's what's being underestimated by a lot of people who expect the gas supply to fall precipitously," says Mark Papa, chief executive of EOG Resources Inc., one of the biggest independent oil-and-gas companies in the country.
Many experts predict rock-bottom natural-gas prices through at least 2013. "We're anticipating sustained low gas prices," says Andy Steinhubl, co-head of consultancy Bain & Co.'s North American oil and gas practice.
That is good news for consumers. More than half of American households use gas to heat their homes, and they can expect an 18% drop in the cost of staying warm this winter, according to federal forecasts. A home in the Northeast that uses natural gas can expect to spend $1,023 this year, less than half the cost of heating with oil.
Inexpensive natural gas also is a boon for manufacturers and petrochemical producers. For the first time in nearly a decade, steel companies and plastics makers are building facilities in the U.S., taking advantage of the inexpensive fuel to compete globally.
Domestic explorers have little choice but to keep pumping. They have spent enormous sums leasing up prospective acreage in gas fields. Saddled with those leasing costs, the companies are watching operating costs rise.
Although the energy industry typically talks about gas wells and oil wells, most wells usually contain a mixture of oil, gas and other petroleum products. In fact, nearly one-quarter of all U.S. gas production comes from oil wells, according to the government.
Moreover, many gas wells contain significant amounts of ethanes and other valuable liquids, which are sold separately and priced in relation to crude oil.
"Companies are making so much money on the oil and natural-gas liquids that gas is basically free," says Amy Myers Jaffe, director of Baker Institute Energy Forum, a policy think tank at Rice University in Houston. "They are saying to themselves: I am going to produce the gas regardless of what the price is, because I'm making money on the oil and liquids."
To be sure, not everyone thinks inexpensive gas will last long. Jon Wolff, an analyst with International Strategy and Investment Group, says "nearly all U.S. gas drilling is uneconomic." He expects significant declines in gas production in Louisiana this year as financial hedges expire and joint-venture capital gets used up. He forecasts a rebound in gas prices to $4.50 per million BTUs in the second half of this year.
Chesapeake Energy Corp., which has drilled more U.S. gas wells in recent years than any other company, has said it will cut spending on such wells if prices remained at current levels.
"The market needs a rest," says Chief Executive Officer Aubrey McClendon. As soon as prices rebound, he says, "the industry will be back to drilling more aggressively than it is today."
Billions of dollars worth of existing exploration leases, however, limit how much such companies can ratchet back. Such leases generally require companies to drill at least some wells to keep the leases from expiring.
When Louisiana's Haynesville Shale was discovered in 2008, gas prices were over $9 per million BTUs and companies rushed to lease as much acreage as possible. Landowners were paid up to $30,000 an acre. The leases required companies to drill at least one well on each 640-acre block, usually within four years.
"If you don't drill, you will lose the lease—money put up and thrown away," says Don G. Briggs, president of the Louisiana Oil & Gas Association.
Another issue: some companies raised money from foreign energy companies on the condition that they use it to drill, a commitment that doesn't go away just because gas prices are now low.
Blair Thomas, chief executive officer of EIG Global Energy Partners, a private-equity firm that has invested heavily in domestic energy companies, says the industry will be dealing with lease expirations and drilling commitments for another year or two.
"Until that passes, the industry will continue to drill gas wells, whether they are economic or not," he says.
Over the longer term, an increase in the number of natural-gas-fired power plants could reduce the surplus of natural gas. New federal environmental rules require extensive upgrades to coal-fired power plants in order to reduce air emissions. Many coal plants are likely to be replaced with gas-fired generation.
In the meantime, gas production continues to rise. Daily gas production in South Texas' Eagle Ford oil field doubled last year and is expected to nearly double this year.
Goodrich isn't the only company opting to burn off natural gas. In the 12 months ended in August, the most recent data available, Texas approved 651 permits to burn off gas, up from 107 three years earlier.
The state says it requires drillers to hook up to pipelines eventually. In a few weeks, after a pipeline is upgraded, Goodrich plans to hook up the Dilley, Texas, well that is now flaring gas, and the gas glut might get a little bigger.
Write to Russell Gold at russell.gold@wsj.com and Ryan Dezember atryan.dezember@dowjones.com
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Permalink Reply by Jim Litwinowicz on
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Gas and oil have now decoupled....gas no longer goes up when oil does. The supplies are so large that gas prices are now set independently. And what goes on in the Mid east will have little affect because we import no nat gas from there and almost none at all. What little we import comes from Mexico or Canada via pipeline. And we are a couple of years before we have any major export system in place.
Prices will remain depressed until usage is greatly increased. That is why CHK is investing a billion dollars to increase gas usage. It would very helpful if other gas companies would follow their lead in this regard. And electrical companies switching to nat gas will help but there is currently quiet a backlog in gas turbines. Japan has purchased many to replace their damage nuclear reactors.
The more immediate impact of these depressed prices, according to the talking heads on CNBC, is you will see a lot of merger and acquisition activity in the industry. Low prices will expose the weaker players to takeover by the big boys. Others will merge together to cut costs and overhead. May be time for a good stock picker to play that game.
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