Are the Saudis hurting our prospects?

As an "in the shale" landowner, I care about growing natural gas sales in hope of supporting, and possibly even raising, the price of natural gas.  This can impact the size of my monthly royalty check.

Everyone already is aware the Saudis, and OPEC, are competing hard against USA shale oil producers.  This has driven down the cost of gasoline, which is a sweet outcome.  But there is other fallout which concerns me.  Declining cost of crude is lowering the price of home heating oil.

The impact could come our way via reduced numbers of conversions.  We want homeowners to convert from oil heat to natural gas heat.  Those conversions are driven by the cost differential between the two fuels.  Homeowners must invest money into their homes to pay for a conversion.  When the cost differential between oil and natural gas is large, homeowners recoup their investment more quickly.  Thanks to the Saudis the cost differential, though still in our favor, is smaller today than it was just a year ago.

The above hit home for me as I was reading this article, from Maine:

Natural gas heat vs. oil heat 

Note:

To read that article you have to answer one or two questions.  It's painless.  There is no need to sign in or sign up or anything stupid like that.  Just click to answer their question(s) and they will instantly show you the article.

Views: 2666

▶ Reply to This

Replies to This Discussion

Permalink Reply by Joseph-Ohio on December 12, 2014 at 9:17am
Do you mean other than gouging the world with the price paid for their crude for say the past thirty (30) years ?

I'm reading that there are developers that see $40.00 per barrel as profitable.

Think about how profitable it was at $100.00 + per barrel.
Permalink Reply by RICHARD BASILE on December 12, 2014 at 9:59am

J/O---I request that you show from your reading any wheres in the US, that you can develop via production " NEW OIL "  & be profitable @ $ 40, I will even extend that world-wide--lifting costs are 1 thing, all in costs are another,to give some insight, ( another industry )-- how many mid to large gold mines have opened in last few yrs ??--mining costs about 500 to $600 per oz, but & it is a big but, "ALL IN COSTS " are about $1100 per oz----pray tell, who is going to lend $500 to $1 bil for a project that @ best shows @ 8% profit---the same holds true for the O & G industry---look @ your own backyard--- UTICA---the $$$$ billions spent on infrastructure-----

Permalink Reply by Joseph-Ohio on December 12, 2014 at 12:37pm
Richard,

Take the link below and check it out.

http://gomarcellusshale.com/forum/topics/according-to-boa-oil-can-d...

There are a couple of other posts also on here.

One talked about / tabulated break even costs for various plays.

Shockingly low too - thinking that's where I was remembering the $40 per barrel from.

If I find it again I'll link it also but you may find it first.

Think one was by Jack Straw.
Permalink Reply by Philip Brutz on December 12, 2014 at 9:34am

http://www.theglobeandmail.com/report-on-business/industry-news/ene...

Free market will adjust to lower oil prices

Black Friday came and went. Consumers fought over cheap shoes, televisions and toasters. This chaotic ritual is a living economics lab that every year validates Alfred Marshall’s basic principle: Consumers will buy more stuff when prices are cut.

And so too it is with oil. Buyers of petroleum products are being offered a Black Friday of cheap black gold that will last well beyond the holiday season. And like anything else that goes into the bargain basement, consumers will inevitably load up with more gasoline, diesel, and jet fuel, as they have in the past, as they have every time the price of oil has gone on sale.

MORE RELATED TO THIS STORY


 
INFOGRAPHIC
U.S. petroleum demand

Low oil prices will last until the market comes back into “balance” as the Organization of Petroleum Exporting Countries ministers like to always say in their public narratives (Note to self: Oil markets have never been in balance, so what are they talking about?) Let’s be honest about the events of last week: Had the 12-ring OPEC circus agreed to cut their production quotas, the price of oil would have jumped a few dollars a barrel. And then the price would have proceeded to quickly drift down after the market realized that half of this tattered cartel is a collection of unstable or stateless (or both) governments that have little ability to collectively control their output. It wouldn’t have mattered what OPEC decided; either way the price of oil would have still ended up being sub-$70 (U.S.).

So the free market has to sort this out. As it should. As it will. As Alfred Marshall prescribed in his formative 1890, two-volume book, Principles of Economics. The intuitive calculus is simple: When price goes down, supply goes down and consumption goes up. For a commodity like oil, it’s just a matter of timing.

Although the recent fixation has been on oil supply, demand is the variable to watch, especially in the United States. American use of oil has fallen by over 1.5 million barrels a day since peaking in 2005, but a partial rebound is looking likely now that the economy is picking up and gasoline prices are doing a limbo under $3.00 a gallon. When summer 2015 comes, the era of stay-close-to-home vacations, or “stay-cations” as they were called, should be over. As well, recent sales data shows that heavier SUVs and pickup trucks have returned as the vehicles of choice – a trend that will start bucking improvements in average fuel economy (as was the case throughout the 1990s). Already there are signs that overall oil consumption is perking up – American petroleum demand is up almost 1 per cent or 150,000 b/d from last year. That doesn’t sound like much, but the trend has mostly been negative since the Financial Crisis.

There is another demand side factor that will come into play soon. Oil is a major input into the global economy, so any price cut translates into a consumer stimulus that can be spent on other Black Friday items. What is bought typically consumes more energy, as well as takes more energy to produce and deliver. In short, lower oil prices should lubricate the global economy in 2015, potentially more than most expect. Consider that a barrel of oil has dropped in price by about $30 – an average for the smorgasbord of all grades, light, medium, and heavy. On 93 million barrels a day of world consumption, this $30 price cut will translate into an annual $1-trillion stimulus package for the global economy. Going forward that will make every Friday black, assuming today’s prices last through next year.

Current projections for oil consumption growth into 2015 run around 1.1 million barrels a day; a level of growth that has been viewed as optimistic, especially considering that 2014 demand is anticipated to rise just 0.7 million barrels a day. However, a lower oil price boosts the odds of achieving next year’s projection. Much still hinges on the Chinese economy, but note that car sales there are running at a record high. In addition, China imports six million barrels a day, so the $30 cut translates into a $65-billion trade balance windfall for next year, all else being equal.

Over the past few years the arithmetic of estimating oil consumption has been one of addition and subtraction: Add up the expected growth from emerging economies like China, then subtract the expected decline in North American, Japanese and European oil consumption. At today’s low prices, this deduction is likely to flip into an addition.

How oil suppliers will respond to lower price is more complex, but the production side of the equation often takes longer to respond to changes in price than consumption. It’s looking likely that demand will grow by another 1.1 million barrels a day next year and possibly even more, which is far more tangible than the promise of an OPEC cut.

In other words, it’s the deal-seeking consumers that are going to “balance” the oil markets faster than the producers.

Peter Tertzakian is chief energy economist at ARC Financial Corp. in Calgary 

Permalink Reply by Jim Litwinowicz on December 12, 2014 at 11:54am

I, nor anyone else, knows the true motivation of the Saudis. The Russians, Iranian, Iraqis have all been increasing their oil production and intend to continue increasing it.  This may be a warning shot across their bow to hold steady.

Just saw an oil expert on CNBC say that the real companies being hurt by this are the big boys that do offshore drilling, which is considerably more expensive then shale drilling. That means BP, Exxon, Shell along with Brazil's Petrobas, off shore African, Norway, Great Britain, and also Russian Siberian drilling will be hammered.  I heard that Russia is already cutting back on Siberian development.

Maybe the Saudis took a look around, said, hey we can hammer our enemies, shut down the riskier shale drillers, and send a message to other global producers not to increase production all at the same time  That makes it a no-brainer for them.

As for how it affect nat gas/ wetgas pricing, hard to predict.  Low fuel prices will lower the conversion rate for transportation use, which is pretty slow anyway,  but have little affect on electrical production what with the war on coal.  And if shale drillers cut back substantially, it may raise nat gas prices as there is a substantial associated gas production that would also be curtailed. I don't know what percentage of wet gas is imported or how it compares price wise but I think domestic wet gas is cheaper and preferred.

Permalink Reply by Joe Bezel on December 12, 2014 at 7:16pm

Jim, I agree that nobody knows the motivations of the Saudis, but my guess is that their strategy is aimed mostly at Iran.  The economies of both Iran and Russia depend heavily on oil/gas exports; Russia is sitting on a mountain of cash, while Iran is living mostly paycheck to paycheck, due to years of sanctions.  Iran is also close to becoming a nuclear power, which Saudi Arabia would like very much to prevent.  Here is an AP article that indicates how Iran's president feels about the matter.

http://www.myfoxny.com/story/27592182/iran-fall-in-oil-prices-is-tr...

I'm sure the Saudis don't mind if the US shale industry takes a hit in the process, but I think the worry over a neighbor that hates you developing nuclear weapons trumps other concerns.  My big concern is that desperate dictators do crazy things.  If oil prices stay low for very long, I would not be surprised to see Iran or Russia mix things up by invading an oil/gas-rich neighbor to try to drive prices up.  We live in interesting times.

Permalink Reply by Joseph-Ohio on December 12, 2014 at 11:36pm
My thoughts (FWIW) :

I think we live in times where should we (the USA) continue to place the concerns and aspirations of other states (before / above our own) we (the USA) would be nothing less than foolish.

Energy independence is at our fingertips and we should stop delaying our developing / firmly grasping it.

I do not think we can become friends with our enemies by doing business with them.

I would call these dangerous times as opposed to interesting.

IMHO.
Permalink Reply by Frank Walker on December 13, 2014 at 2:45am

Hi.  OP here:

Without wanting to sound disrespectful to or critical of other posters to this thread, my intent in starting this discussion was to focus on US, in-the-shale landowners selling mostly, though not entirely, natural gas.  This rather than a general discussion of the larger issues.

Pursuant to that, I pointed in the OP to an impact on home heating oil-to-gas conversions.  Now I'm seeing other fallout which might start hitting close to home for many of us:

Declining revenues are affecting business decisions at major energy companies.  Here is one example, Talisman:

Talisman Repsol

But energy companies in general are today concerned about lower revenues.  These are the companies to which we all are leased.  Declining revenues create pressure on management to tighten policy and fill cracks.  I believe some such moves could readily filter down to and impact Lessors.  Those of us with good leases could see them come under unanticipated scrutiny.  Those of us with leases insufficiently protective of our interests . . well . . what can I say; expect exploitation.  Bad things which happened prior mostly to Chesapeake Lessors might in future happen to many more of us leased to other companies.  Changes in upper management can presage such outcomes, and the management teams at these companies watch and learn from their competition.  My best advice to Lessors:

Remain aware of events surrounding your Lessee.  Watch their stock price.  Watch for possible changes in management and/or in policy.  Remain awake and keep your eyes wide open.  Stuff is happening!

I make no claim whatsoever to having foreseen how the fallout of all this stuff will change my life or the lives of other Lessors reading this post.  I wish I did have that kind of prescience!  But I detest surprises.  My preference is instead to try to anticipate (possible) negative personal outcomes which could ensue from the larger events discussed here.  If you have thoughts regarding how all this might come home to roost for Lessors, I'd surely appreciate knowing what they are!

Permalink Reply by Joseph-Ohio on December 13, 2014 at 2:58am
Seems to me also that we're watching some SHTF all right.

Should be standing behind (upstream of) the fan; but, maybe we're beside it.

I think that's better than standing in front of it (downstream) however.

Seems to me we just moved out of it after being downstream of it for about 30 - 40 years.

Only IMHO.
Permalink Reply by Frank Walker on December 13, 2014 at 3:11am

I apologize for that link in my post, above.  The FT is authoritative, but also can be annoying.

If that link got you nowhere, and if you are interested in the Talisman situation, here is another source of information:

Talisman news from Reuters - should be clean and clear

In all honesty, this Repsol news is available in a gazillion places.  The Spanish are at this very moment invading Calgary.  They must be freezing their butts off!!

My personal view, strictly FWIW:

I like Talisman the way it always has been:  Canadian and darn proud of it.  Canada is part of North America, where I live.  I don't want to be doing business with a company from Spain, a distant poorly run country far too close to bankruptcy for my liking.

RSS

© 2024   Created by Keith Mauck (Site Publisher).   Powered by

Badges  |  Report an Issue  |  Terms of Service