Another "golden egg" laying goose is dead?

 As we have seen, the Marcellus shale drilling success has lead to an over-supply of natural gas and a depressed price.

 The driller's answer was - go to the wet gas Utica areas to capitalize on the higher value of natural gas liquids mainly ethane. Now this success has lead to an over-supply of ethane and the price of ethane is now less than the equivalent methane. The ethane cannot be left in the gas going into the pipeline because it contains more BTUs than methane (1070 vs approx 1025) and that would raise the value too close to the limit pipelines allow - 1100 BTU.

  The answer may be to shut-in some Utica wells and return to the dry gas areas, but wait there is an over-supply of gas. What's needed is more useage, but that is going to take time and even then there's such an over-supply that prices are not going to change much for a long time.

 The drillers are between a rock and a hard place.

  Here are a couple of articles from Platts.

http://www.platts.com/RSSFeedDetailedNews/RSSFeed/Petrochemicals/60...

http://www.platts.com/RSSFeedDetailedNews/RSSFeed/NaturalGas/6987988

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Replies to This Discussion

Permalink Reply by Dan on January 16, 2013 at 1:55pm

So the customer gets more BTU's per dollar and volume?  And that same volume costs less from over supply?  Good for the customer and country.  The folks doing the drilling, abstracting, trucking etc. are busy as always.  Good for the employees and country.  No energy companies folding up from low profit yet, part of their cyclical business but good for businesses that consume energy and the country.  Mid-stream is sitting real pretty right now and many energy companies are well diversified in mid-stream and processing and also paying taxes.  Landowners are the ones taking the hit with reduced royalties but we have something we didn't have a few years ago and if we have children that want to work and live where they grew, they have opportunity now.  We will certainly figure out how to consume any extra energy if it remains cheap for a while.  Seems like a pretty cushy rock and hard place

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on January 16, 2013 at 4:39pm

"Seems like a pretty cushy rock and hard place"

Tell that to CHK who's had to sell double-digit billions worth of assets just to stay afloat.  XOM is getting killed in their gas plays.  Don't believe me?  Rex Tillerson, their CEO, said "everybody's losing their shirts" in regard to nat gas.  You cannot make profit at this price and the drillers are the ones who drove the price down.  

Permalink Reply by Ted Croft on January 16, 2013 at 4:59pm

CHK's current position is one of their own creation, mostly that of the CEO's gross mismanagement and inept handlling of his own company. Not the nature of the 'Gas' business overall, in general.

The nature of Fracking natural gas has historically shown that there is a great depreciation of output per well over a short period of time. It is only natural for an O&G to try to preposition and hold as much acreage as possible for the eventuality of having to move on to the next well to maintain a consistant production rate over time.Naturally there is going to be some greed in the O&G business but in the long haul the companies with some measure of business acumen and integrity will outlast the current glut.

As to the history of commodity production, one need only look to the Middle East and see that the world would,and will continue, to gladly consume whatever production every middle eastern country could bring to the distribution terminal. This will also hold true here in America when the infrastructure support for refinement and distribution is established.

Permalink Reply by Al Anthony on January 16, 2013 at 11:52pm

While we're passing around blame, let's also remember our inept/incompetent President has us in the midst of one of the weakest economic recoveries in our history. 

Permalink Reply by stephen weiss on January 17, 2013 at 3:03am

Blame?

Curious comment. Not sure I would blame POTUS.

In past 5 years US natural gas production up. up, up.

(Maybe too much?)

Stage is set for demand for natural gas  to increase with plans for conversion of elctricity generation from coal to gas, plans for resurgence of chemical industry and even steel production with availablitiy of natural gas. Also beginnings of natural gas for transportation.

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on January 17, 2013 at 3:23am

Stage is set for conversion and then a MASSIVE increase in price, which will of course make that conversion look idiotic.  Between conversion and export we will absolutely blow up the price because the artificial demand that will have been created will greatly outpace supply.

Permalink Reply by stephen weiss on January 17, 2013 at 3:33am

Please define which demand is artificial:

Natural gas for electric generation.

Natural gas for feedstock for chemical industry.

Natural gas for export.

Natural gas for transportation.

Natural gas for industry.

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on January 17, 2013 at 3:54am

Export and transportation would be the ones that we would inflate based on the (fantasy) of a supply abundance.  It would be foolish to start converting trucking fleets to nat gas because there is such a brutal price fluctuation.  Export is one of the funnier ideas out there.  For export to work we need domestic prices to remain low.  How we expect prices to remain low and steady while creating an additional demand is beyond me.

Permalink Reply by Tim Tarr on January 17, 2013 at 7:08am

Export is additional demand. The real problem is this economy BLOWES. This is the worst economic recovery since the last time government tried to spend its way to prosperity.

Permalink Reply by John OBrien, landowner advocate on May 19, 2013 at 6:04am

"Export is one of the funnier ideas out there"

Tell that to Dominion who just invested a couple billion$$.

Hey, it rhymes!

Permalink Reply by DJM on January 19, 2013 at 3:18am

 the artificial demand that will have been created will greatly outpace supply

          Realy Marcus?? Out pace supply? I hope the demand is that great.But I doubt it will be. I see nat. gas prices low for many years to come, Even though i no longer sell heating and cooling equip. in the privet sector,I still advise ALL my old customers to convert to nat. gas if possible.

              By the way I realy enjoy reading your posts.    Thanks and keep it up.

                        Dan

            

 

 

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on January 20, 2013 at 3:55pm

It is entirely possible that demand outpaces the supply of economically recoverable gas.

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