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

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on January 16, 2013 at 7:06am

The drillers are between a rock and a hard place because they did absolutely everything imaginable to put themselves between a rock and a hard place.  The confederacy of dunces that put the market where it is are not the ones I want correcting said market.  What we really needed was a few of these companies to just blow up Enron style and really shift the way the market viewed the industry as a whole. 

Permalink Reply by Jim Litwinowicz on January 18, 2013 at 5:46am

The oil/gas boom-bust cycle has been around since Drake drilled the first well. It is taught in every Intro Econ class in college. Whenever a new field or a new technology is developed, it always causes a mad rush in production that results in depressed prices until demand follows. Its all part of the supply-and-demand/free market capitalism that has made us the best place on the planet.

I certainly wouldn't want government constraints in place to limits on production. Or even a private cartel that conspired to limit production and inflate prices.

Permalink Reply by Jack Straw on January 18, 2013 at 8:08am

Brings to mind ........

The Oilman's prayer:

Please, Lord, give us just one more oil & gas boom.....and this time we promise not to piss it all away!

 

JS

Permalink Reply by Billy Park Whyde on May 19, 2013 at 1:46am

Hmm but we will see very close to $4.00/gallon for gas this upcoming holiday weekend. Anyone bought any auto products lately, such as motor oil, ATF,or hydraulic oil? Why are these products higher now then when oil was at over $100/bbl? 

Permalink Reply by melissa humphrey on January 22, 2013 at 7:18am

JIM, at the time of the DRAKE discovery, 1858, oil was 20$/brl equal to 400 in today's $s.

By 1860 oil was under 5 cents.

Econ 101 as you say. I "think" this will work out in that many areas have break-evens of 5$+, thus are going out of bis gradually leaving the more economic plays with good prospects out 6mo -18 mo, we will see.

6 $ would be reall nice, imagine saying that in 08 with 10+. 

Permalink Reply by Anthony G. Shumway on January 30, 2013 at 2:40am

Jim, I have to agree 100% with your take on the current situation and the free enterprise system in general.  It's a problem from time to time, but it's far and away the best economic system in the world!  Just thank God that we're still a part of it and pray that the politicos, et al, don't find a way to piss it all away from us.

Permalink Reply by George Brown on January 16, 2013 at 9:05am

This is a completely normal and natural economic process, especially where commodities are concerned. Supply shrinks or demand increases, then the cost of the commodity goes up.  This results in engineers finding ways to increase the supply of the commodity, which then depresses the price until demand catches up.

It will take some time, but demand will most definitely increase.  We're already seeing increased usage of natural to generate electricity. We are also seeing investment in port facilities to export the gas, and we're seeing more manufacturers produce automobiles that will run on natural gas.

Just sit back and enjoy the ride!

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on January 16, 2013 at 9:39am

This is not a normal or natural economic process in any sense.  This is a market that has been driven by speculation based on lies and fuzzy math.  There is a real difference between natural ebb and flow of supply/demand and artificially boosting either temporarily.  This is a massive bubble and when it bursts chaos will ensue.  Whomever is left alive will own a ton of assets whose value will be significantly higher.  But before all of that there's a lot of pain.

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on January 22, 2013 at 8:12am

EUR numbers for shale gas have been heavily over estimated.  Decline curves have been elongated to suit the E&P company's needs.  Terminal decline has been under estimated.  Shale gas doesn't work without a price support that is waaaay off from where we are.  Hence the massive push into liquids.  I'd much rather be in the Utica than in the Marcellus or Barnett right now.

Permalink Reply by Jack Straw on January 22, 2013 at 8:52am

 

My speculation, lies and fuzzy math tells me that when Operators can locally hedge their production forward at $5/mcf ... then six months later, a few rigs will move back into the Dry Gas areas.

When Operators can locally hedge their production forward at $6mcf ... then six months later, a few more rigs will move back into the Dry Gas areas.

When Operators can locally hedge their production forward at $8mcf ... then Landmen will be knocking on people's doors; with reasonable offers and willing to negotiate.

Until then, welcome to Pergatory (a place that Father Gilotti predicted I would be spending a lot of time).

 

All IMHO,

                 JS 

Permalink Reply by jb379 on January 16, 2013 at 9:40am

Very good assessment George....hit the nail on the head IMO.

 

JB

Permalink Reply by melissa humphrey on January 22, 2013 at 7:49am

george,, i concur. happens all the time. rich profits brings on huge production and prices crash. 40$ oil in 1980, 4$corn in 88, fat housing profits in 03-07,.

It will self cure.

Gas was under1$ in 90-91, 4 isn't low relative to gas price history.

Best luck to all.

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