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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Permalink Reply by Al Anthony on January 17, 2013 at 11:19pm

We've got years of a tepid economy and a President that totally mismanaged the initial stimulus attempts which only greased the hands of the unions and the rest of his cronies.  Because of poor fiscal policy, the Fed has maintained a cheap money policy, keeping interest rates artificially low--a kind of artificial life support, if you will.  Cheap money, has away of misallocating resources.  I serious doubt we'd be putting $5 million dollar holes in the ground for cheap oil and gas if interest rates were higher.  A thriving economy would solve all kinds of problems--no one forecasted we would be mired in a 0% interest rate policy for five years or so.

 

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on January 18, 2013 at 3:39am

Just wait until the Fed's bond buying bonanza finally pushes us into hyper-inflation.  The good news is that Joe Biden is positioning himself to be the guy in 2016, so you know, get ready for that circus.

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on January 17, 2013 at 7:25am

Export is demand until the price of the export passes the threshold of what importers will pay.  Price elasticity of demand will be a factor in the ultimate failure of nat gas exports.

Permalink Reply by Tim Tarr on January 18, 2013 at 10:04am

Price elasticity of demand will be a factor in the ultimate failure success of nat gas exports.

One of the main "costs" is security of supply. How secure is that supply in Algeria or even Russia compared to the Sunoco dock in east Pa or other new ones on southeast coast of U.S. or even eastern Canada ?

                                                                               

                                                                                  

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on January 19, 2013 at 4:29pm

What happens when we export enough to shift domestic prices higher?  More money for us, right?  Great.  How long does that last?  What happens when demand outpaces supply and the domestic cost rises to the point where exporting is no longer economically reasonable?  Do you think that, as prices rise here, they wouldn't rise to our export partners?  There's a price threshold at which nations will curb imports from the US and look to other newer producers.  Beyond that we have a false image of what our real supply is and it isn't that crazy 100 years figure.  This is far more complicated than any of us are fully grasping.

Permalink Reply by Dan on January 19, 2013 at 3:55am

Other nations scraped plans to build export terminals as the US and other countries found vast shale supplies.  If the price goes up enough they will eventually add to the supply once again stabilizing the recent low prices.

Permalink Reply by Tim Tarr on January 19, 2013 at 8:57am

Where were those export terminals cancelled? I know Import terminals were cancelled in U.S. but Japan is growing its nat. gas import capabilites. Europe (Germany) will need them too as they close the Nuclear plants down. Europe's current contracts with Russia are tied to oil prices. China sure could use Nat. gas too; have you seen stories on air quality there lately?

This is just the first production wave to be followed by a demand wave. Just a question of the bottle neck distribtuion system now.

Permalink Reply by Dan on January 20, 2013 at 5:04am

Iran is the most important.  This article starts citing sanctions for scraping two LNG export terminals but they allready canceled the projects before the latest round of sanctions against them to build pipelines to closer buyers.  http://online.wsj.com/article/SB10001424052748704216804575423212231...

England has lifted their moratorium on fracking,  http://gomarcellusshale.com/forum/topics/uk-says-not-a-single-tea-c...

I don't use twitter so I don't know how to find the link, but the US embassy monitors the polution index and tweets it every hour.  The Chinese government asked how would The US like them putting monitors in major US cities and the embassies responce was that would be great.  When I was a kid my folks would take us to Pittsburgh occasionally.  On a bright clear sunny day we would come through the tunnels into darkness over the city, all the lights on.  SW PA was the birth of the clean air act.

Permalink Reply by Tim Tarr on January 20, 2013 at 8:09am

Iran is the most important.

Now there is a bastion of stability. I wouldn't build a fruit stand there let alone a multi-billion $ project. Too many much better options.

The idea is to get away from middleast for energy supplies not to expand dependance on them.

Permalink Reply by Dan on January 20, 2013 at 9:09am

Tim,

Iran is the most important.( to us that they are not developing LNG tanker exports, the hell with them)

Permalink Reply by Doug Duffield on January 20, 2013 at 12:30pm

Will the Algerian thing effect world markets? Bet that wouldn't happen here in the US.

Permalink Reply by Bluflame on January 21, 2013 at 3:14am

Marcus,

    I think export is a short-sighted solution. Currently three pipelines (and maybe more) are under construction to transport Marcellus & Utica ethane to Canada, east coast (for ocean shipment to the gulf coast and Europe) and directly to Mt Belvieu on the gulf coast. Economically, it's currently a loser for M/U producers because ethane pricing is lower than pipeline/ocean transportation costs to those destinations. In all cases, the ethane will feed "crackers" converting the commodity to ethylene for later conversion to polyethylene, PVC and then to all things produced by those polymers. Ironically, much gulf coast-produced polymer material thereafter travels by railcar to manufacturers in the northern tier.

    IMHO, a better solution is to build "crackers" in our geography. We have the great advantage of proximity to the main US population centers. "Cracker" output would feed the huge petrochemical & polymer industry in the northern tier and result in a resurgence of manufacturing that has been massively exported to lower cost areas over the last 20 years (read China and Mexico). Anyway, the ultimate result can be our area becoming a world class low cost producer of things like polyethylene bags, PVC siding and lots of other similar value-added products. Obviously, lots of new manufacturing jobs would ensue. Balance of payments would improve, reducing foreign debt. A cynic would say we'd have trouble finding enough employees who can pass a drug test!

     So, instead of shipping a commodity to foreign markets, let's ship end products and reverse the flow of all those shipping containers with Chinese lettering we see traveling by rail or truck to Walmart, Costco, Target and others. This can happen, albeit not tomorrow!!! We can become "The New Gulf Coast". The main reason a petrochemical industry exists on the gulf coast is proximity to Texas/Oklahoma/Louisiana/Mideast oil & gas. The Utica & Marcellus change that equation.

BluFlame

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