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Thread: What will we do when natural gas prices soar?

  1. #1

    Default What will we do when natural gas prices soar?

    It's funny, when I came to Alberta, it wasn't oil that was funding the province, it was natural gas.

    People talk about lack of diversification, but it seems to me we have just survived a disastrous natural gas price plummet through diversification into oil.

    Now, I seem to remember from economics at university years ago, that commodities follow cycles.

    The most famous contra investor in Alberta is CNRL. They invest when others sell, and they sell when others invest. Earlier this year they purchased in a massive transaction, much of Devons gas assets.

    We see right now a huge environmental shift from coal power to gas in the US.

    When fracking exploded recently, it started with gas then shifted to oil. Now, if many of those companies fail, what will that mean for gas supply?

    What do you think? Are we on the verge of another gas boom that will offset the loss of these oil revenues for Alberta?

  2. #2
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    Basic economics of supply and demand. Demand for gas is about to jump as coal-fired power plants are phased out and converted to gas, including in Alberta by 2020.

    Max Keiser says the economics on fracking are unsustainable:
    http://www.youtube.com/watch?v=fP8XklfMqHk

    So indeed, what does CNRL know that the others don't?

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    As recently as fiscal year 2005/06, the Alberta government received $8.4 billion in natural gas royalties. In the past several years, it's been around $1 billion.

    Natural gas demand is steadily increasing in North America. Prices have already recovered from their 2012 lows. Mitigating against soaring prices (except for spikes during cold snaps or heat waves) is the sheer abundance of natural gas in North America that is recoverable with current (let alone future) technologies at existing price levels.

  4. #4

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    Quote Originally Posted by David Jackson View Post
    Max Keiser says the economics on fracking are unsustainable:
    http://www.youtube.com/watch?v=fP8XklfMqHk
    Wow, he was totally wrong, the price of energy went down, massively, due to that additional 9 million barrels of frack oil on world markets.

  5. #5

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    Quote Originally Posted by moahunter View Post
    It's funny, when I came to Alberta, it wasn't oil that was funding the province, it was natural gas.

    People talk about lack of diversification, but it seems to me we have just survived a disastrous natural gas price plummet through diversification into oil.

    Now, I seem to remember from economics at university years ago, that commodities follow cycles.

    The most famous contra investor in Alberta is CNRL. They invest when others sell, and they sell when others invest. Earlier this year they purchased in a massive transaction, much of Devons gas assets.

    We see right now a huge environmental shift from coal power to gas in the US.

    When fracking exploded recently, it started with gas then shifted to oil. Now, if many of those companies fail, what will that mean for gas supply?

    What do you think? Are we on the verge of another gas boom that will offset the loss of these oil revenues for Alberta?
    What will WE do? If natural gas prices soar, be assured we will ramp up government spending as fast as we can. I doubt we'd save much if anything for long-term income diversification, economic stabilization purposes.

  6. #6

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    Quote Originally Posted by David Jackson View Post
    Basic economics of supply and demand. Demand for gas is about to jump as coal-fired power plants are phased out and converted to gas, including in Alberta by 2020.

    Max Keiser says the economics on fracking are unsustainable:
    http://www.youtube.com/watch?v=fP8XklfMqHk

    So indeed, what does CNRL know that the others don't?
    The economics of anything pretty much are dependent on the demand and the price. Gold s a great example: They say gold is a rare commodity but if the price rose high enough supply would flood the market as currently uneconomic sources of gold become "economic" at high enough prices. Rising profits on the older now-high-margin mines entice investors to invest en masse. Old previously un-economic mines that were written off for dead suddenly become money makers and bankers and lenders rush in to finance expansion. After a bit of time, academics write papers about how the trend is forever upward and how any intelligent capital allocation plan in say pensions, endowments, etc. must clearly have an allocation to gold. The investments spike in value and everyone ignores the massive spike in supply (which is increasingly taken up by speculators and horders).


    On shale:

    U.S. Shale-Oil Boom May Not Last as Fracking Wells Lack Staying Power
    By Asjylyn Loder October 10, 2013
    excerpts:

    "Chesapeake Energy’s (CHK) Serenity 1-3H well near Oklahoma City came in as a gusher in 2009, pumping more than 1,200 barrels of oil a day and kicking off a rush to drill that extended into Kansas. Now the well produces less than 100 barrels a day, state records show.
    ...
    “The Red Queen syndrome just gets worse and worse and worse,” he says. “The higher production goes, the more wells you need to offset the decline.”

    http://www.businessweek.com/articles...-staying-power



    The problem is now that our upper price expectations have to face the likelihood that whenever the price increases for any sustained time, horizontal drilling and massive shale reserves can knock the price right back down again.


    ~

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    ^More rapid depletion rates of fracked wells compared to conventional is hardly a secret. Off-setting this is the sheer volume of gas and oil locked in shale or sandstone formations. Orders of magnitude larger than conventional reserves. Similar to the ratio of oil in the Alberta oil sands compared to conventional oil.

    The other off-set is that technology to extract the oil and gas keeps improving. Multi-directional drilling from a single platform has been around for decades being first developed for off-shore oil platforms.

    A newer wrinkle is drilling at multiple angles from a single platform and then when you hit the pay zone going horizontal through the richest formations for hundred of metres. My son (who is a geophysicist) is currently working on such a natural gas and liquids well. Though it's not really a well. More like a platform.

    These technologies also makes it possible to "accidentally" remove gas (or oil) from a neighbouring lease which is one of the factors driving well completion. It's fascinating stuff.

  8. #8

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    In old conventional wells, the upfront capital outlay was followed by decades of minimal additional investment. The upfront risk was substantial but to the winners the returns were very favourable. Today, with shale , I imagine financing for known formations is probably much easier to obtain but the rapid deletion means continuous reinvestment and operational efforts are required. Fracing seems to be more like running a retail business like a restaurant in that it seems to be a much more complicated business with much more time spent living on the edge with the economics being exposed to far more cost and revenue uncertainties.


    I have read, only once however, that the fracked wells suffer rapid initial decline but then produce at a low rate for a long time. I'd like to know what the typical scenario really is: Rapid decline to zero or initial blowoff followed by years of modest production.
    Last edited by KC; 30-11-2014 at 02:20 PM.

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    Quote Originally Posted by KC View Post
    The problem is now that our upper price expectations have to face the likelihood that whenever the price increases for any sustained time, horizontal drilling and massive shale reserves can knock the price right back down again.
    ~
    The flipside of the problem is that more rapid depletion will cause faster supply reduction in response to lower prices. This could result in a more stable price over the long term, which would be better for Alberta than the boom and bust cycles of the last 50 years.

  10. #10

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    Massive Natural Gas Inventory Drawdown: And The Price Falls
    Dec. 1, 2014

    excerpt:

    "The bottom line...

    "A big inventory drawdown last week, a downside break in the crude oil-natural gas spread and the beginning of winter all add up to a wild ride for natural gas. We are going into winter with inventories that are lower than last year, when natural gas peaked at almost $6.50 per mmbtu. Inventories are lower than the average of the last five years. Although natural gas hit..."

    http://seekingalpha.com/article/2718...he-price-falls

  11. #11

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    Quote Originally Posted by Titanium48 View Post
    Quote Originally Posted by KC View Post
    The problem is now that our upper price expectations have to face the likelihood that whenever the price increases for any sustained time, horizontal drilling and massive shale reserves can knock the price right back down again.
    ~
    The flipside of the problem is that more rapid depletion will cause faster supply reduction in response to lower prices. This could result in a more stable price over the long term, which would be better for Alberta than the boom and bust cycles of the last 50 years.
    Yes, very perceptive! I'll have to rethink my view that big new finds and big depletions will cause more and greater volatility.

    I think, maybe, the tech crash of 1999/01 offers some, though poor insight. In the tech crash, a bunch of games makers went bust. Like gas which is burned, tech and games products weren't very long lived either, so the problem was on the supply side and not the demand side. Demand didn't wane much. However on the supply side, the production side, issues of high costs, financing flooding in and a massive bubble in the industry set them up for a fall. The ability to pump out new supply to meet any new demand has kept prices down.

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    For those thinking (hoping?) natural gas prices are set to soar, this report out today is a reality check. Note how proved reserves are defined:

    "U.S. total natural gas proved reserves increased 10% (31 trillion cubic feet (Tcf)) in 2013 and reached a new U.S. record of 354 Tcf, according to newly published data in EIA's U.S. Crude Oil and Natural Gas Proved Reserves, 2013.

    Proved reserves are those volumes of oil and natural gas that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions.

    At the state level, Pennsylvania and West Virginia reported the largest increases in natural gas proved reserves in 2013, driven by continued development of the Marcellus Shale gas play in the Appalachian Basin. Pennsylvania added 13.5 Tcf of proved natural gas reserves, an increase of 37% in 2013. West Virginia had the second-largest increase, an addition of 8.3 Tcf (56%) of natural gas proved reserves. Combined, these two states had 70% of the net increase in U.S. natural gas proved reserves in 2013.

    Texas, which benefits from having the Barnett and Eagle Ford Shale plays within its borders, had the third-largest increase in 2013—a 5% gain (4.4 Tcf of proved reserves). Proved reserves of natural gas in shale gas plays accounted for 45% (159.1 Tcf) of all U.S. natural gas reserves in 2013."

  13. #13

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    ^it is not proved reserves that matters though, we know for example that Venezuela has massive resources of oil, but they have little impact on world prices because they can't produce economically.

    More and more, different places are opposing fracing / technologies needed to get at the reserves, yet demand is shifting towards gas more and more. I heard a discussion this morning about an Oregon LNG terminal proposal for example (wouldn't surprise me, if they get LNG up and running before BC).
    Last edited by moahunter; 04-12-2014 at 01:37 PM.

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    ^As the definition above says proven reserves are those than can be produced "under existing economic and operating conditions."

    To your other point, it just as likely (maybe more so) that jurisdictions currently banning fracking (e.g. New York State, Quebec, New Brunswick) will start allowing it as they realize that many of the risks have been exaggerated or are downright bogus.

    Large scale LNG exports could potentially change the picture but are still years away.

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    I only wish that definition was for "proven reserves". Proved reserves just sounds so wrong.

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    ^Good catch. Proved and proven reserves are the same thing. Like you, I prefer proven but the EIA uses proved.

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    Doubbuya most have come up with that.

  18. #18

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    Quote Originally Posted by East McCauley View Post
    ^Good catch. Proved and proven reserves are the same thing. Like you, I prefer proven but the EIA uses proved.
    Better read the article below.

    Peak oil, peak gas theories make sense. Yes, higher prices bring on new supply but how much, at what cost, and for how long? Then new supply depresses prices, usage goes up, new supplies dwindle. Only more conservation, technology or the widespread adoption of reasonably priced alternative energy form(s) can change the equation.


    Natural gas: The fracking fallacy
    The United States is banking on decades of abundant natural gas to power its economic resurgence. That may be wishful thinking.
    Mason Inman, 03 December 2014

    excerpt:
    "...a careful examination of the assumptions behind such bullish forecasts suggests that they may be overly optimistic, in part because the government's predictions rely on coarse-grained studies of major shale formations, or plays. Now, researchers are analysing those formations in much greater detail and are issuing more-conservative forecasts. They calculate that such formations have relatively small 'sweet spots' where it will be profitable to extract gas.

    The results are “bad news”, says Tad Patzek, head of the University of Texas at Austin's department of petroleum and geosystems engineering, and a member of the team that is conducting the in-depth analyses. With companies trying to..."


    http://www.nature.com/news/natural-g...allacy-1.16430






    Energy wells can ‘communicate’ and ‘sterilize’ the landscape
    Part 3: Trouble Beneath Our Feet

    http://o.canada.com/news/national/en...-the-landscape

  19. #19

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    Well, this is news to me. I didn't see much future potential and had assumed most switching had already occurred. However...

    More, More, More (US Gas Demand)—How Do You Like The EPA’s Clean Power Plan?
    Thursday, 12/04/2014
    Published by: Housley Carr

    excerpt:

    "The US Environmental Protection Agency (EPA) June 2014 Clean Power Plan (CPP) proposal to reduce greenhouse gas emissions from the power sector 30% from 2005 levels by 2030 would result in a sharp increase in natural gas consumption and potentially major changes in infrastructure to deliver more gas to power plants. The proposal would radically increase the pace at which coal-fired power plants are replaced by gas-fired generation. Today, we consider the proposal and its likely impact on gas demand and the industry.

    Just a few years ago, US natural gas production was on the decline, gas prices were spiking, and dozens of new coal plants were being planned. Now, gas production from US shale plays is soaring, gas prices are relatively low and steady, and not a single conventional coal plant is under construction in the Lower 48 (or in Alaska or Hawaii, for that matter). Coal-..."


    https://rbnenergy.com/more-more-more...ean-power-plan

  20. #20

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    Here's the current figures for Alberta's power generation maximum capacity, by source:

    Giving less of a damn than ever… Happily ignoring the ignorant rather than getting in a battle of wits with unarmed opponents.

  21. #21

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    An extensive look at natural gas...

    "Natural Gas: An Energy Game Changer

    Posted on June 7, 2015
    In this country, a quarter of our natural gas production is used by industry, a quarter is used to generate electricity, and half is used for home heating. As investors, we learned a long time ago that if a product or service makes sense to the consumer it probably will last a long time.

    Download the booklet here > Natural Gas: An Energy Game Changer"


    http://library.muhlenkamp.com/wp-con...me_Changer.pdf

  22. #22

    Default Titan has more oil than earth

    I think commodities always have, and always will be, driven more by demand issues than supply issues, at least in the longer term. For example, lets say clean technologies don't work out (so demand doesn't change), then, in 300 or 400 years time when every conceivable reserve has been exploited, we can always look further afield to places like Titan:

    http://www.space.com/4968-titan-oil-earth.html

  23. #23

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    Anyone watching natural gas prices? Any thoughts on longer term trends from here?

  24. #24

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    Depends on how far everyone goes into NG to replace coal and oil fueled thermal plants. I still say nuke is one of the better options and Solar and wind will be pushed heavily as battery tech evolves.

    I think short term there will be a big spike in NG usage, but there are huge fields ready in waiting to ramp up and plenty of offshore fields as well. Plenty of large turbine engines that can be refurbed for power plant use and swapped into current thermal plants as a retrofit.

    I have the feeling the price will spike, new production will ramp up quickly to compensate, price will level/drop, then stricter emissions regs will get dropped in and usage will curtail. I feel like microgen may take off in certain parts of the world, but adoption will be slow and not replace the market pull from large users like big industry, power plants and area/district co-gen.

    Who knows at this point, because I highly doubt there is really any reasonably accurate predictions that can be made given the goofiness in the M.E. and the recent paris climate talks. More fall out from both events has to transpire before a clearer picture will likely emerge and power companies and countries figure out how they want to approach things.

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    Quote Originally Posted by KC View Post
    Anyone watching natural gas prices? Any thoughts on longer term trends from here?
    Depends on what you mean by longer term? 10 years or more out, I think natural gas prospects are bright.

    Natural gas is far and away the cleanest burning fossil fuel. And much cleaner than some renewable sources like biomass.

    Realistically, natural gas will likely have to replace coal for electricity generation to a greater extent than current thinking suggests. Some of the renewable targets don't seem achievable unless there are major breakthroughs in being able to store wind or solar energy.

    Short term is a different story. I follow natural gas prices almost daily. Natural gas is currently trading at 20-year lows which is only adding to the economic misery of energy producing jurisdictions.

  26. #26

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    Some of the first big exports of LNG from the states are due to start soon... but as for pricing who knows...

    Natural Gas Bloodbath Accelerates Amid LNG Glut Worse Than Oil
    December 14th, 2015

    But the LNG market, with a much smaller demand base around the world, has much bigger problems. New regasification terminals will add new demand for LNG over the next few years, and demand is expected to jump by 50 mtpa by 2020. That is a substantial increase in expected consumption. The problem? New supplies will add 120 mtpa in LNG export capacity over the same timeframe, dwarfing even the most bullish cases for demand.

    The excess supplies are beginning to change the LNG trade. ..."


    http://etfdailynews.com/2015/12/14/n...se-than-oil/2/

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    So don't lock into those gas plans they sell at your doorstep?

  28. #28

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    There some commentary in the article about the estimated impact on natural gas prices that the LNG exports will create. Regarding the global warming issues note the comments about Asia.


    World Benefits From U.S. Liquefied Natural Gas Exports
    in Freight News 12/01/2016

    "After Qatar and Australia, the U.S. could easily become the world’s third-largest LNG supplier by 2020. We have a great advantage over other LNG exporters because ..."
    ...

    But, Asia overall seems even more distant today for U.S. LNG because gas prices worldwide have plummeted. This is especially true in Asia because prices are more heavily linked to crude oil than in Europe, and oil prices collapsed to 11-year lows to end 2015. “JKM prices, a maker for delivery in Asia, have fallen by two-thirds since the 2014 peak. February 2016 delivery cargoes are going for $7 per million Btu.” ...

    While there is a global LNG (and fossil energy overall) glut, this will surely be eroded over time. Gas is becoming even more crucial in our post COP21 world (see here). The U.S. stands in a very wonderful and unique position: we can help supply natural gas to the world, which legendary energy thinker Vaclav Smil calls “Fuel for the 21st Century.” It’s very telling that the industrialized nations seeking to cut GHG emissions most are continually turning to gas. The coal-based developing world is sure to follow suit. Replacing coal with gas reduces CO2 emissions by 40-50%.
    ...

    "...Australia and Canada, the other emerging free market LNG exporters that are highly valued by importers, will also face problems with their more expensive Greenfield projects. Australian LNG confronts cost overruns that have surpassed $30 billion. Projects off the BC coast in Western Canada are facing long delays amid rising global competition, environmental pushback, and potential rising carbon taxes, possibly missing out on $23 billion by 2020."

    Sources: Forbes

    http://www.hellenicshippingnews.com/...l-gas-exports/

  29. #29

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    La Niña

    Cool winter coming?

    As El Nino exits, La Nina looms and promises her style of mayhem

    http://www.japantimes.co.jp/news/201.../#.V0Tj_pDOeK1

  30. #30

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    Interesting about the early shut down...


    The Real Cause of Coal's Collapse
    Natural gas has surpassed the once-dominant fuel source – and it's here to stay.
    By Mark Perry | Contributor
    March 9, 2017
    Despite President Donald Trump's pledge to revive the struggling U.S. coal industry, coal plants continue to close. And there's really nothing he can or should do about it.

    Recently, the Najavo Generating Station in Arizona, the largest coal plant west of the Mississippi River, announced that it will close in 2019, a decade earlier than originally planned. The plant is just the latest coal facility facing premature retirement as part of a shift away from coal that now seems irreversible.

    Even as legacies of the Obama administration's environmental policy – most notably the Clean Power Plan and the Stream Protection Rule, both thorns in the side of the coal industry – are rolled back, coal's future still looks bleak. Although coal accounted for 30 percent of U.S. electricity production last year and is the preferred fuel of some heavy industries, the number of coal plants is shrinking and coal's contribution to generating electric power has been in steady decline for years. Utilities are shuttering older coal plants, and there are no plans to build new units.

    To grasp just how much has changed, consider this historic energy milestone: Just a decade ago, coal provided roughly 50 percent of the fuel used to generate the nation's electric power while natural gas accounted for less than 20 percent -- and those shares had been pretty stable since the early 1970s (see nearby chart). But thanks to the shale revolution and a bonanza of cheap natural gas, the share of electricity generated from natural gas rose above 20 percent in 2007 and has climbed steadily since then. It reached an all-time high of nearly 34 percent last year and surpassed coal's share (30.4 percent) for the first time ever.
    ...

    In fact, even as cheap natural gas is powering our economy, carbon emissions from electricity production are at their lowest level since the early 1990s. Simply put, the carbon intensity of the electricity sector has dropped dramatically.

    As U.S. natural gas output surged ...
    What's remarkable is that, despite growing demand for natural gas – from the power sector, from manufacturers and now from exports – natural gas prices are falling. Natural gas delivered to generators averaged...


    https://www.usnews.com/opinion/econo...demise-of-coal

  31. #31
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    Coal is basically a dead commodity.
    Technology unleased natural gas and drove the price into the ground. There is more than enough natural gas until we humankind perfect then technological advance in energy.
    Plus modern combined cycle plants can be designed to come online for peaking load unlike a old coal burning steam plant.

    Other benefit local to alberta of the early phase out of coal...keeps the construction industry going.

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