We're Headed For $8 Natural Gas-Forbes

http://www.forbes.com/sites/richardfinger/2012/07/22/were-headed-to-8-00-natural-gas/

So combine 13 year low gas rig counts, declining production levels with resultant ultralow storage injections, shut in gas production, faster than anticipated shale well declines, persistent switching from oil and coal to cheaper and cleaner gas alternatives…..Then consider unending hotter than normal summer temperatures, continued greater than normal nuclear plant outages, a hurricane or two that knocks out Gulf of Mexico natural gas production for a week or two, and a La Nina induced cold winter…….any one of these can light the fuse that pushes the tenuous supply/demand balance into cardiac arrest. That’s the chain and it’s going to lead us to $8.00 mcf natural gas by the approaching winter.

The first half of the quote has realistic data points. Weather, nuclear outages, and hurricanes are not things that should be used to support higher gas prices. Of course each of those points impacts the natural gas price, but for very short periods of time and ALL are very unlikely to happen together. (Not saying it won't, but it's a stretch to use that as support for higher prices)

Also, remember how big IP rates are in some of these plays. He only mentions 5-6 mmcf/d, but wells in both the Haynesville and Marcellus produced 10+ consistently.

All that to say, natural gas is one of the most volatile commodities in the world. $8 is possible, but even if we hit it this winter I doubt we'll be there long.

Mineral Guy,

I'm with you, although I hope Mr. Finger is correct

This all sounds good, but let's don't count our chickens before they hatch.

Clint Liles

Clint:

Go to this website which is a great source of information on natural gas.......rbn energy.com

Charles,

Rusty Braziel remembers me every morning. rbn energy.com--- good reading. Thanks.

Clint

Charles,

I look forward to the very informative and sometimes humorous reports from RBN. I can't always say that I completely understand what I have read though.

I'll take $8.00 NG for most any reason but I would rather see it supported by increased demand which can be realized by the common sense innovations in the Pickens Plan.

There's no doubt $3 is lower than what is sustainable. I just want us to see $4 and $5 before we start thinking about $8.

Clint Liles said:

Mineral Guy,

I'm with you, although I hope Mr. Finger is correct

This all sounds good, but let's don't count our chickens before they hatch.

Clint Liles

Michael:
Ditto on the unable to understand. I can usually folllow closely but if it begins to get deep, I am lost.

Michael Hutchison said:

Charles,

I look forward to the very informative and sometimes humorous reports from RBN. I can't always say that I completely understand what I have read though.

I'll take $8.00 NG for most any reason but I would rather see it supported by increased demand which can be realized by the common sense innovations in the Pickens Plan.

I hate to say it but if the commodity price of natural gas goes above $5, I think the operators will produce enough to drive the price back down in short order. I think the cash strapped Chesapeake could and would do it by themselves, trying to get as much out of it as they can, while it lasts. In any case, I believe that the rush to take advantage of higher prices would torpedo the higher prices in short order because if your company doesn't hog it, somebody else will.

Gentlemen,

Exclude the amount of NG used for chemical plants Then

Pick a locality with a coal fired power plant, then compare the delivered price of coal/million Btu to the delivered price of NG/ million Btu and you will find a true supply and demand relationship for energy substitutes. Coal price contracts are usually long term with escalators. Gas fired plants have some economic advantages for energy production but when those advantages are surpassed by price/BTU, gas prices will be constrained so as to be competitive in the general local.

I suspect that NG prices for electrical energy generation will take on a long term price structure as new gas fired plants are built. That means that the gas prices will be stable and competitive with other forms of energy.

RW is right about the short term fluctuation reasons but look to the long term for price stability and remember that all of the solar and wind generators will have to be backed up with fossil fuel to some degree.

Probably so within the next 20 to 50 years. They are probably the same ones that said we were going to run out of natural gas a few years ago.

The author concludes with "That’s the chain and it’s going to lead us to $8.00 mcf natural gas by the approaching winter."

I will take the unders on an over under bet on $7.00 and wager as much as you want. Pity nobody would take me up on that bet.

Sounds like good news to me . Clint said dont count your chickens before they hatch,,,,,, my chickens have hatched and I have eaten them. COME ON $ 8.00 and just keep goin,,, boom Zoom to the moon.



Mineral Guy said:

There's no doubt $3 is lower than what is sustainable. I just want us to see $4 and $5 before we start thinking about $8.

Clint Liles said:

Mineral Guy,

I'm with you, although I hope Mr. Finger is correct

This all sounds good, but let's don't count our chickens before they hatch.

Clint Liles

At 8.00 would there be incintive to refrack older big producing wells? Is there even such a thing as refracking?

I would love to see $8 natural gas, but I suspect someone is dreaming. If the price rose that high, foreign producers would flood our market.

I worry about that huge natural gas terminal that is being build at Puerto Libertad, Sonora, well away from the oversight of the EPA.

The pipeline is supposed to go north to supply the west coast of the US.

The source of the gas is supposed to be Bolivia. I don't see much in the papers or on the internet about it, but if you talk to the people in the area, they tell you all about it.

Robert V. Gill

Jay, I've never heard of re-fracking but in a 640 acre unit there is plenty of room to add 7 more horizontal wells on 80 acre spacing. It is already being done in some areas.

There is such a thing as refracking, but I think the cost is so prohibitive on horizontal wells that you get more bang for the buck by drilling a new well.

Dear Jay,

Yes there is something called re-fracking. Also, downhole pumps. The real joy is to bring on new production by drilling wells to save leases or densifying pooled units.

The oil companies, like in the 80's, did too much of a magnificent job of bringing natural gas reserves online. All it takes is dollar incentive to assume risk.

But, mark my words, expect a downward then upward spiral for years between $2.75 and $4.25. And nobody wants to take my over under bet of $7.00 by New Year's Eve. Where is the big mouth with Forbes (such a highly respected oil industry commentary) when I want his gambling money?

Buddy

jay hester said:

At 8.00 would there be incintive to refrack older big producing wells? Is there even such a thing as refracking?

Well, I was laying in bed thinking just what would cause the price of natural gas to go to eight dollars, and none of the scenarios were good.

If Israel and Iran went at it and the strait of Hormuz was closed, that would probably do it.

If China started dumping dollars, that would cause a terrific inflation, and that would do it.

If the Treasury and the Fed kept pumping dollars into the economy trying to jump start a moribund economy, that would do it.

Some of God's greatest blessings are unanswered prayers.

Robert Gill

Dear Mr. Gill,

I had not heard that about Bolivia. Bolivia has huge natural gas reserves and two years ago, or so, Evo Morales nationalized the utility and energy companies. Bolivia is the only landlocked county in South America -- known as the heart of South America.

I have not been to Bolivia since Goni lost power and the US State Department puts it on a no-go list for my risk tolerance. My wife is Bolivian and we have a huge extended family in Bolivia, Brazil and Venezuela. Great people, but truly a third world county. When my brother in law (one of like 5) came to visit, we had a pull out pot drawer under the range. Blew his mind. Took 20 minutes taking pictures of it to make them and sell them. Wow.

Morales is not to be trusted and if they go up the west coast of South America, neither is Chavez.



Robert V. Gill said:

I would love to see $8 natural gas, but I suspect someone is dreaming. If the price rose that high, foreign producers would flood our market.

I worry about that huge natural gas terminal that is being build at Puerto Libertad, Sonora, well away from the oversight of the EPA.

The pipeline is supposed to go north to supply the west coast of the US.

The source of the gas is supposed to be Bolivia. I don't see much in the papers or on the internet about it, but if you talk to the people in the area, they tell you all about it.

Robert V. Gill