Berman: Days of Cheap Natural Gas are Over

Started January 24, 2017 at 10:22 am by @Keith Mauck in Haynesville Shale

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Keith Mauck
01/24/17 10:22:23AM

From Forbes...

Natural gas prices averaged a little more than $2.50 per mmBtu (million British Thermal Units) in 2016. Those days are over. Prices will average at least $3.50 to $4.00 in 2017.

Prices have more than doubled since March 2016 but gas is still under-valued. Supply is tight because demand and exports have grown and shale gas production has declined.

In April of last year, I wrote that natural gas prices should double and they did. Henry Hub spot prices increased 2 1/2 times from $1.49 to $3.70 per mmBtu and NYMEX futures prices doubled from $1.64 to $3.30 per (Figure 1).

His conclusion...

Shale gas magical thinking remains strong but the paradigm of infinite, cheap supply is no longer working. There is now too much demand between power consumption and exports to keep up with declining production.

Once decline begins, it is almost impossible to turn around short of a massive drilling campaign. The requisite capital and public support are simply not there.

That means that prices will increase. Enough additional drilling will become marginally profitable to keep natural gas affordable but it is unlikely the U.S. will return to a supply surplus any time soon. The exuberant days of cheap, abundant natural gas are over.


Who thinks he will be proven wrong? and when?

01/24/17 03:50:37PM @jay6:

Art Berman is like the local weatherman.  


Skip Peel - Independent Landman
01/24/17 04:13:33PM @skip-peel-independent-landman:

Like a bad penny, Art shows up from time to time.  I am impressed that he continues to get space in mainstream energy media.  I think that says something about the mind set of editors.

01/24/17 07:37:27PM @dbob:

I think cheap gas is going to get slightly more expensive.  And once it does it opens more areas to drilling and completion.  

Skip Peel - Independent Landman
01/24/17 07:46:36PM @skip-peel-independent-landman:

dbob, I'm a little concerned about the increase in oil directed rigs and the volume of associated gas that may be adding to supply.  For the first time in a long time the Haynesville focused operators have all added rigs and their alternate unit applications and new permits foretell a significant bump in Haynesville supply.  I suspect the same thing is happening in the other natural gas basins.

Timber Gal
03/14/17 05:00:23PM @timber-gal:

Hi Skip - neophyte me understand: more oil rigs mean more associated natural gas coming along with them, which will add to the supply? So even if H'ville operators are not specifically drilling for gas, the increased oil drilling will add more gas to our supplies anyway?  This will keep nat gas prices low and not be supportive for drilling for gas in the H'ville?  thanks!

Skip Peel - Independent Landman
03/14/17 05:08:23PM @skip-peel-independent-landman:

Hi, Timber Gal.  Most oil wells also produce some natural gas but in much lower quantities than dry gas or wet gas wells.  The major unconventional basins that are seeing an increase in rigs and production are driven by the price of crude, not by the price of natural gas.  Even though each individual oil well only produces a relatively low volume of natural gas, it adds to the supply which caps or drives down the price of natural gas.  That "associated" gas from oil wells is sold as a "by product" which means it can be sold cheap and still contribute to the well operator's bottom line.  The majority of the rigs added in the last three months were deployed to a handful of oil plays.  There has been a modest increase in rigs drilling for gas.  There is a lot of new oil supply on the way and along with it will come some significant volumes of associated gas.

Dion Warr, CPL
03/06/17 01:28:35AM @dion-warr-cpl:

Winter being over in many areas of the country will not assist in boosting demand, and storage being a notable percentage above the five-year average will certainly lend no price support.

Skip Peel - Independent Landman
03/06/17 08:57:56AM @skip-peel-independent-landman:

Many operators have announced hedging programs for 2017 production in the $3 range so even if the monthly settlement price of natural gas drops, they can continue drilling at a guaranteed return.  Crude in the $50 to $55 range will maintain drilling in liquid prone basins and add a lot of associated gas that is basically sold as a by product.  I don't see natural gas prices averaging over $3 for 2017.




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