Wednesday, July 28, 2010

Marcellus markets

It really is true that when I wrote Energy-Burgh some years ago some folks downtown literally laughed.  I think the quote from one was just that it was too much "old Pittsburgh".  Just not something anyone wanted to pay much attention to beyond a bit of interest in the coal side and in particular the persistent hope for 'clean coal' in some form. In one conversation it was explained to me that the piece was actually distracting from the region's economic development efforts. 

What a difference just a few years make.

Anyway, the Marcellus bandwagon has reached some form of critical mass for sure.  I see the PBT now has an energy blog and the most recent post has the catchy title: Marcellus Freakonomics, that is commenting on the recent earnings announcement of Range Resources, the discoverer I take and leader of the pack developing the vast Marcellus Shale.  I wonder if Levitt gets a royalty on the title alone? 

The post has two interesting things really worthing cogitating on.  One is that the the company seems to be making the point that there is some vast and unnatural profitability in their natural gas development.. way beyond any other potential investment out there from the numbers transcribed there.   I'll skip the tax issues as political as they are, but it sure seems there is a big mispricing there somewhere.  Would not such vast profitability be capitalized into land values in most such markets? Makes you wonder about the efficiency of the land markets across Pennsylvania.

But a bigger issue.  There is a quote there from the CEO I take is from the earnings call on the future of natural gas trying to address the lower price of natural gas these days compared to the past:

"Most electric generation in the future will be with natural gas. We’ll get through this period of low gas prices. Demand will pick up at some point. It’s going to happen.”
If most electricity in the future is natural gas then what does that say for nuclear?  I'm not quite disputing the prognostication actually.  There is a big issue not talked about that there has not been a lot of movement toward the new domestic nuclear power plants in the US.   W is fine I am sure, but part of their growth has been based on that market developing and it's a bit unclear where the domestic nuclear industry is going right now. We may need to get past the recession to really find out.

Time will tell what that says for the growth trajectory at the big W, which is in itself one of the region's largest single largest employers. Something I would love to do actually if I had anywhere near the time would be to compute and compare the jobs impact locally of nuclear and mining, which includes all the new NatGas development.  Could be interesting.


Anonymous BrianTH said...

Gah--why would people laugh at further diversifying Pittsburgh's economy? And don't they understand that today's modern, streamlined industrial companies may not be the mass employers of a prior era, but they still create tons of secondary work that used to be done in-house?

Anyway, my sense is that when it comes to nukes versus gas in the future, it all depends on how far in the future you are talking. I gather you just can't build nuke generating capacity at the same rate as gas generating capacity, so it makes a big difference whether the future is 2025 or 2050.

Wednesday, July 28, 2010 10:13:00 AM  
Anonymous The Wiz said...

Look into the Utica shale for gas. Could be even bigger than the Marcellus. Also GasFrac Energy Services has developed a fracing technique that doesn't use water which may alleviate much of the opposition to horizontal drilling.

As for pricing, it will fix itself. As nat gas prices drop, more industries will switch to gas. Look for the trucking industry to change over as T Boone Pickens has been advocating. It may start with a series of nat gas station along I80 from coast to coast, then spread to other major highways. Many cities already have all their transit buses on gas.

As for land prices, land can be sold separately from the gas and oil rights. I can sell my acreage and still collect all the royalties for decades. Thus land values won't climb as rapidly as one would think.

Nukes will take at least ten years or more to build the first one in the US. W is expanding rapidly as they are currently building four in China with many more anticipated. Plus they have proposals for twelve in the US and that requires prodigious amounts of engineering just for the application and approval phase. And once the Chinese nukes coe online, other countries will follow suit. Asia, Africa, S America all need lots of energy.

Wednesday, July 28, 2010 12:09:00 PM  
Blogger C. Briem said...

that keeps reminding me of a tv I once bought from "Nobody beats the Wiz".....

Wednesday, July 28, 2010 12:21:00 PM  
Anonymous The Wiz said...

LOL I always say "I may tie once in awhile but I never lose!"

Another advantage nat gas has is that both wind and solar need back up systems as they are approx 40% efficient. And most back up systems will be gas as gas is the easiest to ramp up quickly when needed.

Wednesday, July 28, 2010 12:45:00 PM  
Blogger C. Briem said...

You are doing better than Nobody Beats the Wiz which went down hard in bankrupty after years of hype.

Wednesday, July 28, 2010 3:36:00 PM  

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