Thursday, October 07, 2010

gas not rising

Another big drop in natural gas prices today. WSJ: Natural Gas Falls on Storage Glut.  or see the graph yourself.  A 6% drop in a day is a lot I suspect in any market anywhere at at any time.  Story says it is the lowest price since last year, and the lowest price for this time of year since 2001.  If inflation adjusted I would think you have to push those dates even farther into the past to find comparable prices. 

Realize that the PA supreme court recently ruled that minimum royalty payments to landowners are measured as net of expenses in developing the production.  Since I can only presume production costs have not dropped as well, it means that a 6% drop in the top line commodity price will result in a greater than 6% drop in net profit.. and thus a greater % drop in royalty payments.  Anyone receiving royalty payments know what the effective price point for costs is being used for calculating their payments? 

PA may have so much gas that the FT energysource blog says exporting may be the game for shale gas producers. See: Exporting shale gas could keep US producers in business. Note how they reference PA production results that were made public recently.

and if that is not enough, more natural gas is becoming available on the international market and coming to North America.  Commodities are commodities and that can only put downward pressure on prices here.


Anonymous BrianTH said...

That decline rate revelation is huge news, no? And I would think good news for Marcellus landowners (maybe not so much for landowners in other gas formations).

Friday, October 08, 2010 12:19:00 AM  
Anonymous The Wiz said...

Wow NatGas dropped below $3.62 overnight!

And yesterday, several Youngstown radio stations mentioned the Utica in news broadcasts. First time I heard Utica mentioned in any media, print or broadcast.

Lots of rigs leaving Texas and western fields will probably come to Pa. This gas is so plentiful and so cheap to extract that industry insiders are saying that all those gas lines shipping gas from the Gulf will be reversed and we will ship gas to Texas in five or ten years. Amazing.

I saw a press release yesterday announcing a new gas line to be built from Pa to Chicago. Over the next ten years, this will not only change Pa but may change the world energy dynamics.

Imagine all trucks running on natgas, the drop in oil prices as we import less. Cheaper fuel drops prices for things like fertilizer, plastics, synthetics, and more. Reduced transportation costs drive down material costs.

Its not just Pa. They are already drilling into the Utica in Canada where the shale layer is 700' thick. (The thickest Marcellus in Pa is around 400'). I talked to an environmental engineer that is working the Bakken oil fields in the Dakotas and Montana. They expect to quadruple the recoverable oil in that field alone.

This new technology will have profound affects. Hope I am around long enough to see it.....and that I don't sound too Polly Annish here! lol

Friday, October 08, 2010 9:27:00 AM  
Anonymous BrianTH said...

Aside from making sure PA imposes a volume-based tax, I think the pressing public policy issue is becoming trying to make sure the penetration of additional natural gas usages goes as fast as possible. As the FT post suggests, it would be a shame if we actually shipped a lot of this gas away, instead of actually using it.

Friday, October 08, 2010 9:45:00 AM  
Blogger Jim Russell said...

Probably a bit dated, but interesting information nonetheless:

While the Eagle Ford is among the smallest of the group, with some 19 trillion cubic feet of natural gas remaining, the economics is among the best, the firm said.

Producers in the Eagle Ford can break even when natural gas is priced as low as $3.88 per million British thermal units, the firm said, versus break-even prices of $5.18 in the Barnett, $3.74 in the Marcellus and $4.49 in the Haynesville.

Friday, October 08, 2010 4:35:00 PM  
Anonymous The Wiz said...

I am amazed that no one here has questioned why two Pittsburgh gas suppliers announced last week they are raising there prices substantially this winter when gas prices are so very low.

Friday, October 08, 2010 5:55:00 PM  
Anonymous MH said...

Because they're asses?

Friday, October 08, 2010 7:27:00 PM  
Blogger Bram Reichbaum said...

Sounds about right. Gas prices have slipped, but the desirability of staying warm has remained steady.

Saturday, October 09, 2010 10:22:00 PM  
Anonymous MH said...

I suppose I should have been slower to use the word "ass" because I'd like to hear The Wiz's answer.

Saturday, October 09, 2010 11:15:00 PM  

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