Thursday, February 02, 2012

Catch the Cat

So.. first off the WSJ itself is running right now The Really Negative Story on Natural Gas. I am still waiting for the news folks to catch the story on what must be happening (or about to happen I guess for some) with royalty checks across Pennsylvania. 

update. WSJ has a video on the article..  Author predicting gas hitting $1!!!

It's been an interesting week for natural gas prices. So you have to have spent a little time on Wall Street to really appreciate this.  So heading into last week a building news story was the nearly historic lows in the natural gas markets... mentioned in this post last week.. and I still wonder why I catch no stories in the state on the state of the royalty check.

Then.. several big announcements that some of the big shale gas developers were cutting back big time.  Was the goal to cut back production.  Certainly to a degree, but you often don't see companies going out of their way to tell the world they are cutting back at the core business. The problem these folks faced were such low prices for what they were selling that they goal was to get the prices up.  So there was big incentive to let the world know supply was theoretically coming down and push the prices up in the market.  Was supply really going to be cut back as much as the news implied?  Who knows, but you can be sure this was all being played up as much as could be. 

Source: EIA today
How does the saying go.  You can't fight mother nature?  Then these 50+ degree days come rolling in and heading to the big east coast markets. The price of natural gas, even after absorbing all this bad supply news,  dropped again.  Another tick up today, but still the whole bump up was not much and prices are still about as low as they can go (for now).  So despite their best effort I think mother nature called their bluff. The projections are for multi-decade low prices in these markets by summer, but those headlines are always looking at nominal prices.  Adjusted for inflation, you are really at some unprecedented price levels already.

On a side note did you catch this: Columbia Gas Customers May Pay More.  Folks out there were saying that Marcellus shale gas had a higher energy content than other gas.  So I thought that was a good thing right.. Pay for same about of gas, but get more heat out of it?  Gas bill will go down accordingly.  No..  of course not.  It must be true the gas has more energy and the switch described in the article that the company is switching its cost structure from cubit foot to BTU will prevent that savings from happening.  Kind of an inductive bit of evidence that indeed the Marcellus gas burns hotter. I guess the idea of me selling less gas for the amount of heat I needed didn't work for them.

I do have a serious question if there are any petro-geologists out there.   Can you completely shut-in a shale gas well once it is producing?  and I wonder how many PA landowners negotiated any form of a shut-in royalty? Do you get royalities for gas flared off?

Maybe cat falling with knife in paw is the appropriate metaphor?
and I still don't know if that cat is dead or not?


Blogger JRA said...

Doesn't this go a long way towards explaining the strategy of the major Marcellus players -- current spot valuations notwithstanding?

Thursday, February 02, 2012 7:13:00 PM  
Anonymous Anonymous said...

Actually, the saying is, "You can't FOOL mother nature," and I believe it actually originated from a 1970s TV commercial for margarine. Point taken though.

In the WSJ article, they say that the low price has forced gas producers like Chesapeake to "shut-in" some production. Is "shut-in" a new business-speak euphemism for "shut-down"--doesn't sound as negative--or does it mean something else, like your implication that they're just holding back supply?

Friday, February 03, 2012 9:03:00 AM  
Anonymous MH said...

Actually, the saying is, "You can't FOOL mother nature,"

You are correct, but outdated. Another old saying used to be "You can't FIGHT city hall." After the parking garage sign and the failed lease, the quotation authorities decided to switch verbs between the two.

Friday, February 03, 2012 9:13:00 AM  
Anonymous The Wiz said...

All leases have a shut-in payment clause but it is usually pitifully $5/acre/yr! And the landowner doesn't get a shut-in payment until one year passes. Worse, standard leases don't have a time limit on how long a well can be shut in.

Shutting in a well for an extended period can reduce its production, especially early in its life, from what I have been told. What will most likely happen is that they will rotate wells so that any one well is shut in for a limited time.

And from what I know but I am not sure of, flared-off gas is not sold so no royalty payment is made to the landowner. Gonna hurt a lot of people.

Yes this gas burns hotter as it is not pure methane. I swear my old stovetop with the pilot lights feels warmer even when "off."

This may particularly hit much of Pa as E & P companies head for wet gas/oil zones like the Ohio Utica or the Eagle Ford in Tx and of course the Bakken. SW Pa Marcellus has significant wet gas but much of the rest of it is dry. The eastern Pa is dry but since it is close to the major East Coast markets they may not be as likely to be shut in.

Some wet gas areas are getting 20% wet gas fractions and with liquids going at a premium, that is enough to keep the well flowing at a profit. Any gas sold off is a bonus for these producers. So they will keep those wells flowing and keep gas supplies high.

Lets get that cracker plant up and running!

Friday, February 03, 2012 11:12:00 AM  
Anonymous MH said...

This is a good time to start glass blowing as a hobby.

Friday, February 03, 2012 12:15:00 PM  

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