Posts tagged “natural gas”
Over the past two years the spot price of natural gas fell from nearly $5 per million British thermal units (MMBtu) in June 2011 to less than $2 per MMBtu in April 2012, before beginning a steady climb back to the current level of about $4 per MMBtu. Prices have been supported by resilient demand as well as diminishing supply from some of the more mature shale formations and the depleted wells offshore.
Stronger natural gas prices are good news for some and bad news for others. Natural gas producers like Chesapeake Energy Corporation (NYSE:CHK) were hit especially hard as gas prices fell. Between June 2011 and April 2012, CHK’s share price declined 25 percent. But over the past 12 months, CHK has rallied 36 percent as gas prices recovered. Since Chesapeake is the nation’s second-largest producer of natural gas, it’s not surprising that its shares track the price of the commodity. The company isn’t diversified, so it is nearly a pure play on natural gas.
The battle for market share in power generation is primarily between historically abundant and relatively cheap coal and environmentally cleaner but increasingly abundant Natural Gas (NG).
The increasing supplies of NG driven by the productivity of unconventional shale exploration and drilling has pushed NG prices lower over the last few years. With lower NG prices has come greater NG use as a fuel source in power generation.
While many in the media have sounded the death knell for coal as a power fuel source, and in the very long-term I think coal usage will gradually diminish, it will take years — perhaps even decades — for coal to be relegated to an insignificant role in power generation, but I am convinced it will occur.
We all remember our Economics 101 lesson that price is the equilibrium point between supply and demand, and that fact has not changed. Right now, there are a plethora of opinions about the future direction of natural gas (NG) prices, both immediate and long-term, and you have probably heard most of them. Suffice to say, with the range of projected NG prices so wide, I decided to take a hard look at the data and keep my projected view of NG prices on a very short-term timeframe. Quite frankly, looking out more than one year is pure speculation even if it’s based on educated analysis.
The U.S. Energy Department (EIA) reported that U.S. gas inventories were 2.2 trillion cubic feet (Tcf) for the week ending February 22nd, a decline of nearly 6% year-to-date (YTD) compared to last year for the same period; however, storage remains 16% above the five-year average. Comparing the YTD averages since 2008, NG still remains above prior years except for 2012. So we have good news and bad news, good that 2013 NG levels are running below 2012, bad that NG levels still remain at very high levels.
Let’s look at the good news; it appears that NG production has slowed in early 2013. I looked at my NG database that covers U.S. NG production; year-over-year production 4Q 2012 to 4Q 2011 is flat at roughly 0.0% with the multinationals down 4% YoY on the quarter, and the U.S. Independent E&Ps up only 2% YoY on the quarter.
This week I am focusing on energy trends in global natural gas (NG) supply and demand; or as the Russians prefer to call NG, “the blue fuel,” due to its blue burning properties.
Unlike our more popular hydrocarbon — crude oil — there is no talk of “peak gas”—at least for now. Global NG production has increased at an annual compound rate of 5.3% since 2000, while crude oil’s comparable growth rate has been 1.0%—so we are not running out of NG, and the world is amply supplied or in balance overall. However, there are supply/demand imbalances across regional NG markets.
The major reason for the regional imbalances is that while crude oil is highly fungible or easily transportable, NG is not, which makes NG globally a highly segmented market. While NG can trade under $3.00 per thousand cubic feet (Mcf) in North America, it commands prices north of $15 Mcf in Asia.
In my list of Top 10 Energy Related Stories of 2011, I made five predictions for 2012. Those predictions were:
- President Obama will easily win reelection, which means that energy policies will likely continue along the current trajectory.
- The Keystone Pipeline project will be approved (although that decision may still slide into 2013).
- Natural gas prices will remain low, averaging below $5/MMBTU for the year.
- Oil prices — both West Texas Intermediate and Brent — will average above $100/barrel in 2012.
- We will look back on the fact that Newt Gingrich was once the leading Republican contender for president and have a good laugh about it.
I never doubted for a second that Obama would win reelection, for reasons I have discussed on a number of occasions. The reason really boiled down to the weakness in the Republican field. Every contender had major baggage that I felt would keep some of the base from voting for that candidate. I believe this is indeed what happened, so the major swing states all went Obama’s way. Newt Gingrich is a prime example of the problem with the Republican field. Indeed, with all of his baggage, the fact that he led the pack for the nomination when I made these predictions boggles the mind.
In last week’s Energy Trends Insider (ETI) I analyzed why The Road to Chinese Shale Gas Goes Through the U.S. In addition to my article, Andrew Holland explained how the DOE Report on Economics of Natural Gas Exports Will Lead to LNG Export Permits and Robert Rapier wrote about profiting from the peculiarities of gas price fluctuations in ‘Rockets and Feathers’ — Investing in Refiners. As we have done previously, we would like to share a story from ETI with regular readers of this column. Interested readers can find more information on the newsletter and subscribe for free at Energy Trends Insider.
The Road to Chinese Shale Gas Goes Through the U.S.
China is reported to have massive unconventional natural gas resources. Technically recoverable gas reserves are forecast to be 36 trillion cubic meters, making it the world’s largest reserve pool according to EIA, and nearly 50% larger than the U.S.’s reserves. In the country’s most recent 5-year plan it laid out a goal of 6.5 billion cubic meters of production by 2015, a steep increase from the current production level of zero.
An American energy firm is launching a $250 million lawsuit against the government of Canada after the province of Quebec revoked permits that would have allowed for hydraulic fracturing in the region surrounding the St. Lawrence River, a major waterway in that part of the country.
Lone Pine Resources Inc. disclosed its November 8 filing with the United States Securities and Exchange Commission this week, detailing its suit against the Canadian federal government under the much-argued Chapter 11 of the North American Free Trade Agreement (NAFTA), a chapter that allows private companies to pursue the federal governments of participating countries — Canada, Mexico, and the United States — if they feel that their ability to operate profitably is infringed upon unfairly.
A coalition of scientists in the United States has released a report suggesting that as many as 353 coal-fired electricity plants in the country should be retired due to their extreme age and general inability to compete with cheaper alternatives like natural gas and wind power.
Issued by a group called the Union of Concerned Scientists, the report targets a total of 59 gigawatts of electric power generating capability across the country, representing more than 6 percent of the total amount of electricity used by American citizens and businesses. The plants in question, each well-aged and operating past their 30 year lifespan, generate the bulk of the nation’s pollutants and greenhouse gases; with the costs of keeping them up to official standards taken into account, the report suggests that none are worth maintaining in the long run. (Read More: The Death of American Coal Producers — and a Potential Lifeline)
Liquefied Natural Gas (LNG) Export Terminal Approval
Last year, the Department of Energy (DOE) granted Cheniere Energy a permit to export liquefied natural gas (LNG) from a terminal at Sabine Pass in Louisiana. The terminal is currently used as an LNG import terminal, but the company has plans to convert it into an export terminal, with exports beginning by 2015. The permit has been challenged by the Sierra Club, but is expected to be approved.
However, there are about 15 total other permit applications outstanding, with only the one permit accepted. After approving exports from the Sabine Pass terminal, the Obama administration put a hold on further approvals until a Department of Energy study on the economic implications of exports is completed. That study was originally due out in March, then the DOE said it would be released by the end of the summer, now the study is expected before the end of the year. (Read more: Investment Opportunities in Natural Gas)
But the West is still more reliant on coal for electricity than states in the East
A recent report by Western Resources Advocates, a Colorado-based resource and environmental policy organization, highlights the fact that, for the first time in 30 years, carbon dioxide emissions resulting from coal-fueled power generation in the Mountain West region of the United States are dropping.
While that fossil fuel still plays a major role in bringing power to the American West, the slow retirement of aging coal plants and their replacement with natural gas and renewable energy power generation has seen a major change in energy trends in the area, encompassing New Mexico, Nevada, Utah, Colorado and Wyoming. With more than 58 percent of electricity in the western half of the country still being produced by coal-fired plants compared to the national average of 42 percent, there is certainly still room for improvement, but the trend is heartening to those with an interest in alternative energy sources.