Wednesday, November 14, 2012

Gas Prices Doomed: Canadians Appalled Collusion Isn't Occurring

Bloomberg has an extensive article on natural gas supplies/pricing today.
My summary: 
-supply is plentiful but extraction costs vary 
- low prices caused wells to be taken out of production and price soared from very, very low way up to very low
-price increase brought wells back into production
-inventories again soar and price looks set to drop again.

Embarrassingly, Canadian analyst don't understand why companies would keep producing instead of colluding to drive up prices.
Interestingly, the report indicates that in the Bakken field, the capacity doesn't exist to capture all the gas being extracted along with the very valuable oil, so much of the gas is simply burned off.  

Gas Prices Doomed to Stay Low as Producers Pump Faster - Bloomberg:
... the fuel began a slide Oct. 30, falling 9.2 percent percent by Nov. 12 as stockpiles swelled to an all-time high this month, valued at about $15 billion using the current spot price. Gas production in 2013 is expected to match this year’s record level, the U.S. Energy Information Administration forecast this month."
The rebound stalled as Chesapeake, the second-biggest U.S. producer, and rivals added output in areas such as the Marcellus Shale in Pennsylvania. ConocoPhillips and Encana Corp. (ECA) brought back curtailed output. Some producers that struggled when the fuel hit a 10-year low in April are opening new wells, dashing hopes by others that a depressed rig count would boost prices.
“Unfortunately all the players in this game don’t read by the same Bible,” said Peter Howard, chief executive officer of the Canadian Energy Research Institute in Calgary. Producers need to keep gas wells shut and “force the price up,” he said.
Gas companies had pinned some of their hopes for higher prices on the sliding number of new drilling rigs. Active U.S. gas rigs had plunged 49 percent this year, according to Baker Hughes Inc. (BHI) The count was 413, the company said Nov. 9, compared with 809 in a Dec. 30 report. It was the lowest U.S. gas rig count since June 1999.
Futures for delivery this December settled at $3.739 per million British thermal units yesterday and are heading higher, as traders and buyers are expecting the rally to continue after forecasts for colder weather: The futures are more than $3.80 in all 12 months of next year, according to data compiled by Bloomberg.
“In the Bakken, it’s about one million cubic feet a day of gas for 1,000 barrels of oil, a little over one to one,” Kallio said. “As you blow through the oil, you get gassier.”
The supply could grow, too, if producers capture and sell more of the associated gas from unconventional fields. About 29 percent of the gas produced in North Dakota’s Bakken field is flared because there aren’t enough pipelines to transport it, according to the North Dakota Industrial Commission.
Read the entire article at Bloomberg:

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