End of Cheap Gas? | Russell T. Rudy Energy LLC
The shale revolution resulted in a surplus of natural gas from both gas fields, such as Pennsylvania’s Marcellus shale, and oil fields, such as the Eagle Ford of South Texas. Predictably prices stabilized at modest levels and any temporary shortages were easily addressed by drawing down on inventories, or increasing production. However, this is all about to change according to a recent article by Art Berman in “Oil Voice”.
Since March of 2016 natural gas prices have more than doubled. Still, last year gas averaged only a little more than $2.50 per million British Thermal Units (MMBTU). However, Berman maintains that the commodity is still undervalued. Supplies are tight because exports (LNG as well as pipeline sales) have increased and shale gas production has declined. In fact Berman predicts the gas prices will average between $3.50 and $4.00 per MMBTU in 2017.
Berman points out that throughout 2016 natural gas storage was at record levels, reaching 4.1 Billion cubic feet (Bcf) and was at 84% of working capacity by December. Subsequently, storage has fallen by 1.1 Bcf and is now at 61% of capacity. Currently, we are below the 5-year average. Spot prices generally move in the opposite direction of inventory levels. The author contends that current trends in inventories are similar to what we saw before when prices were $4.00 per MMBTU or higher.
Admittedly, prices have recently fallen somewhat. This is in expectation of increased Marcellus production (due to anticipated pipeline expansion) and additional gas produced in association with increased oil production (as a result of recent crude price increases). Nevertheless, this is more than offset by declining gas production since February of 2016, decreasing imports, and increasing pipeline and LNG exports.
To read the entire article, which includes some very good graphs to illustrate the author’s point, please go to https://www.oilvoice.com/Opinion/1591/The-Days-of-Cheap-Natural-Gas-Are-Over
Russell T. Rudy Energy, LLC buys oil, gas and mineral interests nationwide. Please call (800-880-0940), or write (info@rudyenergy.com ) to let us know if you agree, disagree or would just like to comment on this, or any of our posts.
