Shale Gas Not a Revolution
In a recent article entitled “Shale Gas is not a Revolution”, Art Berman quickly makes his case before moving on to a number of other natural gas related issues. He provides a brief history of natural gas in the U. S., the challenges facing the industry, and where he sees the market going in the short and intermediate terms.
Berman begins by stating that “Shale gas is not a revolution. It’s just another play with a somewhat higher cost structure but larger resource base than conventional gas.”
Throughout most of the history of the natural gas industry in the U. S., we have either experienced periods of scarcity or perceived surplus. One of the problems with developing a long term natural gas policy has been the common tendency for planners and forecasters to assume the future will be like the present. Berman points out that in times of scarcity, we rushed to import vast amounts of LNG (liquefied natural gas liquids) which it turns out we do not need. Conversely, after the shale boom, there is a perception that we will have more gas than we can use. This has led to a rush to build NGL export facilities.
Another problem confronting the industry is that we fail to grasp what is the real challenge for natural gas today. Berman says that it is a commonly held misperception that since the average spot market as price of about $3.77 per million British Thermal Units (MMBTU) is also the marginal cost of production. However, the average cost to produce an MMBTU is about $4 and this has been the case sine 2009. Failure to recognize this lack of profitability has led to major Marcellus producers such as Cabot, Range Resources and Antero, spending $1.43 for every dollar earned in 2016. This also led to operators continuing to drill when they were actually losing money. Rig counts did not start falling until the spot price fellow below $4, at which point they collapsed.
While Berman questions whether the rush to LNG exports is wise in the long term, he is not as bearish in the short to intermediate term as many industry observers. The pessimists see new pipelines out of the Marcellus and Utica shales as flooding markets in the Northeast and Midwest when they come on stream this fall. They further fear, that increasing oil well gas production from the Permian Basin will exert irresistible downward pressure on gas prices.
To the contrary, Berman sees any incremental volumes from the Marcellus and Utica shales being absorbed by LNG exports and pipeline sales to Canada. He believes that the incremental Permian Basin gas will be sold by pipeline to Mexico. Consequently, he foresees a relatively balanced market with stable prices through the end of this year.
In summary, it is a lengthy, illuminating and well-illustrated article. I highly recommend it.
To read the article in its entirety, please go to https://oilvoice.com/Opinion/6416/Shale-Gas-Is-Not-A-Revolution?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OilvoiceHeadlines+%28OilVoice+Headlines%29 .
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