No matter where you are in North America its cold. Some places are colder then others. Yesterday, Edmonton recorded the lowest temperature in North America, and one of the coldest temperatures on the planet when the wind chill took mercury down to -58.4 C. (See Edmonton Sun “Only Siberia was colder”)
Natural gas is a seasonal resource where demand peaks are driven by cold weather in the winter and hot weather in the summer. Traditionally the winter heating season begins at the start of November but this year natural gas was still being injected into the U.S. storage system at the end of November. Well, as history has taught us, a good cold snap can change everything in the North American natural gas market and that is what’s happening now.
Last U.S. gas inventories fell 64 billion cubic feet in the week ended Dec. 4 to 3.773 trillion cubic feet, an Energy Information Administration (“EIA”) report showed on Dec. 10. The withdrawal exceeded forecasts for a decline of 45 Bcf. As posted on HRN, last weeks supplies may have really come down with cold weather. The report will come out this Thursday but some analysts have already started to make some estimates including Andrew Potter, an analyst at UBS Securities LLC in Calgary, who stated in a note to clients that supplies may have fallen as much as 150 Bcf last week. A decline that would certainly add to bullish sentiment.
Cold weather and Exxon’s acquisition of XTO Energy have brought out the bulls. Natural gas for January delivery rose 16.9 cents, or 3.3 percent, to settle at $5.332 per million British thermal units at 2:56 p.m. on the New York Mercantile Exchange, the highest closing price since Jan. 12. However, pro-longed cold weather and increased demand will be necessary to erode the current huge surplus of 573 bcf over the five-year average and avoid ending the winter heating season with above average supplies in storage.
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Tagged: Andrew Potter, Energy Information Administration, Exxon, natural gas, New York Mercantile Exchange, shale gas, UBS Securities LLC, XTO Energy
Exxon Mobil Corp.’s agreement to buy XTO Energy Inc. in an all-stock deal valued at $41-billion (U.S.) is a bet that natural gas usage in the long-run will rise as a cleaner energy alternative to coal and heavy oil. Exxon is the largest publicly traded oil company and has been accumulating shale gas assets in Poland, Germany, Hungary, and Argentina.
The acquisition is a key strategic move to position Exxon within the shale gas market and analysts like the deal. Major energy producers have been flocking to shale gas as a key energy source over the long term and new exploration has been extended outside North America’s prolific shale gas plays like the Horn River basin, and Barnett basin. Many companies are financing by selling off conventional natural gas production in favor of lower-cost shale gas.
Commenting on the Exxon, XTO deal, MarketWatch stated;
The move marks a major bet on gas as a cleaner-burning fuel than oil, as governments around the world look to Copenhagen climate-change talks this week to stem the flow of greenhouse gases into the atmosphere to combat global warming.
According to David Rockecharlie, co-head of energy investment banking group at Jefferies & Co. which co-advised XTO on the transaction:
“Every major oil company is thinking about getting into these shale plays both in the U.S. and globally, the question is how”.
Martin Molyneaux, managing director of institutional research at Calgary’s FirstEnergy Capital Corp. was quoted:
“It’s kind of like the Pope blessing the exercise. You couldn’t have a more credible enterprise sanctifying the unconventional industry in North America. This will cause a rethink for everybody. It pretty much revalues the whole industry up and down the value chain both in Canada and the United States.”
Market Watch: Exxon Mobile buys XTO Energy in $41 billion deal
Globe & Mail: Exxon deal shakes up natural gas sector
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Tagged: David Rockecharlie, Exxon Mobil, FirstEnergy Capital Corp, horn river basin, Jefferies 7 Co., Marketwatch, Martin Molyneaux, natural gas, shale gas, XTO Energy
According to a forecast by the Petroleum Services Association of Canada for the first time in 39 years more oil wells will be drilled then natural gas wells with the association forecasting 4,100 oil wells will be drilled next year, compared to 3,200 natural gas wells. However, according to the Canadian Association of Petroleum Producers 500 more natural gas wells ill be drilled than oil wells in 2010. Both groups do agree that less natural gas wells are being drilled.
First it’s important to understand that the change is not because there is more oil drilling. Its because there is less conventional natural gas drilling which has yielded to shale gas as the primary target for natural gas producers. Conventional natural gas drilling has a higher break even point and higher risk consideration to shale gas. Conventional gas plays have lower life cycles, and lower production rates requiring ongoing new vertical drilling activity to maintain overall production numbers. Shale gas drills vertically once, and then horizontally into the shale formation in different directions. Shale gas wells are showing long life cycles with higher production rates after the initial production decline. The bottom line is shale gas has changed the drilling process and requirements.
Natural gas drilling is king in British Columbia. The decline in conventional drilling is primarily in Alberta and having a major negative impact on that province’s economy, while shale gas has been a boom for British Columbia due to the prolific shale gas plays in the Horn River and Montney basins.
Calgary Herald: Oil to Top Gas for 2010 Drilling
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Tagged: Alberta, BC, Canadian Association of Petroleum Producers, drilling activity, horn river basin, natural gas, oil, Petroleum Services Association of Canada, shale gas
The Polish Environment Ministry says it has authorized U.S. oil company Chevron to explore natural gas (shale gas) deposits in eastern Poland. The license was granted for five years and enables Chevron to carry out seismic study and exploratory drilling up to 3,500 meters underground. The license covers 800 square kilometers in southeastern Poland. No financial details were released.
In the last two years, the Poland has granted 30 such concessions in Poland, to companies such as ExxonMobil, Lane Energy and Marathon Oil. Shale gas has fundamentally changed the natural gas market in North America, and a similar paradigm shift in Europe would be a welcome change for those countries that have depended on Russia for their natural gas supply.
Russia has downplayed the potential impact of shale gas discoveries in European countries, an expected response. But not only would alternative suppliers diminish Russia’s influence in the region, an increased supply of natural gas in Europe could have the same impact that shale gas has had in North America, whereby prices have traded in a lower range for a number of years which will impact Russia’s revenues.
Wall Street Journal: U.S. Firm Chevron Gets Gas Exploration License In Poland
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Tagged: Chevron, ExxonMobil, Lane Energy, Marathon Oil, natural gas, Poland, Polish Environment Ministry, shale gas
Natural gas prices rallied to their highest level in more than 11 months as the Energy Information Administration (“EIA”) reported a net decline of 64 Bcf with working gas in storage of 3,773 Bcf as of Friday, December 4, 2009.
The current “monster” winter storm currently hammering North America will certainly see another drop in natural gas inventories for next Thursday’s report. It is important to keep in mind that stocks are still well above average for similar time frames. Stocks were 472 Bcf higher than last year at this time and 513 Bcf above the 5-year average of 3,260 Bcf.
In the coming days we’ll look at how there may be a spike in natural gas prices before they settle back down into a narrower and lower range. Average price for 2010 is still targeted by many in the $5.50 to $6.50 range.
MarketWatch: Natural gas surges after inventories; crude falls below $70
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Tagged: Energy Information Administration, horn river basin, natural gas, shale gas
Entering the winter heating cycle, natural gas analysts were looking at the weather forecasts and finding little guidance. The weather reporters were split, with half of them saying it would be a moderate winter, and others saying it would be colder then normal. Well its getting cold… and fast.
Harsh winter weather conditions are hammering the U.S. and Canada. Storms are hitting the east, and a deep freeze is hitting the west and right across both countries natural gas is being used to keep people cozy in their homes. Last week, there was only 2 Bcf of natural gas added to the U.S. storage. A cold weather snap can change the natural gas inventory in a day. We may see a drawn on existing natural gas supplies in tomorrow’s weekly natural gas inventory report from the Energy Information Administration but we will most likely see a draw next Thursday, when this week’s winter storms and deep freeze are reflected in the report.
Stephen Schork, editor of the energy advisory newsletter the Schork Report, recently told the Wall Street Journal, “The bottom line is that you are at the end of November, and you are still putting gas in the ground.” He said it would take an “ice age” to send prices significantly higher”. For some that “ice age” has arrived. Depending on where you live.
An extended cold weather trend will draw down inventories quite rapidly, which may result in upward pressure on the price of natural gas as speculators enter the market. However, keep in mind that that U.S. natural gas inventories are at an all time high. According to the EIA:
Assuming a storage withdrawal between the end of November and the end of March about 6.1 percent (113 Bcf) greater than the previous 5-year average for that period, end-of-winter (March 31, 2010) stocks will be about 1,845 Bcf. This would be the highest end-of-winter storage level since 1991, when inventories measured 1,912 Bcf.
For natural gas producers and investors the cold winter weather is welcome. The fact remains that we have a renewed abundance of domestic natural gas. And that is a huge benefit for the long term, clean energy requirements of North America.
CBS News: “Monster” Winter Storm Heads East
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Tagged: Energy Information Administration, Horn River News, natural gas, Schork Report, shale gas, Stephen Schork, Wall Street Journal
To address the growing volumes of drilling waste from the Horn River and Montney shale gas plays in Northeast BC, two Alberta based companies have filed apppropriate applications to build land fill sites to accept and manage contaminated soil that is not allowed in municipal landfills.
- Calgary-based CCS Corp. proposes to build a 65-hectare landfill 15 kms west of Dawson Creek with a life span of 25 to 40 years. First stage costs estimated at $2.0 million.
- Calgary-based Secure Energy Services proposes a 34-hectare landfill 5 kms south of Tupper, BC at a cost of $7.0 million.
Globe and Mail: Secure landfills planned for Dawson Creek area
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Tagged: CCS Corp., Dawson Creek, horn river basin, Montney basin, natural gas, Secure Energy Services, shale gas
The international potential of natural gas has a number of shale gas development projects underway. Another Horn River basin in Europe would have a major geopolitical impact on EU / Russian relations.
But according to the Moscow Times, a Gazprom spokesman on Monday dismissed concerns that a growth in the production of shale gas would pose a threat to the company’s foreign sales.
Gazprom spokesman Sergei Kupriyanov reportedly said in an interview with Russia Today television;
“The speculations that shale gas is cheaper than the Russian gas are not true” He added, “It’s a big question whether they are going to make such investments now that the price of gas has dropped on the U.S. market”.
Major natural gas producers in North America have shifted focus to shale gas due to lower production costs. According to various sources, shale gas can reach a break-even point of $4.00 to $4.50 with cost improvements continuing to reduce these costs. Conventional natural gas has a break-even point around $7.00.
Contrary to Mr. Kupriyanov’s statements, major producer continue to invest billions into shale gas plays like BC’s Horn River basin, with many selling conventional producing assets to finance their strategic shift towards shale gas. And apparently low natural gas prices have not delayed plans for two pipelines to carry natural gas from Russia to Germany and Bulgaria under the Black Sea. Mr. Kupriyanov commented that the Nord Stream pipeline (Russia to Germany) was on schedule to be operational in 2011.
In recent years, Gazprom has cut off natural gas supplies to neighboring countries over price disputes. Many European countries are dependent on natural gas imports from Russia. A potential shale gas discovery within the EU or increased LNG imports, would be a welcome alternative to Russian supplies, and would have a big impact on Russian influence in eastern Europe that Moscow leverages as the primary natural gas provider.
Moscow Times: Gazprom: Shale Gas No Threat
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Tagged: Gazprom, horn river, horn river basin, Moscow Times, natural gas, Nord Stream, Russia, Sergei Kupriyanov, shale gas
T. Boone Pickens has a plan for the U.S. to dramatically reduce it’s dependence on foreign oil and have a major positive impact on the country’s environment and economy. Its called the Picken’s Plan and for those that are not aware it calls for the increased use of natural gas in the U.S. transportation network in addition to increased renewable resources like wind and solar.
Mr. Pickens recently wrote an article in Forbes Magazine titled “End the Mideast Oil Addiction” where he summarizes the impact of billions of dollars a year leaving the U.S. economy to buy oil from the middle east. One can get deep into the impact oil has on the geopolitcal stability of the world. The bottom line for T.Boone, is that it is simply not sustainable for the U.S. to export these levels of capital out of the country.
Specically Mr. Pickens targets heavy transport trucks where nearly half of the oil imports for transportation is consumed. Canada needs to follow suit. Mr Pickens writes;
About 70% of the oil we import is used as fuel for America’s 250 million cars and light trucks and 6.5 million heavy trucks. Nearly half of the oil used for transportation is used as diesel fuel to power 18-wheelers. Natural gas is the only alternative. It is not only more abundant; it costs half as much and emits almost 30% less carbon dioxide.
If, in the normal course of replacements, we exchanged those 6.5 million heavy trucks running on largely imported diesel for new ones running on domestic natural gas, we could reduce our imports by 2.5 million barrels per day. We would be able to reduce our dependence on oil from the Middle East by half in only seven years.
These are pretty compelling numbers for the U.S. In Canada, there is no sense of a security risk but the economic and environmental importance of natural gas is very real. As one of the largest producers of natural gas, Canada has the capacity to use more in their own transportation network and should do so in order to support trade with our biggest trading partner. The U.S. is currently contemplating the Natural Gas Act which would increase incentives for natural gas powered vehicles which would increase the number of heavy transport vehicles on the road in the U.S. These natural gas-powered 18 wheelers will need to easily travel north and not just east and west.
Forbes: “End the Mideast Oil Addiction“
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Tagged: End the Mideast Oil Addiction, Forbes, Horn River News, natural gas, Natural Gas Act, Picken's Plan, shale gas, T. Boone Pickens
Royal Dutch Shell and PetroChina Co. have signed an agreement to jointly develop the first shale gas resources in southwestern China’s Sichuan province. Beijing wants natural gas to account for 5% of the nation’s energy mix by 2010, 10% of the nation’s energy mix by 2020. An early winter with low temperatures have increased recent demand and caused natural gas shortages in parts of China (See Horn River News: Winter weather triggers natural gas shortage – in China)
The joint venture will further assess China’s shale gas potential and make way for more foreign cooperation opportunities. North America has lead the world in shale gas development which has fundamentally changed how natural gas is viewed as an abundant, low carbon energy source in North America. Developing shale gas resources in China’s Sichuan basin opens a new opportunity for China to meet growing energy demands with domestic Chinese natural gas resources contributing more to China’s overall energy mix. Its only a matter of time before a “Horn River basin” is discovered outside of North America.
Wall Street Journal: Shell, PetroChina to Develop Shale Gas in Sichuan
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Tagged: horn river basin, natural gas, PetroChina, Royal Dutch Shell, shale gas, Sichuan basin
