Tag Archives: shale gas

Charts du Jour, 6 April 2015: US Natural Gas Production

The US government agency The Energy Information Administration reported natural gas production numbers for January 2015 on 31 March (numbers are reported with a two month lag).

US dry gas production was up 8.9% year on year in January, and the 12-month moving average was 6.1% higher year on year, the highest growth since October 2012 (click for large image; source: here).

US Dry Gas Production Jan 2015 jpeg

Meanwhile, natural gas prices have continued to trend down and are now reaching around $2.5 per million British thermal units (Btu). This is not far off their 2012 lows (source: here).

Henry Hub Prices Mar 15 jpeg

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Chart of the Day, 2 Feb 2015: Still Talking about a Shale Gas Revolution?

The US government’s Energy Information Administration (EIA) has just come out with US natural gas production figures for November. But before we look at them, let’s glance at the long-term chart first (Source EIA here):

US Natural Gas Monthly Supply jpeg

Looks good if you are a fracking enthusiast, although the chart makes the shale gas surge seem like one continuous, seamless event. Scale up to the monthly chart and the situation looks a bit more nuanced:

US Dry Gas Production Nov 14 jpeg

For two years, 2012 and 2013, production almost flatlined, before jumping up again at the beginning of 2014. The latest numbers show dry gas production for November up 6.2% year on year, and the twelve month average rose 4.6%. What explains the two-year hiatus in the shale gas revolution? That’s easy: price (Source: Nasdaq).

Natural Gas Futures jpeg

The Holy Grail for shale gas enthusiasts is rising production and cheaper prices. In reality, however, what we have seen is rising production when prices are high, but stagnating production when prices fall. We haven’t really seen the same dynamic for tight oil in the US because we haven’t seen a prolonged period of falling prices–until now.

Meanwhile, the EIA’s latest Short-Term Energy Outlook (STEO) , released on 13th January, contains new forecasts that extend out through 2016 . The outlook is for a short plateau, then a renewed upward move:

STEO Jan 15 copyTo be honest, foresting oil and gas markets is a nightmare, the reason being that you are actually having to forecast two interlocking variables: price and production. Keeping that caveat in mind, here is the EIA’s price forecast:

Henry Hub Natural Gas Prices

The chart is a little difficult to read, but the EIA is looking at $3.44 per million Btu in 2015 and $3.86 in 2016. This compares with an average of $4.39 in 2014.

Putting price and production together paints a pretty optimistic picture from the EIA. Previously, the slump in prices in 2011 led to a plateauing of production in 2012. Further, a jump in prices in 2013 resulted in reinvigorated production growth in 2014. Of course, technology is changing, and this relationship may not hold. Indeed, that is what the EIA argues (from the 13th January STEO, click for larger image):

STEO Gas Production Commentary jpeg

There are a lot of moving parts to the story. I haven’t touched upon the implications for associated natural gas (gas produced as a byproduct of drilling for tight oil) stemming from the oil price slump. Nor have I dealt with the big spat between the journal Nature and the EIA over shale gas reserve calculations. More to come on both of these topics in future posts.

Overall, though, remember the “peak oil” theory is really one of peak cheap oil (see my posts here and here). and you can extend the same logic to gas. Consequently, the cornucopians have a golden opportunity to nail the peakists if they can show one thing: that the world can produce more oil and gas at the current low oil and gas prices. We have a testable hypothesis–let’s see what happens.

Data Watch: US Natural Gas Monthly Production February 2014

The US government agency the Energy Information Administration (EIA) issues data on U.S. natural gas production, including shale gas, on a monthly basis with a lag of roughly two months. The latest data release was made on April 30th, and covers the period up until end-February 2014. Data is reported in billion cubic feet (bcf) and can be found here. Key points:

  • February 2014 natural gas dry production: 1,896 bcf, plus 2.8% year-on-year
  • Average monthly production for the 12 months to February 2014: 2,034 bcf, +1.7% over the same period the previous year
  • Since the end of 2011, production growth has stalled (click chart below for larger image), with the year-on-year 12-month average bumping along a plateau.

U.S. Dry Gas Production Feb 14 jpeg

There was significant natural gas price volatility over the winter period due to unusually high gas demand prompted by periods of extreme cold. Critically, however, natural gas prices have remained elevated into spring at around $5 per million British thermal unit (Btu).

Natural Gas Spot Price May 14 jpeg

To put the current price of $5 in perspective, a long-term chart of natural gas prices is given below (click for larger image). Note that 1 million Btu is roughly equivalent to 1,000 cubic feet; the unit price is, therefore, comparable even though one chart refers to Btu and the other cubic feet.

U.S. Natural Gas Well Head Price April 2014 jpeg

As can be seen in the chart, two natural gas spikes took place in the 2000s, with the price temporarily moving above $10. However, the average price for the period was between $5 and $7. The current well head price has now moved into that zone. Adjusting for inflation, the current price is still cheaper than the price in the late 2000s—but not that much cheaper.

Much commentary on natural gas compares the 2012 price lows of around $2-$3 dollars with the $10 highs of the 2000s. This is very misleading and obscures the fact that shale gas is expensive to produce. My definition of a product revolution would be one with lower price and higher volume—integrated circuits being the classic case. Shale gas does not fulfil this definition. When price falls, production growth struggles; only with high price do you get production uplifts.

Nonetheless, despite U.S. gas prices trending above $5, the U.S. spot price remains significantly below the price in other markets as the chart below shows (taken from BG Group presentation here, click for larger image). Note that NBP refers to the ‘national balancing point’, the benchmark wholesale spot price of natural gas in the UK.

Global Natural Gas Prices jpeg

Until liquid natural gas (LNG) production and export facilities come on stream in the U.S., traders cannot arbitrage between domestic and international markets, so the divergence in prices will remain. When such facilities are available, the critical question is whether U.S. production can be ramped up to allow exports, and whether the volumes will be significant enough to impact on global market prices.

 

So U.S. Fracking Will Save Europe from Russia?

So will U.S. shale gas save Europe from a belligerent Russia? This from The Financial Times (here, free access after registration):

The US should make it easier for Europeans to buy American natural gas in order to reduce its allies’ dependence on Russian energy, the top Republican in the House of Representatives has said.

John Boehner’s statement on Tuesday brought national security concerns into the centre of a debate on how the US should use supplies of oil and gas from its shale.

In my humble opinion, reportage on the Ukrainian crisis has generally been dire, but finding any decent analysis of the West’s reliance on Russian oil and natural gas has been especially hard. Let’s start with the big picture for gas. From the International Energy Agency‘s “Key World Energy Statistics 2013” (click for larger image):

Producers, Net Exporters, Importers Nat Gas jpeg

From the tables, we see that Russia is the second largest natural gas producer behind the U.S., but it is the world’s largest exporter. Russia also exports 28% of all it produces.

As always with energy statistics, every publication has its preferred unit of measurement, so we have to do some very simple math to compare. One cubic metre of natural gas is equivalent to 35.3 cubic feet, so Russia’s 185 billion cubic metres (bcm) of natural gas exports translates into roughly 6.5 trillion cubic feet.

And where does it go (from the Energy Information Administration‘s Russian analysis here)?

Share of Russia's Natural Gas Exports jpeg

Shale gas to the rescue? The U.S. government’s Energy Information Administration (EIA) released this graph in its “Annual Energy Outlook 2014“.

US Nat Gas Import Export 2014 jpeg

The chart shows LNG exports kicking in around 2016 and then rising to 2 trillion cubic feet in 2020 and then plateauing at approximately 3 trillion in 2025. At the same time, imports will be declining by around 1 to 2 trillion cubic feet or so.

This doesn’t entirely cover current Russian exports of 6.5 trillion cubic feet, but it is certainly a significant amount. Nonetheless, and notwithstanding the fact that U.S. LNG exports will not commence for a couple of years or more, the U.S. change in trade is material.

However, this all assumes an “other things being equal” type of world. But things will certainly not be equal going forward due to one particular country: China. From the EIA’s “International Energy Outlook 2013“.

Non OECD Asia Nat Gas Trade jpeg

Accordingly, it is a very moot question as to whether any U.S. origin LNG exports end up in Europe as opposed to the more likely destination of Asia—where insatiable demand will likely translate into premium pricing.

What about oil? Back to the IEA’s tables:

Producers, Net Exporters of Crude Oil jpeg

Now this is where it gets interesting. If Vladimir Putin decided not to play nice, then he would likely use oil to turn the screws on the West. As usual, we have a table with different units, but one metric tonne is roughly equivalent to 7.3 barrels of oil. Accordingly, Russia’s 520 million tonnes of production is around 3.8 billion barrels per year. This, in turn, is about 10.3 million barrels per day (bpd)—47% of which goes abroad. In short, he has a 5 million bpd oil cosh to beat the West.

In a recent post, I referred to the IEA’s observation that oil inventories have fallen considerably, mostly due to political troubles in Libya and Iraq, so any explicit, or even implicit, oil threat would be enough to send prices shooting higher—and global financial markets lower. Put another way, current global consumption is a little over 80 million bpd, and excess production capacity is estimated at around 1 to 2 million bpd above that. So if Putin turned the oil tap off, the global oil market would fall into a significant shortfall.

Overall, I see neither U.S. shale gas nor U.S. tight oil having any diplomatic impact on Russia. The major check on any Putin aggression will likely come from Russia’s oligarchs, who all have a major stake in the global capitalist status quo. Will that be enough? I don’t know.

Data Watch: US Natural Gas Monthly Production December 2013

The US government agency the Energy Information Administration (EIA) issues data on U.S. natural gas production, including shale gas, on a monthly basis with a lag of roughly two months. The latest data release was made on February 28th, and covers the period up until end-December 2013.

Data is reported in billion cubic feet (bcf). Key points:

  • December 2013 natural gas dry production: 2,090 bcf, plus 2.1% year-on-year
  • Average monthly production for the 12 months to December 2013: 2,023 bcf, +0.9% over the same period the previous year

Since the end of 2011, production growth has stalled (click chart below for larger image), with the year-on-year 12-month average bumping along a plateau.

US Dry Gas Production Dec 13 jpeg

Natural gas well-head prices exhibit seasonality, with winters generally seeing stronger prices due to heating needs. The recent polar-vortex induced cold snap in the U.S. has pushed prices up to their highest since February 2010 (here, click for larger image).

Natural Gas Spot Prices Mar 3 jpeg

To put the current price of $5.0 per million British thermal uni (Btu) in perspective, a longer term monthly time series going up until end December 2012 is given below (click for larger image). Note that natural gas production is very inelastic over the short term. Accordingly, the market is brought back into equilibrium during periods of strong demand through large jumps in price. However, these don’t generally prompt an investment surge in natural gas infrastructure since they are viewed as temporary in nature. Only if prices remain elevated beyond winter would we likely see a supply-side response. However, prices are already coming off their highs as we move toward spring.

US Nat Gas Well Head LT jpeg

Data Watch: US Natural Gas Monthly Production November 2013

The US government agency the Energy Information Administration (EIA) issues data on U.S. natural gas production, including shale gas, on a monthly basis with a lag of roughly two months. The latest data release was made on January 31st, and covers the period up until end-November 2013.

Data is reported in billion cubic feet (bcf). Key points:

  • November 2013 natural gas dry production: 2,047 bcf, plus 2.4% year-on-year
  • Average monthly production for the 12 months to November 2013: 2,020 bcf, +0.8% over the same period the previous year

Since the end of 2011, production growth has stalled (click chart below for larger image), with the year-on-year 12-month average bumping along a plateau.

US Dry Gas Production Nov 13 jpeg

Natural gas well-head prices exhibit seasonality, with winters generally seeing stronger prices due to heating needs. The recent polar-vortex induced cold snap in the U.S. has pushed prices up to their highest since February 2010 (here, click for larger image).

Natural Gas Spot Prices Jan 14 jpeg

To put the current price of $5.5 per million British thermal uni (Btu) in perspective, a longer term monthly time series going up until end December 2012 is given below (click for larger image). Note that natural gas production is very inelastic over the short term. Accordingly, the market is brought back into equilibrium during periods of strong demand through large jumps in price. However, these don’t generally prompt an investment surge in natural gas infrastructure since they are viewed as temporary in nature. Only if prices remain elevated beyond winter would we likely see a supply-side response.

US Nat Gas Well Head LT jpeg

Data Watch: US Natural Gas Monthly Production October 2013 Plus a Review of EIA’s Medium- and Long-Term Forecasts

Apologies for the late reporting of this number; my brain has been occupied with job-eating robots and computers for the last few weeks (and another post on this theme to come).

Apart from getting the latest monthly US natural gas number, I also want to do a quick catch up on The Energy Information Administration (EIA)’s “Annual Energy Outlook 2014″, which came out in mid-December and the “Short Term Energy Outlook” that came out on January 7th with new 2015 numbers.

But first the monthly number: the US government agency the EIA issues data on U.S. natural gas production, including shale gas, on a monthly basis with a lag of roughly two months. The latest data release was made on January 7th, and covers the period up until end-October 2013.

Data is reported in billion cubic feet (bcf). Key points:

  • October 2013 natural gas dry production: 2,007 bcf, plus 0.6% year-on-year
  • Average monthly production for the 12 months to October 2013: 2,015 bcf, +0.7% over the same period the previous year

Since the end of 2011, production growth has stalled (click chart below for larger image), with the year-on-year 12-month average now flat-lining.

US Dry Gas Production Oct 2013 jpeg

Natural gas well-head prices exhibit seasonality, with winters generally seeing stronger prices due to heating needs. The recent polar-vortex induced cold snap in the U.S. has also been supporting prices over recent weeks (here, click for larger image).

US Nat Gas Spot Prices Jan 14 jpeg

To put the current price of $4.5 per million Btu in perspective, a longer term monthly time series going up until end December 2012 is given below (click for larger image). Continue reading