Unconventional natural gas is on the rise
A report by Ziff Energy Group Ltd., a Houston consulting company, forecasts unconventional natural gas production will account for over half of the U.S. gas supply by 2030. Unconventional shales accounted for around 30 percent of the U.S. gas supply in 2000.
The report highlights advances in natural gas production from shale reservoirs, “New technology such as horizontal drilling and multi-stage hydraulic fracture stimulation along with rising natural gas prices through most of this decade allow shales to produce gas economically.” With approximately 5 billion cubic feet in daily natural gas production, the Barnett Shale produced 70 percent of North American natural gas in 2008, says the report.
Prices have been steadily falling in response to a current oversupply on the market, but analyst Jeff Clark believes natural gas has bottomed-out and is ready for rebound. Clark writes, “Last week, natural gas prices dropped as low as $3.50 per million British thermal units (BTUs). That’s as low as prices have been in nearly seven years. In fact, $3.50 is widely regarded as the “shut in” price for natural gas. That’s the price at which natural gas drillers are better off closing down the well than continuing because it costs more to extract the gas than what the drillers can sell it for.
“In other words, natural gas cannot fall much below $3.50 before drillers start shutting wells. Once that happens, the forces of supply and demand start going the other way. And the market knows this…
“Which is why natural gas bounced off of the $3.50 price level and is now trading at $3.86. The market has already discounted the natural gas supply glut. It started discounting it in the fourth quarter last year when, for the first time in a decade, natural gas prices fell during the last three months of the year.”
The current price of gas is an extreme 15-1 ratio compared to the price of oil, but historically this ratio stays closer to 10-1. Clark sees the price ratio between natural gas and oil to move back toward its historic number.
Sources for this post include Fort Worth Business Press and Jutia Group.
Published Wednesday, April 22nd, 2009 at 11:17 am and filed under Industry News.