The “Upside” for Marcellus/Utica in the Oil Price Crash

We’ve previously brought you various articles, and comments on articles, describing how Marcellus/Utica drillers may benefit from the current crash in global oil prices. How? A number of oil drillers in Texas, Oklahoma, North Dakota and other oil states are not only not drilling new wells right now, but they’re also not completing previously drilled wells and in some cases, they are shutting in existing/flowing wells. All of which means there will be a rapid decline in the amount of “associated gas” being produced in those states. Less associated gas means less supply and less supply means higher prices–for M-U drillers. We spotted an article that does a good job at defining how this will likely play out. How much less associated gas can we expect? What does that mean for natgas prices (when will they go higher)? What if the price of oil is $40/barrel rather than $30/barrel?
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With Condensate Near $0, Utica Drillers Shift Permits to Dry Gas

Last week MDN highlighted an article from the Pittsburgh Post-Gazette about the low low prices Marcellus/Utica condensate has fetched since the beginning of the year (see M-U Condensate Prices Briefly Go Negative, Down 91% from Jan 1). S&P Global is currently reporting prices for Utica condensate have not yet recovered, sometimes still dipping into negative territory. As a result, drillers are reducing their new permits and drilling in “wet gas” areas of the Utica and instead shifting gears to “dry gas” regions.
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OPEC+Russia+US Agree to 9.7M Bbl/d Oil Cut – Too Little Too Late

To say that history (in the world oil market) was made this past week is an understatement. The United States of America, under the direction of Donald J. Trump, threw in its lot with both Saudi Arabia and Russia in order to salvage a deal to cut oil production worldwide by 9.7 million barrels per day. The fact that Trump leaned on/cajoled/pressured the Saudis and Russians is not the historical part. What is history is that the U.S. itself pledged to cut a portion of its production in cooperation with those bad actors–a pledged to cut 300,000 bbl/d, because Mexico wouldn’t. We’ll explain.
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The Case for Rising NatGas Prices – How High and How Soon?

We’ve preached “lower for longer” for a long time now–the theory that natural gas prices are low and will remain low for the foreseeable future. Not because we want it to be that way, but because it is that way, and we want you, our beloved MDN readers, to know the truth. We live for the day when we can tell you natgas prices are heading higher. Are we finally beginning to see some hope in that regard? Maybe! We’ve outlined the latest thinking across several recent posts that given the crash in oil prices, less associated natural gas will be produced leading to less supply on the market and (eventually) higher prices for gas. When will that happen? We have some new speculation to share.
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“Lower for Longer” Not Only for NatGas, but Oil & Petchem Too

If you’ve read MDN for any length of time you know we’ve preached the gospel of “lower for longer”–that natural gas prices will remain low, quite low, for a long period of time. How low? Likely in the $2/Mcf range (or just under, or just over). Gone are the days of $3 and $4 gas–at least for a period of years. Although that may have now changed with the double shock of too much oil and the coronavirus destroying demand, which affects natural gas prices. How? Less oil drilling in American shale means less associated gas produced by oil drilling. Less supply equals higher prices. But let’s not go down that rabbit trail right now. We spotted a couple of articles by analysts who predict the current oil price crash will have a profound and long-term effect not only on the oil industry but also on the petrochemical industry–the downstream recipient and user of oil (and gas).
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U.S. in Danger of Losing Our Shale Oil Industry to Other Countries

America is in danger of losing ownership of our shale oil companies to bad actors including Saudi Arabia, Russia and other foreign countries. Those countries are actively, aggressively, purposely waging a price war against us, trying to drive American shale companies into bankruptcy. Why? So they can turn around and buy up our companies and once again control the world market for oil. It is a *hostile* action. President Trump, please don’t let it happen!
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Enverus Finds Bright Spot in the “Dark Side of the Boom”

Enverus, a leading oil and gas SaaS and data analytics company, has just released its latest FundamentalEdge report called, “The Dark Side of the Boom.” The report focuses on the new global supply and demand outlook since the failure of OPEC+ to reach an agreement on temporary production cuts resulting in an all-out price war. It also takes into account the effects on world energy demand as a result of the coronavirus. The report covers not only the crude oil situation but also natural gas, NGLs, rig count changes and more. What “overlooked bright spots” does Enervus find in a sea of bad news?
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Saudi-Russian Oil Deal on Shaky Ground; Texas to Join OPEC++?

Is your head spinning yet with all the news about the oil price crash and what the U.S. may or may not do to “fix” it? Ours is! Last week President Trump tweeted to the world he had a conversation with his “friend” the Crown Prince of Saudi Arabia and the Prince told Trump the Saudis and Russians are close to announcing a major cut in world oil production (see Trump Says Saudis, Russians Agree to Major Oil Production Cut). That news sent oil soaring, up more than $5/barrel. But then Russia denied such talks, and a hasty meeting planned for yesterday between OPEC and Russia (OPEC+) was postponed until Thursday at least. Then a lame-duck Texas Railroad Commissioner (the agency that oversees oil drilling in Texas) piped up to say he wants Texas and the U.S. to join a pact with Saudi Arabia and Russia to restrict oil production. Some are calling it OPEC++. Then, over the weekend, President Trump hinted he may slap tariffs on imported oil if the Saudis/Russians don’t turn back the taps.
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Analysts Predict Natural Gas Prices to Rebound in 2021

Is relief on the horizon for Marcellus/Utica drillers in the form of higher prices for natural gas? According to several analysts, due to several factors coming later this year and next year (a rebound in the economy, lower natgas production), we will see “significantly higher prices next year” for natgas. How much higher? “We expect an average Henry Hub price of $3.50[/MMBtu] for next year and anticipate gas reaching the $4 threshold in [the fourth quarter of 2021].” Between now and then it’s a game of Survivor…until higher prices get here.
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Analysts Say NatGas, LNG Demand for 2020 “Unpredictable”

Unpredictable

Commenting on their latest short-term gas and LNG outlook report, energy consulting firm Wood Mackenzie says worldwide gas supplies have been impacted by the triple whammy of coronavirus, oil price crash and LNG oversupply. While WoodMac expects LNG demand to grow by a modest 6% this year, “the numbers will need constant revision as economies around the world feel the force of the growing pandemic.” WoodMac also says, “the narrative for the rest of 2020 could not be more unpredictable.” Meanwhile, according to NGI, global natgas prices are currently in a “freefall” hitting new lows in Asia and Europe.
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Contrarian Goldman Sachs: Shale a Winner in Oil Price War

Is this an April Fool’s joke? Bloomberg is reporting comments from Damien Courvalin, Head of Energy Research & Senior Commodity Strategist at Goldman Sachs, saying U.S. shale oil drillers will emerge from the current oil price crash as “a winner.” This is the opposite of every other analyst we’ve read. What does Courvalin see that’s different from everyone else?
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Trump to Putin: Let’s Talk About Low Oil Prices & What To Do

President Trump had a phone conversation with Russia’s dictator Vladimir Putin on Monday. The topic? The Saudi-Russian oil price war, which Trump calls “crazy.” The result of the call was to tee up each country’s top energy officials, getting them to discuss ways to prop up the price of oil. Energy Secretary Dan Brouillette will talk with Russian Energy Minister Alexander Novak about “ways the world’s largest producers can address volatility in the global oil markets during this unprecedented period of turmoil.”
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Why U.S. Gov’t is Not (Yet) Addressing Oil Price Crash Issue

Why is the Trump Administration not taking decisive action to address the crash in the oil price brought on by the Saudis and Russians? Agreeing to “talk about it” with the Russians, as we outline in another post today, is not action. Neither is buying up some extra barrels of oil for the strategic petroleum reserve. We think David Blackmon, a longtime oil industry worker and observer hits the nail on the head in a new column just published by Forbes. The reason the government isn’t addressing the oil price crash issue right now is…
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Experts Predict NatGas Demand/Prices Remain Low into Next Winter

Tenaska is #3 on the list of North American gas marketers–buying and selling more natural gas throughout the country than every other company save two (BP and Macquarie, see Who Sold the Most NatGas in the U.S. in 4th Quarter 2019?). So when the president of Tenaska, David Whitt, says demand for natgas is likely to drop this summer and demand stay low all the way into next winter, you can’t ignore it. He’s probably right. His business depends on him being right.
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How Oil Crash/Virus has Altered Future of NatGas, NGLs, Midstream

Everyone, and we mean everyone, is still reeling from the double shock of the COVID-19 coronavirus and its effect on the world economy, and the Saudis and Russians pumping more oil, driving oil prices into the ground. Frankly, the COVID-19 virus is the bigger deal. It will have long-lasting effects for years to come on the U.S. economy, including a big effect on the oil and gas industry. The question is, what kind of effect? Is there any way to predict what may happen in the coming couple of years and longer? No one can really predict, but if anyone could, it would be the bright minds at RBN Energy. They’ve attempted the near-impossible: Try to predict how things will change following the COVID-19 lockdown (around March 6). Try to divine how the oil and gas (and NGL and midstream) worlds will change in the coming months and years. Their assessment is sobering.
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Cheapest Way For Trump To Save U.S. Oil – Variable Tariff

The American oil industry is in crisis. This is undeniable. Some folks will point out this isn’t the first serious downturn for the oil industry, and it won’t be the last. True enough. But this one IS different. Not in recent memory (at least a generation) has there been both a shock in the supply picture (Saudis and Russians fully opening up the taps) and a shock in the demand picture (very little travel due to the pandemic). We at MDN have taken a view in favor of a tariff on imported foreign oil to encourage better behavior. Now comes a tweak to the tariff strategy.
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