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NG Prices React to Chesapeake’s Announcement to Cut Production

Yesterday, MDN told you about Chesapeake Energy’s major announcement that they will reduce capital spending on dry natural gas, or methane-only production, by 70 percent this year (see this MDN story). Chesapeake is also shutting down 9 percent of their domestic production, some 0.5 billion cubic feet of natural gas per day, which represents 1.5 percent of the entire natural gas output in the U.S. The result is predictable—less supply and steady demand equals higher prices. And that’s just what happened:

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Is the Shale Rush Almost Over? One Analyst Says Yes

Jack Barnes, writing for Money Morning, analyzes the price of natural gas and why it’s so low—and what it ultimately means. He says that numerous shale plays in the U.S. do contribute to an overabundance of supply. But the real culprit, according to Barnes, is that major drillers are going after natural gas liquids (NGL), which can be used in a variety of ways. NGL are closely aligned with the higher price of oil and more valuable. In the process of going after NGL, “dry gas” (or methane) is recovered in the process too. It is the scramble for NGL that leads to an oversupply of methane, and that oversupply keeps natural gas prices low.

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Natural Gas Now Least Expensive Way to Generate Electricity

Jack Kelly had an excellent column in Sunday’s Pittsburgh Post-Gazette. It starts out with a brief history of the discovery of oil in the U.S. and moves to shale gas and points out that shale gas is an even bigger game changer than oil was. Did you know that natural gas is now the cheapest way of generating electricity?! Renewable sources like wind cost 1.5 times more, and solar costs 3.3 times more to produce the same megawatt of electricity as natural gas.

Among Jack’s observations:

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Marcellus Shale Gas Leads to Lower Prices for PA Consumers

falling pricesOne of the arguments in favor of shale gas drilling is that it will create more supply leading to lower prices for consumers (that’s Economics 101 for the Occupy economic illiterates). Those opposed to drilling scoff and say it won’t happen, that the big, bad energy companies will rig the system to keep prices, and profits, high. Here’s a dose of reality for those who scoff:

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What Those Opposed to Gas Drilling Really Fear

Dave McCurdy is president and CEO of the American Gas Association. He’s also a former congressman (Democrat) from Oklahoma. In an interview with the Washington Times, he minces no words and says what MDN has been saying all along: Those opposed to shale gas drilling are motivated by an ideology, a preference for renewable energy. McCurdy points out what they really fear is that renewables can’t compete with natural gas based on economics. So that ideology and fear leads them to oppose natural gas.

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Wind Farm Project Canceled Due to Cheap Marcellus Gas

Those who oppose natural gas drilling do so because it threatens their ideology that renewable energy should be the only available option. Renewable energy supporters don’t seem to care that it costs 3-5 times more (that’s 300-500 percent more) for electricity from renewable sources than from fossil fuel sources. Rather than celebrate our good fortune in finding a cheap, abundant source of something that pollutes far less than other sources—shale gas—they attack it and claim it’s just as bad as the dirtiest coal. It’s sad, really.

Here’s yet another example of so-called renewables failing the economic test, an example sure to push some of the antis over the edge. It looks like the $1 billion Great Lakes offshore wind farm is yes, out of wind (bad pun intended). And the reason why it’s being canceled? Marcellus Shale gas—abundant, and cheap.

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Fracking Creates an Oil Boom – Now More Oil than Gas Rigs

Turns out that horizontal hydraulic fracturing, the process used to get natural gas from shale layers, is also a renaissance for oil production as well. According to the latest figures, the number of rigs drilling for oil in the U.S. has just surpassed the number of rigs drilling for natural gas—for the first time in 18 years—thanks to fracking.

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The Prospects for Continued Expansion of Marcellus Drilling – Some Companies Cooling on Shale Gas Drilling

Will drilling in the Marcellus Shale, or other shale plays for that matter, continue its red-hot growth? The honest answer is, who knows? It depends on whether or not it’s profitable for energy companies to continue their shale gas drilling expansion. Right now, it appears that at least some companies are leaning away from further expansion in shale gas drilling because the commodity price of natural gas is low compared with oil. Many (most?) of the companies who drill for natural gas also drill for oil. If the price you get for gas is only barely covering your costs to drill, as it is right now for natural gas, you take a close look at the alternatives, like oil.

Some of the factors that will continue to affect the price of natural gas in the coming few years, and hence drillers’ willingness to drill:

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CNX Gas Corp. chief: Slow down or stop gas drilling

Pittsburgh Tribune-Review (Oct 3):
CNX Gas Corp. chief: Slow down or stop gas drilling

Gas prices are depressed right now. The question is, how long will it go on? While prices are low, CNX Gas CEO Nick DeIuliis says drillers have to remember to be good business people and slow down or stop drilling to reign in costs. What does that mean for landowners? Will drilling slow down or stop any time soon? Good questions to ponder. A good article to read to give you an update on gas prices on the commodities market and the overall drilling landscape.