By: Ben

Ben — Mon, 10 Sep 2012 07:43:03 +0000

Let us look at the logic here.Yeah, but a gain of 65% off a historical low is still $3.05, still down nleary 50% from last year.True but trends in commodities have tendencies to run for quite some time before they turn. Besides, this has been an abnormally hot summer. Electric demand has risen due to more people running a/c, which means more demand for natural gas in the electric producing sector.Also true but don’t you remember that a very warm winter cut demand for heating? Your heating bill fell mainly because of the change in temperature, not the tiny bit of the price decrease that the utilities passed on. And are you really surprised Texas natural gas production is down? Most of what is making its way to the natgas market is the byproduct stuff that comes from oil drilling. Something like 30% of rigs are producing natural gas. Can’t make money at $1.50 per.That has been my argument with you and Mark. Shale gas can’t make money at less than $7.50 if the Chesapeake statements were to be believed. (That is all in costs, not the costs that do not include depreciation, leasing, etc.) If prices are to remain above $3.00 (the low end of BE point), you’ll probably see some rigs come back on-line, but we’ll likely see this oversupply remain, simply because we have so much inventory to get through first.Why would rigs come on line when the core areas need more than $5.00 gas to have a chance of making profit and the average well is not economic under $7.50? Shale gas has been a disaster for the industry and has wound up destroying capital. Do you really think that investors are eager for another bout of capital destruction?No matter what the narrative that Mark is pushing I can’t see any economic logic in having companies that do not have to in order to keep from going under by writing down their leases spending any money on new gas production. The simple fact is that there is no way for natural gas production to fill the growing demand that is added by closing of coal generation plants without a significant increase in prices. And I suspect that the next time the shale companies act they will demand fixed cost contracts from drillers and a fixed price from purchasers in order to guarantee sufficient profit to try to stave off bankruptcy.

Comments on: Bucks County, PA

By: Ben