1. I agree, there is no way that this endless supply of tight gas that everyone is betting the farm on can possibly be produced at today’s prices. Once the utilities are committed to this fuel the supplier will have them by the short hairs and the price will ratchet up.

  2. Rod Adams wrote:
    However, in places like Japan, where there is a suddenly expanded demand, natural gas is a valuable energy source that is selling for 5 times as much per unit of energy as it does in the United States.

    And Europe is not far behind on price. With major world markets pricing natural gas this high, there is a sustained pull upwards on the price of natural gas. Even though natural gas in North America is largely “land locked”, market forces will drive changes, e.g., LGN terminals being used for export rather than input. If nothing else, domestic usage trends already in play (reduced gas drilling and wholesale switches from coal to natural gas for power generation) will soon favor the gas produces, i.e., higher prices.

  3. Rod,
    I tried to comment on the Bill Gates post but got a strange error message mentioning an error at 1.2 GW.

  4. Great post, Rod. There’s certainly a lot of “cheap gas” talk, but I read The Oil Drum for a dose of reality. One of the commenters I respect highly, Rockman, had this to say about Chesapeake Energy in commenting on the post A Review of the Citigroup Prediction on US Energy:

    your Chesapeake statement is a good lead in. First, the oil-rich shale plays are adding to our reserve base. And IMHO will continue to do so to some extent as long as oil prices stay high. But the CHK situation may be showing the weakness of that expectation. From CHK’s own press release of a month or so ago their projected a budget requirement was $10-12 billion. Why so high? Most already know the answer: CHP added a great deal of fairly valid proven reserves to their books. And adding to those booked reserves is how Wall Street tends to value a public company. But the unique aspect of newly booked reserves from fractured reservoir is how quickly they disappear from the books: 60% to 90% reduction the first 12 months. So for CHP to just maintain a zero proven reserve growth they need to drill more wells during that period. And again, Wall Street doesn’t tend to hype a stock that isn’t showing growth. So in addition to replacement wells CHK has to drill even more wells to show reserve growth. But by drilling those additional wells they then have to drill more replacement wells for those rapidly depleting wells within the following year.

    It should easy to see how this process could lead to ever increasing capex demands after just several years. And where does the capex come from? One source is the new producing wells. They do generate significant income FOR THE FIRST 12 TO 18 MONTHS. But most of that income is just recovering the cost of the well. So to drill even more wells then punched the previous year additional capex is needed. Borrowing from the bank is typically the source. But CHK acknowledged that the banks would only be lending them less than 10% of the budget.

    So where is CHK getting the rest of their capex requirements? They’ve been doing it the last couple of years: selling off $billions of undrilled shale leases. The same leases they’ve been touting as the future of the company. Additionally, though not widely publicized, they are selling off some of their proven dry NG fields. Selling them in one of the worst markets for those properties in more than a decade. Everyone has a right to their own opinion and mine is this is a very desperate move.

    Shale gas is as much about what Wall Street values as about producing a product. And Wall Street seems to have no concept of anything beyond the value of a company’s shares. The horizon seems to be the next quarter’s results, which leaves very little room for a company to have long-term and/or fiduciary goals. I’m no expert but it sure looks to me like too many companies (and not just energy companies) are on a treadmill that is almost impossible to get off of.

    I respect Rockman’s comments as highly as I respect DV82XL’s comments. I hope that you’ll take that as a compliment, DV82XL.

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