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$4 a MMBTU (million metric, or one million, BTU) is the Break even point for fracking for Natural Gas.
In the last two weeks, prices of natural gas have lost nearly 12%, off just under 50 cents in December futures. On the lows today, my objective at $3.50 was achieved.
November 5, 2012
http://seekingalpha.com/article/979011-commodity-chart-of-the-day-natural-gas
I find it interesting that Stock Market investors are making money betting against higher Natural Gas Prices. I find it very interesting that all the talking heads on the business channels were confident last year that natural gas producers would cut production for natural gas and therefore prices would go up.
No industry can make a profit if prices are below the break even point.
Never mind that a record melting of the Arctic Ice cap this year might mean another warm winter and that would cut demand for natural gas prices again.
Long term prospects for the industry are horrible everyone is fracking now and liquid natural gas prices for export will likely drop like a stone for decades.
On Wednesday Exxon Chief Executive Rex Tillerson broke from the previous company line that it wasn’t being hurt by natural gas prices, admitting that the Irving, Texas-based firm is among those hurting from the price slump.
“We are all losing our shirts today.” Mr. Tillerson said in a talk before the Council on Foreign Relations in New York. “We’re making no money. It’s all in the red.”
His comments mark a departure from remarks made earlier this year on how lower natural-gas prices hadn’t yet hurt the company because of its operational efficiency and low production costs. June 27, 2012,
http://online.wsj.com/article/SB10001424052702303561504577492501026260464.html
Shale gas in China is an energy resource yet untapped, but is seen as having large potential.[1] China has set its companies a target of producing 30 billion cubic meters a year from shale, equivalent to almost half the country’s gas consumption in 2008
http://en.wikipedia.org/wiki/Shale_gas_in_China
In January last year, the US Energy Information Administration estimated that India held 38 trillion cubic feet of proven natural gas reserves.
That was good enough for the needs of the nation for 29 years
http://www.dnaindia.com/money/report_india-holds-527-tcf-of-shale-gas-reserves_1685334
Poland will produce “several” billion cubic meters of gas from shale rock by 2020, Treasury Minister Mikolaj Budzanowski said in July. The country’s recoverable shale-gas reserves amount to as much as 768 billion cubic meters, the Polish Geological Institute said in March.
Ukraine is heating up as well. TNK-BP Holding, a joint venture of BPBP.LN -0.90%PLC and a group of Russian investors, plans to invest $1.8 billion in shale projects at a half-dozen sites around Ukraine. In June, Italy’s Eni SpA E -1.21% paid an undisclosed amount for a stake in Ukraine-based LLC Westgasinvest, which holds about 1,500 square miles of land with potential shale-gas reserves. And ChevronCorp., CVX +0.74% which has acquired more than 6,250 square miles of potential shale gas leases in Central Europe since 2009, says it is working with Ukraine to negotiate a production-sharing agreement.
http://online.wsj.com/article/SB10000872396390443866404577565244220252020.html
Our geological estimates show that Lithuania can hold 480 billion cubic meters (bcm) of shale gas reserves, with recoverable reserves at 120 bcm,” he added.
Business daily Verslo Zinios reported that Chevron Global Energy had bought 50 percent of Lithuania-registered oil company LL Investicijos, which holds a license to prospect for oil and gas at the 2,400 square kilometer Rietavas field.
http://www.reuters.com/article/2012/10/25/us-chevron-lithuania-idUSBRE89O0NG20121025
All of these countries can beat American labor costs to extract natural gas. That means that Exon Mobile’s investment in shale gas in America is loosing money and will likely loose even more money in the future .
Shale gas development, an activity that scarcely existed 10 years ago, is a U.S. success story that supports more than one million American jobs and generates billions of dollars in government revenues, 09/20/2012|
However any industry as we have seen from the bank bailout that supports 1 million jobs and brings the government revenue is not likely to be allowed to fail even if it is loosing money.
Talk about exports of Liquid Natural Gas making Shale Gas wells more profitable in the future are a dream given all of the shale gas expected to be drilled internationally.
Japan now has 2 nuclear plants going and is building huge wind mills to provide more power Japan’s Nuclear plants being offline was the reason why Liquid Natural Gas prices were so high this year as Japan gets more power online from Nuclear and Wind sources demand for liquid Natural Gas should drop short term. Another warm winter will make Natural Gas Prices short term.
The Wall Street Journal reported that Chesapeake has raised $6.4 billion since 2007 by signing oil and gas production deals with a number of banks. Those deals are essentially debts that Chesapeake must repay with oil and natural gas. The Journal said the full cost of meeting those obligations over the next 10 years wasn’t disclosed.
http://www.wfmj.com/story/18368749/chesapeake-energy-receives-3-billion-loan
Exxon’s $26 billion acquisition of XTO Energy
http://online.wsj.com/article/SB10001424052702303561504577492501026260464.html
Exxon, Chesapeake and the banks loaning Chesapeake will need a bailout. Even Exxon can’t buy a company for $26 Billion then lose money on it for years.
12 Comments
Maybe market forces will stop fracking and maybe they won’t. What’s far more likely to stop it is that as climate change progresses the regions of North America in which the shale deposits are found have less and less available water. The fracking process takes MASSIVE amounts of water. I am reliably informed (a contact I have in one of the relevant firms) that there have already been cancellations of fracking operations for precisely this reason. Drought’s are a nasty phenomenon but in this particular case the expression “it’s an ill wind that blows nobody any good” is apposite.
Recommended.
mfi
You’re joking, right ?
Informative post, thanks, I think, the listing of the reserves located around the world (and you didn’t even mention 3 of the continents) is terrifying in the potential impact on our environment.
Mark’s comment on the access to water is cogent in the US with 60% of it experiencing drought conditions.
Hopefully other countries will be intelligent enough to not allow additives like benzene etc. to be introduced into the fracking process so that the water used has at least some chance of being reused later.
This technology with its water consumption and potential for aquifer and water table pollution may well, in the long run, be the population reduction vehicle which so many say is so necessary for our survival. (sic)
Another fine post, TCU, recommended. Anyone able to witness the near record low water levels and the vastly increased amount of now exposed shoreline in the Great Lakes region, should be concerned, if only for the water use angle on this topic.
Nice angle Fracking requires lots of water and projects are already being canceled I am going to have to research this thanks for the tip MFI:)
I was hoping to lead readers to the conclusion that Frackers will soon be demanding tax breaks to keep fracking jobs going in America never mind as I point out they are losing money on Fracking now and will as more Fracking goes on internationally will lose more jobs in the future.
This is Dark Humor at best its laughing at our own misfortune.
In researching this topic I accidently found all these articles I admit I should have researched Fracking world wide but then the length of the article might have been a problem.
Mark’s comment brings me hope and requires much more research I hope to follow up on it
The EU does not seem to want to Frack from what I’ve read I will try and follow up on what they are doing hopefully they stay sane.
Another comment on the water use I see this topic is something readers are really concerned with its great to get new ideas and feed back from readers.
I might be getting a job this week that could slow my writing down here but I will try and follow up in an other article my worry is that Mark’s comment from an industry insider might be hard to confirm from regular news sources on the net.
Researching sites of fracking and drops in the water table plus local droughts in those ares would take time and increase the length of a post. But it is doable and my readers do seem to want it:)
TCU, in addition to the loss of water to the pollutants, the “recovered” water has to be put somewhere. Too often it just makes its way to the ground surface to render that area useless, including the surface streams. Frackers will ask for a bailout by pointing out all of the jobs they provide. It is like saying “give us money to continue to make life in fracking areas more and more inhospitable, but see the people earning money to do it.”
I should have been more clear in that I don’t think the low Lake levels are due to fracking, but the vast stretches of fresh water here are not to be taken for granted. It is amazing to see what changes can occur in a very, very short time frame.
The frackers try to do their dirty work in rural areas that traditionally are socially conservative and often economically so as well. But the interests of the farmers — who are themselves putting a ton of stress on the aquifers through corn-based ethanol production — do not align with those of the frackers.
Whenever people try to say that elections don’t matter, I can’t help but think of where America would be if Teddy Kennedy hadn’t made his disastrous, party-destroying primary run in 1980. Jimmy Carter would have won despite the (Texas-oil-men-allied) Reagan camp’s colluding with the Iranians to keep the hostages in place, and the solar and wind industries would have had thirty extra years to grow and mature. And oil wars would have been a lot less feasible.
If the water physically isn’t there then it can’t be used.
mfi