Natural gas bulls

The spot price for natural gas contracts in the US fell below $3 per million BTU yesterday for the first time since 2002, but gas producers are still pushing ahead with new shale plays.

Things do not look great for natural gas, right now. The ratio of natural gas to crude prices is at historic levels, storage is getting tight as supplies rise, and it’s not been a great summer for consumption.

Yet the likes of Anadarko and Chesapeake are bullish and plan to keep expanding their investments in shale gas.

From Reuters, earlier this month:

“Early success from our Marcellus activities indicates this play possesses some of the most compelling economics in our onshore portfolio,” Anadarko Chief Executive Jim Hackett told investors on the company’s second-quarter earnings conference call.

And:

Chesapeake, a natural gas producer based in Oklahoma City, said it was hiking its 2009 drilling budget by $300 million to as much as $3.2 billion, and some of that money is earmarked for its acreage in the Marcellus.

However Chesapeake had also observed that rising pressure on pipelines over the next few months could lead to “involuntary natural gas production curtailments across the industry”.

Partly the continued production of gas reflects the diffuse state of the industry: few players are big enough to decide to curtail their own production. It also reflects technical issues: rig counts are down, but this is proving slow to show up in reduced production volumes.

As FT Alphaville pointed out yesterday, none of this spells long-term doom for natural gas as demand is very seasonal. And there is a longer-term fervour about an expanding role for natural gas in the world’s energy consumption. If those lobbying efforts pay off, perhaps they will prove correct.

Related links:

Natgas, literally under pressure (FT Alphaville, 13/08/09)
About that natural gas storage (FT Energy Source, 31/07/09)

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