What gas glut?

February 9, 2011

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BG warns over demand for gas

Sylvia Pfeifer, Financial Times
The global energy industry faces a “huge supply” challenge to bring online enough new gas to meet demand, according to BG Group’s chief executive.

Frank Chapman said the industry would need $2,000bn (£1,240bn) of investment to find and develop gas supplies equal to 20 times the current production of Norway to 2020.
(8 February 2011)
The FT is behind a paywall so readers may also want to refer to The Guardian’s article which report’s BG CEO’s dismissal of a continuing “global gas glut”.

Don’t Count on Natural Gas to Solve US Energy Problems

Gail Tverberg, PUB
We often hear statements suggesting that by ramping up shale gas production, the US can raise total natural gas production and solve many of its energy problems. While there is the possibility that shale gas will allow US natural gas supplies to increase for a few years, it is doubtful this advantage will last for many years. Furthermore, the amount of coal and oil that need to be replaced are very high in relationship to natural gas production, so even a large increase in natural gas production would have a small effect.

These are some of the reasons I think natural gas optimism is misplaced:

1. The US is a natural gas importer. It does not produce as much natural gas as it consumes.

Figure 1 shows the US has been a natural gas importer for many years, with Canada being the major source of imports. LNG has played a more minor role. The amounts imported have not been a large percentage of the total, but even now they are essential for keeping the prices down. The import amounts shown are on “net of exports” basis. In other words, LNG imports have been reduced by LNG exports (from Alaska to Japan), and Canadian imports have been reduced by exports of natural gas to Canada.
(7 February 2011)
Gail goes on to list 10 reasons.

Chesapeake’s move brings cheer to gloomy US gas sector

Sheila McNulty, FT Energy Source Blog
The announcement by Chesapeake Energy that it will sell several assets to raise $5bn to put toward paying down debt was warmly greeted by analysts who have been lamenting prospects for a sector under intense pressure by low US natural gas prices…

We believe 2011 will be the breaking point, where producers run out of assets to sell to fund growth that is driven by spending 80 per cent more than discretionary cash flow. Natural gas E&Ps are living on borrowed time.

Raoul LeBlanc, director at PFC Energy, the consultancy, explains the US independents are rated by investors not only on the current price of the oil and gas they sell today, but also on the ability to grow reserves and production in the future. This has led to a growing number of deals such as Chesapeake’s to sell partial or entire acrage positions in US gas fields so these companies can afford to continue spending to acquire and drill acreage to grow their output and reserve base.

The resulting glut has pushed gas down to the $4 per mBtu of recent months, significantly down from the $13.69 per mBtu record reached in 2008. These companies know if they stop spending to wait for improved prices, he said, they will have no growth in reserves or cash flow with which to impress investors…
(8 February 2011)
More of an investment type article, but interesting on the econommics of shale gas drilling.

Tags: Energy Policy, Fossil Fuels, Industry, Methane Hydrates