2012-10-05

2012 October 5

The Master Resource Report  2012-10-05

Shades of the 1970’s – Sorry we are out.

Bloomberg: “Gasoline station owners in the Los Angeles area including Costco Wholesale Corp. are beginning to shut pumps because of supply shortages that have driven wholesale fuel prices to record highs.”

It is one thing when the price is high. It is quite another when there just isn’t any available. This is one more example of the fragility of our nation’s just in time fuel supply system. This week’s report has price graphs for California gasoline that will knock your gas cap off.

The race to export natural gas

WSJ: “Energy companies are racing to export natural gas from the U.S. as they search for more-profitable markets amid a continent-wide gas glut that has depressed prices to the lowest levels in a decade.”

The article then went on to give a long list of projects including one in Alaska that are in various stages of development or proposed by major players in the industry. What will happen to the price of natural gas in North America as global pricing begins to be applied to the U.S. domestic natural gas production? It will climb of course which the blue ribbon prize the companies hope to win in the race.

For an example of what will happen to price just look at the domestic U.S. diesel market. Global demand for crude and products such as diesel are setting the prices of fuel in the U.S. market. Why would anyone think it will be different in the natural gas market if it can reach that growing global market?

Add that to the fact that natural gas has still not climbed to a level that even covers production cost and it is clear the price has to go up. What is unknown is how long it will take to move the price to a level that will again support profitable production. When that happens all those who banked on $3 natural gas will be wondering what they missed and why they raced so fast to export it.

Here is a graph from the EIA Annual Energy Outlook 2012 that illustrates their estimates of what is ahead for LNG exports from the U.S. The key to their estimates was in the last line, “…low natural gas prices in the United States.” From the graph that clearly means under $5 for the rest of this decade. That will be a challenge.

Source: EIA (click for larger image)

USGS releases estimates on Utica shale – Caution they are just a guess

The USGS released its “First Assessment of Shale Gas Resources in the Utica Shale” yesterday and put the headline number at 38 trillion cubic feet. Below is an excerpt that gives the range of estimates for “undiscovered” oil, natural gas and natural gas liquids. Note the probability ranges are 5 to 95 percent so there is plenty of room for euphoria and disappointment.

“This USGS assessment is an estimate of continuous oil, gas, and natural gas liquid accumulations in the Upper Ordovician Utica Shale of the Appalachian Basin. The estimate of undiscovered oil ranges from 590 million barrels to 1.39 billion barrels (95 percent to 5 percent probability, respectively), natural gas ranges from 21 to 61 TCF (95 percent to 5 percent probability, respectively), and the estimate of natural gas liquids ranges from 4 to 16 million barrels (95 percent to 5 percent probability, respectively).”

Source: USGS (click for larger image)

The full assessment of the Utica Shale is available online.