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Politics : Rat's Nest - Chronicles of Collapse
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From: Wharf Rat2/8/2012 3:24:50 PM
   of 24213
 
After The Gold Rush: A Perspective on Future U.S. Natural Gas Supply and Price
Posted by aeberman on February 8, 2012 - 10:05am

On January 23, 2012, Chesapeake Energy announced that it would curtail drilling in shale gas plays in the United States. Subsequently, other operators have followed suit. While the outcome of this announcement is unclear, it is a signal that the industry is in distress. One can argue that this distress stems from a lack of discipline as market price began to decline.

After gas prices collapsed in mid-2008, U.S. operators continued to drill as if price did not matter. Many reasons were given to justify the economics of ongoing activity including to hold acreage by production, to fulfill contract obligations to build new pipelines, and since well economics remained favorable at lower prices because of forward hedging. Now, with gas prices below $2.50 per thousand cubic feet (mcf), an adjustment in producer behavior is overdue. Despite statements that shale gas is a profitable venture at low gas prices, it is now clear that the reality has imposed limits on these claims.

Also on January 23, the Energy Information Administration (EIA) released its Annual Energy Outlook 2012 (early release overview). It projects that gas supply will exceed consumption and the U.S. will become a net exporter by 2021. The agency also forecasts gas prices to remain below $5.00 per thousand cubic feet (mcf) until 2022.

In his State of the Union address on January 25, the President stated that the United States has 100 years of natural gas supply. While these events are not related, they reflect the dominant view among analysts that shale gas has fundamentally changed supply and price for the foreseeable future. The purpose of this analysis is to show that there may be an alternate perspective....

theoildrum.com
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