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Gold/Mining/Energy : Big Dog's Boom Boom Room
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From: Frank2/26/2008 9:53:18 PM
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Boone Pickens is a billionaire and I am a University Professor. That means neither one of us knows where NG will be over the next few years. But here is my reasoning:
1. Domestic producers face a relentless decline rate and it has taken about everything we have to move the needle. Can this production growth be maintained let alone increased? My bet is we will see growth begin to wane as depletion takes an inevitable toll.
2. I am now convinced the Independence Hub will be scrambling for NG within two years. The decline rate there is staggering and over 30 rigs have left the GOM on LT contracts. This is 1/3 of the fleet --and premium rigs too. Once these existing wells are depleting is there enough iron to replace them?
3. Canada faces the same problems we do and they have greatly reduced drilling. This cutback will show up over next 18 months in a cumulative way. Further, oil sands is a growing NG sponge that will soak up more and more production every passing year
4. LNG is clearly disappointing and now EIA and others say we will get only 800 or so bcf in 2008 compared to earlier predictions of 1200--1900. And do you think we are the only ones who want LNG. Korea? , Japan? The EU where they are building 140 GW of NG generation. Even prices of 9.50 don't cut it globally--we are going to 10. GS says need $11 to switch to oil. And all the liquefaction plants that have been cancelled are more than just blurbs in Reuters news articles.
5. In an incredible irony, the lower price of NG in US has kindled industrial demand versus rest of the world. In other words, international mfg now can pay less here for NG than it costs abroad. Care to do the ethanol calculations on NG consumption?
6. Consider what the implications of 400 GW of NG generation and 60 million NG heated homes really are. Constant pressure on the supply system. It has always been a wonder to me that 300 bcf of NG can be referred to as a "supply bubble" in a nation of 300 million people.
7. California is building NG plants right and left. They believe they will get NG from Mexico LNG imports. But Mexico is building NG generation right and left too. Take a look at Mexican planned generation. You will be shocked to see they are planning almost as much as we are. Yet CA CEC has $4.75 in their LT energy plan published in December. Are they mad?
8 The list goes on and on but you get the point. The U.S. has built a huge demand system--both manifest and latent. Just as importantly we are still building it. It did not even take normal weather to show the warts and wattles of our NG dependence. I repeat, LNG record imports in 2007, substantial domestic production growth, REX and IH now flowing, Canada imports stable. And NG at $ 9.14. That tells the tale to me. Frank
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