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THE Natural Gas Thread (merged)

General discussions of the systemic, societal and civilisational effects of depletion.

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Re: natural gas production

Unread postby ROCKMAN » Tue 18 Oct 2016, 12:14:52

Of course the ultimate metric that indicates the actual profitability of any NG play is how much new production is added. That not only takes in the drilling/completion costs and NG price but also geologic variations and capex availability. The trick their is to break out the heritage production from new wells taking into account the time lag.

Of course the quick and easy approach is just to track the number of drill rigs targeting all NG plays. From the EIA...latest numbers:

June 2012 - 558; June 2014 - 224; June 2016 - 86.
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Re: natural gas production

Unread postby Yoshua » Tue 18 Oct 2016, 15:43:37

I found and interesting article that looks at the oil vs. natural gas price spread. They believed that the moment when NG starts the competition over the transportation sector the spread would close. The paper was written in Feb 2014 just before the oil price collapsed.

http://www.cmegroup.com/education/files ... the-us.pdf
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Re: natural gas production

Unread postby coffeeguyzz » Tue 18 Oct 2016, 19:38:48

Yoshua
That is a great link, but as it is almost three years old, the authoress could not incorporate the recent breakthroughs in Adsorbed Natural Gas (ANG) as only in the past year has several innovations been realized.
It is technically possible for a homeowner to fuel up a CNG vehicle with sub 500 psi natgas right at the house - if the residence is one of the 50 million in the US supplied with natgas.
The cylinders are now lighter and formable.
This technology will start to be seen way sooner than one might think as the cost savings over diesel and gasoline are significant.
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Re: natural gas production

Unread postby ROCKMAN » Tue 18 Oct 2016, 22:06:36

yoshua - A bit more recent from last Feb:

"In the First Episode in this two part series we reviewed the history of the crude-to-gas ratio that before 2008 averaged 7.5X but jumped to an all time high of 54X in 2012 during the “Great Divide” when oil prices were over $100/Bbl and natural gas sank below $2/MMBtu. A high crude-to-gas ratio between 2009 and 2014 (averaging 27X) underpinned a Golden Age of natural gas processing as well as a boom in crude production from shale. Producers diverted their drilling budgets to gas liquids and crude plays to exploit higher prices. In the meantime natural gas production continued to grow despite lower prices – in part because of associated gas that came along with high liquids production. In the past 19 months (since June 2014) crude prices have fallen hard and faster than natural gas – leading to the ratio languishing in the mid teens by December 2014. Despite some recovery above 20X for brief periods in 2015 the crude-to-gas ratio started 2016 by tumbling to its lowest point since March 2009 (12.5X) on January 20, 2016. With crude and natural gas markets oversupplied and inventories for both commodities brimming over – the crude-to-gas ratio looks set to stay low for a while. In this second episode we look at the consequences of a continued low crude-to-gas ratio."

But when you NG volumes converted to "bbls of oil EQUIVALENT" understand the pubcos are following the govt's SEC rules:

"The volume of natural gas needed to generate the equivalent amount of heat as a barrel of crude oil. Approximately 6,000 cubic feet of natural gas is equivalent to one barrel of crude oil."

Which means they are converting 6 mcf (6,000 cf) with a value of abot $18 to 1 bbl of oil with a value about $50. Which means that every 1 bbl oil equivalent is not worth $50 but $18. IOW a companyfor its book value, converts 1 bcf (1,000,000 mcf) of NG its bbls equivalent those "bbls of oil" are actually only worth about 1/3 of the current prices of oil.

Which is why you never see a pubco offer "Oil-equivalent gas (OEG)" instead of "Barrels of oil-equivalent (BOE)" even though both are acceptable to the SEC.
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Re: natural gas production

Unread postby Yoshua » Wed 19 Oct 2016, 04:32:44

Rockman - The oil production is lower than the official numbers ? The natural production is higher than the official numbers ? The pubcos book natural gas as BOE to keep their stock values high ? They do this to be able to raise money while the oil and natural gas markets are being flooded and the prices pushed down ? The low oil and natural gas prices are bankrupting smaller oil and gas companies. The majors can then use the money they raised against their high stock values to buy up oil and gas reserves for pennies on the dollar ?

Why can't they just be friends ? :)

Coffee - Your garage turns into a gas station ? The world is just going to change ? We are not going to die ?

Well... one third of the global economy will disappear with the gradual depletion of the oil reserves.
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Re: natural gas production

Unread postby ROCKMAN » Wed 19 Oct 2016, 07:28:54

Joshua -They do it for PR value and the feds allow the NG volume to be converted to bbls for press releases. But a company's value is still booked at the actual value of its oil and NG. But a press release stating 1,000,000 million boe is more impressive then posting 400,000 bo and 2.4 bcf. It really plays a mind game when talking about trend potential...such as 2 billion boe when it isn't close to that number of bbls. Remember in the Eagle Ford trend there is an oil and NG windows. IOW there were many NG wells drilled that also produced some oil.

The confusion comes in when civilians start repeating boe's and forget the e and use bo. And notice how distorted the price per Btu varies over relative short periods of time: 54:1 to 12:1. Really messes with the overall cost of energy conversations.
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Re: natural gas production

Unread postby Yoshua » Wed 19 Oct 2016, 09:28:40

Rockman - The shale revolution started as the shale gas revolution. So it would just be natural that the natural gas price would fall with the massive increase of new natural gas production reaching the market. The energy price spread between oil and natural gas would then manifest it self. The consumer would receive more BTU for each dollar if they buy natural gas. The producer on the other hand would receive more dollars per BTU when they sell oil.

The energy price spread would then turn the producers to extract oil and investors would see a possibility to make a profit on oil production when the oil price is high. The new shale oil production with associated natural gas floods the gas market which pushes the gas price below cost of production.

The energy spread is still in favor to natural gas for the consumer. The oil price collapses below the cost of production for shale oil. The smaller producers go bankrupt and the investors lose their money. The majors pick up the smaller companies, their equipment, oil and gas reserves for pennies. A wealth transfer from the economy to the majors have taken place.

I'm not sure how the PR value of BOE would change have the event ?
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Re: natural gas production

Unread postby rockdoc123 » Wed 19 Oct 2016, 10:37:28

The confusion comes in when civilians start repeating boe's and forget the e and use bo. And notice how distorted the price per Btu varies over relative short periods of time: 54:1 to 12:1. Really messes with the overall cost of energy conversations.


one has to keep this all in context of a number of years ago when natural gas was spiking at $14/Mcf in the Eastern seaboard. I've pointed out that some of the Marcellus is sitting at a breakeven of $2 - $2.50/Mcf and Montney at as low as $0.65/Mcf. That means the netback before tax would be around $11.75/Mcf on average for the Marcellus and around $13.30/Mcf for Montney. On a given well pad that produces lets say 10 mmcf/d that would equate to net cash flow of around $42 MM.

At a $50/bbl price with a $30/bbl breakeven the equivalent bbls (1794 bopd) production would have a value of around $12 MM. For the two to be in sinc from a price and BTU perspective you would need net back per bbl of around $65/bbl or about $95/bbl oil price FOB for this scenario.

Predictions are for a very cold wintery few months this year in the Eastern seaboard. If that is the case and given gas storage is not full then it wouldn't be surprising to see gas prices spike to $4 - $5/Mcf which would bring gas and oil back in line on a BTU/price basis if oil continues to hover in the $50.

Right now we are in a situation that oil price netback favors value/BTU over natural gas but it could easily swing the other way if oil prices stay low. That being said you would need natural gas prices to be close to $10/Mcf in order to balance out with oil at $75/bbl. To my mind it is easier to see a $75/bbl oil price being stable for sometime in North America versus a $10/Mcf natural gas price, especially when you take into consideration that LNG shipped to Japan is selling for around $6.50/Mcf currently.

So I guess I'm trying to make two important points. It is netback pricing (i.e. commodity price minus all costs to produce and ship) that is important not just the commodity price and that in order for natural gas and oil to be balanced on both a BTU and value basis you would need gas prices to rise to levels that are unikey sustainable for any amount of time given the amount of economic tight gas still sitting in the ground and the ability to import LNG with a bit of investment.
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Re: natural gas production

Unread postby Yoshua » Wed 19 Oct 2016, 12:45:28

rockdoc - If the break even price for shale gas is $2.5/Mcf then the break even price for shale oil would have to be $15/bbl for them to be equal in $/BTU to produce ?

If that is so then the shale oil production will probably never be as economic to produce as shale gas ? The energy price spread will most likely never be closed between shale gas and shale oil ?

The energy price spread didn't take place with conventional oil and gas ?
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Re: natural gas production

Unread postby rockdoc123 » Wed 19 Oct 2016, 13:13:28

rockdoc - If the break even price for shale gas is $2.5/Mcf then the break even price for shale oil would have to be $15/bbl for them to be equal in $/BTU to produce ?

If that is so then the shale oil production will probably never be as economic to produce as shale gas ? The energy price spread will most likely never be closed between shale gas and shale oil ?

The energy price spread didn't take place with conventional oil and gas ?


Lets walk through the calculation. If natural gas is currently selling at $3/Mcf then the netback per MCF is $0.50. If oil is currently selling at $50/bbl and the breakeven is $30 then the netback per bbl is $20.

1 Mcf is equal to 0.172 boe. or 1 boe equals 5.8 Mcf
In the scenario above given the netbacks assumed 1 bbl of oil production gets $20 so to get that value in gas production you need to produce 3.44 Mcf or about 3 times the BTU value to make up for the price differential.
It is a product of current price minus breakeven price and current price for both commodities fluctuates. You can probably make up a table pretty easily.
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Re: natural gas production

Unread postby ROCKMAN » Wed 19 Oct 2016, 13:49:40

Just a reminder to avoid confusion: the term "production cost" is the cost to produce EXISTING WELLS. The cost to "produce" (i.e to drill a new well) is typically much higher then to PRODUCE oil and NG.

So when one states it costs $2.50/MCF to "produce" a shale well they really need to define "produce". Doc and I don't confuse each other because we use the appropriate term for the cost to " produce" a well: LOE...Lease Operating Expense. A common term in the oil patch is "finding cost". For which there is no official definition considering all the auxiliary cost beyond drilling and completing a well that may or may not be used in that calculation. For instance does one add the cost of the dry holes drilled? They obviously didn't find anything but does one ignore a $150 million dry hole in their DW GOM drilling program when calculating the play's "finding cost"? Does one include the $1 BILLION paid for a single Eagle Ford Shale (as Shell Oil did) when calculating the finding cost of the NG produced from that least or just the costs of the wells? After all there is no rule that says they have to include the lease cost.

I see a lot of numbers thrown around about " costs" with seldom enough explanation of what went into that calculating.
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Re: natural gas production

Unread postby rockdoc123 » Wed 19 Oct 2016, 14:08:52

I use the term break even cost which in itself is defined as all in costs to find, produce and transport to point of sale.
When I refer to the simple cost to produce a barrel that is already producing then I use the term "lifting cost" which is the term we use internationally but means pretty much the same as lease operating cost.

Note that the $2.50 number is a breakeven cost or the cost to find, complete, tie-in, produce and transport an MCF in the Marcellus. According to most of what I've read it varies from $2/Mcf in the core area to $2.75 in the outer areas. The actual lifting cost for natural gas is very, very low.

The calculation of breakeven cost in the industry is not a risked number. In other words when you see a break even cost quoted by a financial analyst or a company they are referring to a single well that is successful. It doesn't assume a scenario where you drill a bunch of dry holes. That number appears in most companies analyses of "finding cost". In this calculation a company looks at all the costs (including dry hole) both CAPEX and OPEX that went into finding a barrel of oil or an Mcf of gas. Finding and development costs include all of the costs to find a barrel of oil and those costs to develop it as well. Most companies and financial analysts when looking at the total costs associated with oil and gas E&P and including all dry hole costs use Recycle Ratio which is the netback per bbl divided by the finding and development costs. That number is probably the most inclusive and hence the number that most bankers like to look at.

But breakeven costs are the ones that you need to look at in trying to understand at what point a particular play makes money if you are successful. Hopefully I didn't confuse the issue further.
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Re: natural gas production

Unread postby ROCKMAN » Wed 19 Oct 2016, 14:25:19

Doc - "Hopefully I didn't confuse the issue further." Confused all our civilians here? Hell no....many had slipped into a coma half way through your post. LOL. Just teasing of course. I could even cloud their thoughts even more by picking some of the minutia in your post.

But it doesn't serve the sites goals IMHO. I don't dumb my answers down per se. But often going into the details correctly can be counter productive. Consider how we still won't see lifting cost, LOE, finding cost, etc used in a number of future posts here.
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Re: natural gas production

Unread postby coffeeguyzz » Wed 19 Oct 2016, 15:32:53

Regardless how one might precisely define these metrics, the costs going forward to bring natgas online in Susquehanna, Bradford, Washington, and Greene counties, PA, is exceptionally low.
Cabot now regularly brings new wells online that flow 300/400 MMcf per month for the first few months online. This is taking place in the northeast area.

In the southwest, the Burket, Genesee, and Rhinestreet formations, all shallower than the Marcellus, are - in the past twelve months - producing one to two Bcf first year online with very flat decline curves.
As all these new wells are drilled from established pads and delivering into existing gathering lines, the costs are down a lot from three to five years ago.
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Re: natural gas production

Unread postby sparky » Wed 19 Oct 2016, 15:44:39

.
That's a point of interest , the fracking industry has now some solid historical data
how does the depletion rate of wells for gas , oil , condensates and gas compare ?

I appreciate that there is not a simple common answer but there should be some "envelope "
to describe the most common cases , if only by looking at the extreme cases .
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Re: natural gas production

Unread postby shortonoil » Wed 19 Oct 2016, 16:10:04

"I appreciate that there is not a simple common answer but there should be some "envelope" to describe the most common cases , if only by looking at the extreme cases.

By and large the best data, and presentation on that subject can be found with David Hughes. His Drill Baby Drill is a classic. We used some of his data in later developments of the Etp Model. He is definitely a must read for anyone claiming knowledge in that area.

http://www.thehillsgroup.org/
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Re: natural gas production

Unread postby Yoshua » Wed 19 Oct 2016, 16:22:41

In round numbers

6 Mcf = 1 BOE

Shale Gas

Break Even $2.50 / Mcf * 6 = $15.00 / BOE
Price $3.00 / Mcf * 6 = $18.00 / BOE
Net Back $0.50 / Mcf * 6 = $3.00 / BOE
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Re: natural gas production

Unread postby ROCKMAN » Wed 19 Oct 2016, 18:03:22

yoshua - I think I see the point you're trying too make. But you do understand that 6 MCF aren't worth 1 bbl of oil, right? Today, depending on the local NG market, 16 MCF are worth about 1 bbl of oil.

Does that change you're perspective? I'm not sure since I didn't quit get your point. The 1:6 ratio is just the SEC rule for calculating a boe number. It has nothing to do with the actual economics of any aspect of the dynamic.
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Re: natural gas production

Unread postby Yoshua » Thu 20 Oct 2016, 05:15:21

Rockman - Yes, the paper I linked above talks about the energy price spread between Oil vs. Natural Gas.

The energy ratio between NG & Oil is 6 Mcf : 1 BOE. The paper speculated that the price ratio should be equal to the energy ratio... or at least closer. They believed that the moment NG starts to compete with Oil over the transportation sector, that this would start to close the energy price spread.

In other words the paper suggests that it is the low NG price that is the cause behind the oil price crash. NG is now the primary energy that dominates the energy market. If true then this will have enormous consequences for the global oil industry and for the global geopolitical scene. The geopolitical focus will shift from Saudi Arabia and Kuwait to Russia and Iran... The world is in a transformation process that most likely will be violent.
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Re: natural gas production

Unread postby ROCKMAN » Thu 20 Oct 2016, 08:50:20

Y - "They believed that the moment NG starts to compete with Oil over the transportation sector, that this would start to close the energy price spread." It isn't competing at anywhere close to a meaningful degree today. In the future? Time will tell but it will probably take many decades if ever. And perhaps so long that PNG dominates the conversation as PO has in the past. I avoid long term predictions but I would bet on coal sourced electricity pushing EV's having a bigger impact then NG pushing CNG's.

"In other words the paper suggests that it is the low NG price that is the cause behind the oil price crash." I don't see the link. There very little competition between oil and NG. Last time I looked oil produced 1% of electricity with NG et al the other 99%. And folks heating with fuel oil would use NG if they had lines to their homes. But they don't and probably never will. New homes have been getting NG...not existing homes.

Historically the ratio peaked at 54:1 in April 2012 and bottomed out at 3:1 in December 2000. But that low ratio was for a very short period: for 2000 it still averaged about 8:1 and 6:1 in 2001. Ratio changes have been dominated by changes in the price of oil...not NG. Consider the highest annual NG price in history in 2008: $8/MCF. Oil that same year averaged $100/bbl. So at the highest NG price ever seen the ratio was still about 12:1. At the lowest annual oil price in the last 30 years ($14.50/bbl in 1998) NG was $2/MCF...a ratio of more then 7:1.

Bottom line: the utility of oil and NG are so different that the ratio stat, while easy to track, isn't really meaningful IMHO: almost no competition between NG and oil Btu's.
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