coffeeguyzz wrote:Boy, this is one of the better oil related threads that I have read in quite some time.
Remarkable how much can be learned when varying, even opposing views, can be presented in an adult, informative manner.
To somewhat address the financial aspects of the unconventional world that both Adam and wildbourg were touching upon ...
A huge factor - somewhat overlooked or even dismissed - is an emerging reality that operators are on the cusp of having economically viable operations at $2.50 HH and $55 WTI.
This is something I would not have thought possible a few years back.
For those quick to regurgitate the "They going broke! Funny money rules! Ponzi!", you clearly have not been following along.
Sure, the poster boy of all that ails - Chesapeake - may not be around in current form by end of 2020, but its MASSIVE footprint will be carved up and taken over by others - and run profitably - for years to come.
The cost to produce oil/gas in the unconventional industry has plummeted these past few years ... and continues to drop.
That big decline in rig count?
~55% offline of legacy rigs while only 10% of the Super Specs are idled (H&P the source of that from a few weeks ago).
Marathon claims $4.9 million to D&C a Bakken well with a recent 4 well pad costing $4.5 per.
EOG says its Bakken wells now average $5 milluon.
EQT is shooting to operate in a $2 HH world and - if they cannot - they will come close.
Russian pipeline gas is being undercut in Turkey by US LNG.
Likewise, Algeria is cutting back on European bound gas - via pipe - due to cheap LNG.
However the coming years play out, energy wise, the abundant, cheap US hydrocarbons will 100% exert a crushingly large influence on world affairs.
Garownteed.
The thing that remains to be seen is how the rest of the world reacts. If Russia/Quatar et al try the KSA strategy of 2014 or suppressing prices to compete it will clearly fail as the USA production is already significantly undercutting their prices. However if the Russians et al follow the OPEC 1979 model of restricting their production in the face of super cheap USA production just how much of the world can the USA supply before we hit the wall and prices have to rise to draw in more production/export? Not only that, how are American consumers going to react when they discover that so much LNG is being exported that domestic prices are double what they are today?
I personally realize we are in a supply glut situation forcing prices in North America very low. However 99% of the population from wealthiest magnate to poorest welfare recipient is totally oblivious to that fact of life. I can clearly remember how things went in 2003-2006 when Natural Gas prices shot up again and again topping out around $11/CCF before the shale fracking "miracle" suddenly dropped the price like a hot rock.
With the USA LNG exporters now starting to move into competition in the world market how quickly with the North American glut being dissipated and where will domestic and world prices settle out?
Even more interesting to me, if domestic prices double or triple what will that do to the competitiveness of Natural Gas vs Coal for power stations? Sure most existing and building plants have long term supply contracts at a set price, but more plants are built every month because demand is still rising as it has been for well over a century now. If Coal is suddenly cost competitive again because of LNG export this might be a good time to invest in coal mining companies that have suffered a lot of losses in the last decade. Their balance sheets are about to get a serious boost.