Going Up

April 8, 2014

As reported in eia.gov

First the report:

  • Natural gas working inventories on March 28, 2014, were 0.82 trillion cubic feet (Tcf), 0.88Tcf (52%) below the level at the same time a year ago and 0.99Tcf(55%) below the five-year average (2009-13).  Henry Hub natural gas spot prices were volatile over the past few months, increasing from $3.95 per million British thermal units (MMBtu) on January 10 to a high of $8.15/MMBtu on February 10, before falling back to $4.61/MMBtu on February 27, and then bouncing back up to $7.98/MMBtu on March 4.  EIA expects that the Henry Hub natural gas spot price, which averaged $3.73/MMBtu in 2013, will average $4.44/MMBtu in 2014 and $4.11/MMBtu in 2015.

Bottom Line:

 

Natural gas prices are going up for foreseeable future. Reserves are down, they have to be replenished. The summer forecast is casting a shadow. Should they be looking at a warming trend with hotter temperatures during the summer months that will also prevent gas prices from dropping; since 30% of electricity is generated with natural gas.

Advertisements

As reported by Bipartisan Policy Center

March 22, 2011

Media Contact:

Paul Bledsoe
Bipartisan Policy Center
(202) 637‐0400
pbledsoe@bipartisanpolicy.org

Washington, DC – A national producer—consumer Task Force convened by the Bipartisan Policy Center (BPC) and the American Clean Skies Foundation (ACSF) issued a report today finding that the growth of shale gas production “reduce[s] the susceptibility of [natural] gas markets to price instability and provide[s] an opportunity to expand the efficient use of natural gas in the United States.”

The Task Force’s 70-page report, the result of a yearlong review, calls on governments to “encourage the development of domestic natural gas resources, subject to appropriate environmental safeguards” given that the efficient use of gas has the potential to reduce harmful air emissions, enhance energy security and improve the prospects of U.S.-based energy-intensive manufacturers.

With a more stable price horizon for natural gas, the report also urges state public utility regulators and industry to consider making greater use of longer term supply contracts. “Rules that unnecessarily restrict the use of or raise the cost of long-term contract and hedging tools for managing supply risk should be avoided,” the Task Force said.

“We have a good problem,” said Task Force co-Chair, Norm Szydlowski, Bipartisan Policy Center and President and CEO of SemGroup Corporation. “Finding more natural gas provides an opportunity that is as much unparalleled as it was unexpected. Fundamental changes that have taken shape in the domestic supply and demand balance for natural gas, including an unprecedented level of available storage and import capacity, should allow markets to function more efficiently and fluidly in the future,” said Szydlowski.

“The extensive work of this diverse, expert panel identifies a small number of practical regulatory and policy measures that can provide the necessary confidence to support new investment in efficient applications of natural gas,” said Ralph Cavanagh, Senior Attorney and Co-Director of the Energy Program at Natural Resources Defense Council. “If the industry can meet high standards of environmental performance for extracting and delivering the fuel, we are looking here at very good news for America’s economy and industrial competitiveness, the environment, and our nation’s energy security.”

“The Task Force findings and recommendations reflect optimism that the robust supply horizon for natural gas presents fresh opportunities—not only to move beyond prior price volatility concerns shared by both consumers and producers, but to develop new tools for managing price uncertainty,” said Marianne Kah, Chief Economist, Planning and Strategy of ConocoPhillips. “With sound policies, the nation can capitalize on this abundant natural gas supply and convert it into intelligent energy progress.”

“With U.S. natural gas now one-fourth the price of oil on an energy equivalent basis, it is further welcome news to consumers that, with the right policies, U.S. natural gas appears poised to enter into an era of greater price stability,” said Paula Gant, Senior Vice President for Policy and Planning of the American Gas Association.

“The fact that a diverse Task Force like this could reach a consensus on these particular findings and recommendations was unexpected,” said Task Force co-Chair Gregory C. Staple, CEO of ACSF. “This consensus suggests that, although we may have a stalemate on many other energy issues, there is at least one important area – natural gas – where progress is within reach,” Staple added.

Background

Interest has grown recently in natural gas as a cleaner, low-carbon, low-cost alternative to other fossil fuels in the electric power and industrial sectors. For example, in his State of the Union address, President Obama called for a federal clean energy standard for generating electricity that could be partly satisfied by using more domestic natural gas.

The Task Force was jointly convened by the BPC and ACSF in March 2010 to examine historic causes of instability in natural gas markets and to explore potential remedies. Task Force members, listed below, represent natural gas producers and distributors, consumer groups and large industrial users, as well as independent experts, state regulatory commissions and environmental groups.

Key Task Force Findings and Recommendations:

1. Recent developments allowing for the economic extraction of natural gas from shale formations reduce the susceptibility of gas markets to price instability and provide an opportunity to expand the efficient use of natural gas in the United States.

2. Government policy at the federal, state and municipal level should encourage and facilitate the development of domestic natural gas resources, subject to appropriate environmental safeguards. Balanced fiscal and regulatory policies will enable an increased supply of natural gas to be brought to market at more stable prices. Conversely, policies that discourage the development of domestic natural gas resources, that discourage demand, or that drive or mandate inelastic demand will disrupt the supply-demand balance, with adverse effects on the stability of natural gas prices and investment decisions by energy-intensive manufacturers.

3. The efficient use of natural gas has the potential to reduce harmful air emissions, improve energy security, and increase operating rates and levels of capital investment in energy intensive industries.

4. Public and private policy makers should remove barriers to using a diverse portfolio of natural gas contracting structures and hedging options. Long-term contracts and hedging programs are valuable tools to manage natural gas price risk. Policies, including tax measures and accounting rules, that unnecessarily restrict the use or raise the costs of these risk management tools should be avoided.

5. The National Association of Regulatory Utility Commissioners (NARUC) should consider the merits of diversified natural gas portfolios, including hedging and longer-term natural gas contracts, building on its 2005 resolution. Specifically, NARUC should examine:

  • Whether the current focus on shorter-term contracts, first-of-the-month pricing provisions and spot market prices supports the goal of enhancing price stability for end users,
  • The pros and cons of long-term contracts for regulators, regulated utilities and their customers,
  • The regulatory risk issues associated with long-term contracts and the issues of utility commission pre-approval of long-term contracts and the look-back risk for regulated entities, and
  • State practices that limit or encourage long-term contracting.

6. As the Commodity Futures Trading Commission (CFTC) implements financial reform legislation, including specifically Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Pub. L. 111-203), the CFTC should preserve the ability of natural gas end users to cost effectively utilize the derivatives markets to manage their commercial risk exposure. In addition, the CFTC should consider the potential impact of any new rulemaking on liquidity in the natural gas derivatives market, as reduced liquidity could have an adverse affect on natural gas price stability.

7. Policy makers should recognize the important role of natural gas pipeline and storage infrastructure and existing import infrastructure in promoting stable gas prices. Policies to support the development of a fully functional and safe gas transmission and storage infrastructure both now and in the future, including streamlined regulatory approval and options for market-based rates for new storage in the United States, should be continued.

Complete copies of the Task Force report along with a library of original commissioned research can be found here and here.

Sponsoring Task Force Members:

Gregory C. Staple
Task Force Co-Chair
Chief Executive Officer
American Clean Skies Foundation

Norm Szydlowski
Task Force Co-Chair
Bipartisan Policy Center;
President & CEO
SemGroup Corporation

Ken Bromfield
U.S. Commercial Director, Energy Business
The Dow Chemical Company

Carlton Buford
Lead Economist
The Williams Companies

Peter Sheffield
Vice President, Energy Policy and Government Affairs
Spectra Energy Corporation

Ralph Cavanagh
Senior Attorney and Co-Director, Energy Program
Natural Resources Defense Council

Paula Gant
Senior Vice President for Policy and Planning
American Gas Association and on behalf of the American Gas Foundation

Carl Haga
Director, Gas Services
Southern Company

Byron Harris
Director
West Virginia Consumer Advocate Division

Marianne Kah
Chief Economist, Planning and Strategy
ConocoPhillips

Todd Strauss
Senior Director, Energy Policy, Planning and Analysis
Pacific Gas & Electric Company

Additional Task Force Members:

Colette Honorable
Chairman
Arkansas Public Service Commission

Sharon Nelson
Former Chair, Board of Directors
Consumers Union

Sue Tierney
Managing Principal
Analysis Group, Inc.;
Former Assistant Secretary of Energy

Bill Wince
Vice President, Transportation and Business Development
Chesapeake Energy Marketing

Marty Zimmerman
Professor
Ross School of Business, University of Michigan;
Former Group Vice President, Corporate Affairs,
Ford Motor Company

About the American Clean Skies Foundation

The American Clean Skies Foundation, a Washington-based nonprofit, supports energy independence and a clean, low-carbon environment through expanded use of natural gas, renewables and efficiency. For more information, visit www.cleanskies.org.

About the Bipartisan Policy Center

The Bipartisan Policy Center (BPC) is a non-profit organization that was established in 2007 by former Senate Majority Leaders Howard Baker, Tom Daschle, Bob Dole and George Mitchell to develop and promote solutions that can attract public support and political momentum in order to achieve real progress. The BPC acts as an incubator for policy efforts that engage top political figures, advocates, academics and business leaders in the art of principled compromise. For more information, please visit our website.

As reported by Energy Information Administration (EIA) Logo - Need Help? 202-586-8800

Shale gas refers to natural gas that is trapped within shale formations. Shales are fine-grained sedimentary rocks that can be rich sources of petroleum and natural gas. Over the past decade, the combination of horizontal drilling and hydraulic fracturing has allowed access to large volumes of shale gas that were previously uneconomical to produce. The production of natural gas from shale formations has rejuvenated the natural gas industry in the United States.

Did You Know?

Sedimentary rocks are rocks formed by the accumulation of sediments at the Earth’s surface and within bodies of water. Common sedimentary rocks include sandstone, limestone, and shale.

U.S. Natural Gas Supply, 1990-2035
Chart showing U.S. natural gas supply, 1990-2035. Source, EIA Annual Energy Outlook 2010

Did You Know?

Shale gas in 2009 made up 14% of total U.S. natural gas supply. Production of shale gas is expected to continue to increase, and constitute 45% of U.S. total natural gas supply in 2035, as projected in the EIA Annual Energy Outlook 2011.

Does the U.S. Have Abundant Shale Gas Resources?

Of the natural gas consumed in the United States in 2009, 87% was produced domestically; thus, the supply of natural gas is not as dependent on foreign producers as is the supply of crude oil, and the delivery system is less subject to interruption. The availability of large quantities of shale gas will further allow the United States to consume a predominantly domestic supply of gas.

According to the EIA Annual Energy Outlook 2011, the United States possesses 2,552 trillion cubic feet (Tcf) of potential natural gas resources. Natural gas from shale resources, considered uneconomical just a few years ago, accounts for 827 Tcf of this resource estimate, more than double the estimate published last year. At the 2009 rate of U.S. consumption (about 22.8 Tcf per year), 2,552 Tcf of natural gas is enough to supply approximately 110 years of use. Shale gas resource and production estimates increased significantly between the 2010 and 2011 Outlook reports and are likely to increase further in the future.

Where is Shale Gas Found?

Shale gas is found in shale “plays,” which are shale formations containing significant accumulations of natural gas and which share similar geologic and geographic properties. A decade of production has come from the Barnett Shale play in Texas. Experience and information gained from developing the Barnett Shale have improved the efficiency of shale gas development around the country. Another important play is the Marcellus Shale in the eastern United States. Surveyors and geologists identify suitable well locations in areas with potential for economical gas production by using both surface-level observation techniques and computer-generated maps of the subsurface.

Map of Shale Gas Plays for the Lower 48 States
Source: U.S. Shale Plays Map, http://www.eia.doe.gov/oil_gas/rpd/shale_gas.pdf

How is Shale Gas Produced?

Two major drilling techniques are used to produce shale gas. Horizontal drilling is used to provide greater access to the gas trapped deep in the producing formation. First, a vertical well is drilled to the targeted rock formation. At the desired depth, the drill bit is turned to bore a well that stretches through the reservoir horizontally, exposing the well to more of the producing shale.

Hydraulic fracturing (commonly called “fracking” or “hydrofracking”) is a technique in which water, chemicals, and sand are pumped into the well to unlock the hydrocarbons trapped in shale formations by opening cracks (fractures) in the rock and allowing natural gas to flow from the shale into the well. When used in conjunction with horizontal drilling, hydraulic fracturing enables gas producers to extract shale gas at reasonable cost. Without these techniques, natural gas does not flow to the well rapidly, and commercial quantities cannot be produced from shale.

Schematic Geology of Natural Gas Resources

Graphic showing the schematic geology of natural gas resources
Source: modified from U.S. Geological Survey Fact Sheet 0113-01.

How is Shale Gas Production Different from Conventional Gas Production?

Conventional gas reservoirs are created when natural gas migrates toward the Earth’s surface from an organic-rich source formation into highly permeable reservoir rock, where it is trapped by an overlying layer of impermeable rock. In contrast, shale gas resources form within the organic-rich shale source rock. The low permeability of the shale greatly inhibits the gas from migrating to more permeable reservoir rocks. Without horizontal drilling and hydraulic fracturing, shale gas production would not be economically feasible because the natural gas would not flow from the formation at high enough rates to justify the cost of drilling.

Diagram of a Typical Hydraulic Fracturing Operation

Diagram of a Typical Hydraulic Fracturing Operation
Source: ProPublica, http://www.propublica.org/special/hydraulic-fracturing-national

What Are the Environmental Issues Associated with Shale Gas?

Natural gas is cleaner-burning than coal or oil. The combustion of natural gas emits significantly lower levels of key pollutants, including carbon dioxide (CO2), nitrogen oxides, and sulfur dioxide, than does the combustion of coal or oil. When used in efficient combined-cycle power plants, natural gas combustion can emit less than half as much CO2 as coal combustion, per unit of energy released.

However, there are some potential environmental issues that are also associated with the production of shale gas. Shale gas drilling has significant water supply issues. The drilling and fracturing of wells requires large amounts of water. In some areas of the country, significant use of water for shale gas production may affect the availability of water for other uses, and can affect aquatic habitats.

Drilling and fracturing also produce large amounts of wastewater, which may contain dissolved chemicals and other contaminants that require treatment before disposal or reuse. Because of the quantities of water used, and the complexities inherent in treating some of the chemicals used, wastewater treatment and disposal is an important and challenging issue. If mismanaged, the hydraulic fracturing fluid can be released by spills, leaks, or various other exposure pathways. The use of potentially hazardous chemicals in the fracturing fluid means that any release of this fluid can result in the contamination of surrounding areas, including sources of drinking water, and can negatively impact natural habitats.

Posted on Sun, Jan. 31, 2010

 

By Andrew Maykuth

Inquirer Staff Writer

In their exuberance, oil- and gas-industry officials repeat a single refrain when describing the natural gas from Pennsylvania’s Marcellus Shale:

A game-changer.

Tony Hayward, chief executive officer of oil giant BP P.L.C., was the latest to gush enthusiastically when he called unconventional natural gas resources like the Marcellus “a complete game-changer.”

“It probably transforms the U.S. energy outlook for the next 100 years,” Hayward said Thursday at the World Economic Forum in Davos, Switzerland.

The breathtaking emergence of natural gas as America’s energy savior was not in the cards. Just four years ago, after Hurricanes Katrina and Rita devastated Gulf Coast rigs and rattled gas markets, energy pundits forecast a bleak winter of short supplies, high prices, and low thermostats.

The vast scale of shale-gas resources has come into focus quickly, and industry officials are touting the possibility of steady supplies for decades to come.

The Potential Gas Committee in Colorado last year revised its outlook of America’s future gas supply – up 35 percent in just two years. The forecast was the highest in its 44-year history.

The Marcellus Shale is the nation’s fastest-growing producing area. Though it lies under five states, about 60 percent of its reserves are in Pennsylvania, according to Terry Engelder, a Pennsylvania State University geologist.

“In terms of its impact on Pennsylvania, this is probably without peer in the last century,” said Engelder, whose projections in 2008 alerted the public about the size of the Marcellus.

“America’s energy portfolio has undergone a first-order paradigm shift just in the last two years,” he said. “This is such an exciting thing.”

Not everyone has climbed aboard the bandwagon. Some environmentalists are uneasy about the hydraulic-fracturing process that has unlocked the shale gas. The technique requires the injection of millions of gallons of water into a well to break up the shale to initiate production.

And some analysts say they believe the gas industry’s estimates are too optimistic.

“I would look at all this with a bit of healthy skepticism,” said Arthur E. Berman, a Houston gas-industry consultant, who says he believes some operators have overstated the production potential and understated the cost of Texas shale-gas wells. His pointed criticism got him banished from one trade journal – and invited to speak at scores of investor workshops.

“Two years ago, we were talking about importing gas from the Middle East,” he said. “And now we have a hundred-year supply of domestic gas?”

Berman said he had been unable to conduct a similar analysis of Marcellus wells because Pennsylvania law allows operators to keep their production data secret for five years, unlike other states, where output is reported to taxing authorities promptly.

“If something looks too good to be true,” he said, “I need to look more closely.”

Questioning voices such as Berman’s are uncommon in the industry, which portrays natural gas as abundant, cheap, and cleaner than coal and oil – a domestically produced “bridge fuel” to ease the transition to renewable wind and solar generation.

For companies like UGI Corp. – the Valley Forge energy company that operates regulated utilities in Pennsylvania that sell natural gas to retail customers and operates unregulated subsidiaries that consume and transport natural gas – the Marcellus Shale represents a game-changing opportunity on several fronts.

“That activity in the Marcellus Shale is really a win-win, not only for our regulated business, but also our nonregulated business,” UGI chief executive Lon R. Greenberg told analysts in a conference call last week.

Officials at UGI and other Pennsylvania gas utilities say retail customers will benefit in the long run, as utilities begin buying their supplies from Marcellus sources, saving pipeline costs from the Gulf Coast.

UGI’s utilities are in a strong position because many of their 578,000 customers are in Marcellus cities such as Scranton, Wilkes-Barre, and Williamsport. The utility could eventually work out deals to buy gas directly from producers.

Though UGI has no interest in becoming a gas producer, the company is exploring the possibilities for investing in “midstream” pipelines that tie the Marcellus wells to the interstate pipelines that move gas to lucrative urban markets like New York. Expansion of the pipeline infrastructure is critical to opening the Marcellus to exploration.

In addition, UGI is looking at expanding its underground gas-storage operations in Western Pennsylvania, said Brad Hall, president of UGI Energy Services.

“There is a bit of a gold-rush mentality,” he said, “but in this case, there’s really gold.”

UGI may also reap some other, unintended benefits.

The company’s power-generation subsidiary last year announced a $125 million project to convert its aging Hunlock Power Station near Wilkes-Barre from coal to natural gas.

Hall said the decision was made before the Marcellus abundance was fully understood. But when the plant comes online in 2011, it is likely to find eager sellers of fuel nearby.

“It makes us look like we were really smart.”

By Andrew Maykuth

Inquirer Staff Writer

Posted on Sun, Jan. 31, 2010

In their exuberance, oil- and gas-industry officials repeat a single refrain when describing the natural gas from Pennsylvania’s Marcellus Shale:

A game-changer.

Tony Hayward, chief executive officer of oil giant BP P.L.C., was the latest to gush enthusiastically when he called unconventional natural gas resources like the Marcellus “a complete game-changer.”

“It probably transforms the U.S. energy outlook for the next 100 years,” Hayward said Thursday at the World Economic Forum in Davos, Switzerland.

The breathtaking emergence of natural gas as America’s energy savior was not in the cards. Just four years ago, after Hurricanes Katrina and Rita devastated Gulf Coast rigs and rattled gas markets, energy pundits forecast a bleak winter of short supplies, high prices, and low thermostats.

The vast scale of shale-gas resources has come into focus quickly, and industry officials are touting the possibility of steady supplies for decades to come.

The Potential Gas Committee in Colorado last year revised its outlook of America’s future gas supply – up 35 percent in just two years. The forecast was the highest in its 44-year history.

The Marcellus Shale is the nation’s fastest-growing producing area. Though it lies under five states, about 60 percent of its reserves are in Pennsylvania, according to Terry Engelder, a Pennsylvania State University geologist.

“In terms of its impact on Pennsylvania, this is probably without peer in the last century,” said Engelder, whose projections in 2008 alerted the public about the size of the Marcellus.

“America’s energy portfolio has undergone a first-order paradigm shift just in the last two years,” he said. “This is such an exciting thing.”

Not everyone has climbed aboard the bandwagon. Some environmentalists are uneasy about the hydraulic-fracturing process that has unlocked the shale gas. The technique requires the injection of millions of gallons of water into a well to break up the shale to initiate production.

And some analysts say they believe the gas industry’s estimates are too optimistic.

“I would look at all this with a bit of healthy skepticism,” said Arthur E. Berman, a Houston gas-industry consultant, who says he believes some operators have overstated the production potential and understated the cost of Texas shale-gas wells. His pointed criticism got him banished from one trade journal – and invited to speak at scores of investor workshops.

“Two years ago, we were talking about importing gas from the Middle East,” he said. “And now we have a hundred-year supply of domestic gas?”

Berman said he had been unable to conduct a similar analysis of Marcellus wells because Pennsylvania law allows operators to keep their production data secret for five years, unlike other states, where output is reported to taxing authorities promptly.

“If something looks too good to be true,” he said, “I need to look more closely.”

Questioning voices such as Berman’s are uncommon in the industry, which portrays natural gas as abundant, cheap, and cleaner than coal and oil – a domestically produced “bridge fuel” to ease the transition to renewable wind and solar generation.

For companies like UGI Corp. – the Valley Forge energy company that operates regulated utilities in Pennsylvania that sell natural gas to retail customers and operates unregulated subsidiaries that consume and transport natural gas – the Marcellus Shale represents a game-changing opportunity on several fronts.

“That activity in the Marcellus Shale is really a win-win, not only for our regulated business, but also our nonregulated business,” UGI chief executive Lon R. Greenberg told analysts in a conference call last week.

Officials at UGI and other Pennsylvania gas utilities say retail customers will benefit in the long run, as utilities begin buying their supplies from Marcellus sources, saving pipeline costs from the Gulf Coast.

UGI’s utilities are in a strong position because many of their 578,000 customers are in Marcellus cities such as Scranton, Wilkes-Barre, and Williamsport. The utility could eventually work out deals to buy gas directly from producers.

Though UGI has no interest in becoming a gas producer, the company is exploring the possibilities for investing in “midstream” pipelines that tie the Marcellus wells to the interstate pipelines that move gas to lucrative urban markets like New York. Expansion of the pipeline infrastructure is critical to opening the Marcellus to exploration.

In addition, UGI is looking at expanding its underground gas-storage operations in Western Pennsylvania, said Brad Hall, president of UGI Energy Services.

“There is a bit of a gold-rush mentality,” he said, “but in this case, there’s really gold.”

UGI may also reap some other, unintended benefits.

The company’s power-generation subsidiary last year announced a $125 million project to convert its aging Hunlock Power Station near Wilkes-Barre from coal to natural gas.

Hall said the decision was made before the Marcellus abundance was fully understood. But when the plant comes online in 2011, it is likely to find eager sellers of fuel nearby.

“It makes us look like we were really smart.”