As reported in Wall Street Journal

By
Timothy Puko

July 28, 2014 3:09 p.m. ET

NEW YORK—Natural-gas prices set a new eight-month low for the fourth time in six sessions, breaking an early-day run Monday as traders stayed focused on low prospects for demand.

Prices for the front-month August contract settled down 3.4 cents, or 0.9%, to $3.747 a million British thermal units on the New York Mercantile Exchange. August options expired Monday and the contract expires Tuesday. The more actively traded September contract settled down 2.2 cents, or 0.6%, to $3.765/mmBtu.

The day largely focused on technical trading as buyers and sellers kept moving against the momentum of the market, analysts said. After prices quickly hit an intraday high of $3.85/mmBtu, traders began to sell, likely focused on how cool weather is likely to limit demand in the weeks to come, said Aaron Calder, senior market analyst at energy-consulting firm Gelber & Associates in Houston.

The unseasonably cool summer has allowed consumers to use less air conditioning and the gas-fired electricity that fuels it. Producers put a record string of surpluses into storage, and gas prices have fallen about 20% since mid-June.

“If the weather stays mild and we don’t have any power demand, as it has been, then I don’t think we’ve hit a bottom,” Mr. Calder said.

Forecasts still show mild weather, including temperatures as much as eight degrees Fahrenheit below normal, lingering over the center of the country into the second week of August. Weather forecasts made only small changes over the weekend, with division over whether temperatures would be slightly warmer or cooler than previously expected.

The New Normal

April 29, 2013

Since May of 2012

When the natural gas

Nymex (gas out of the ground)

Hit the floor at just under $2.04 a dth

We have seen the nymex

More than double!!!!!

Today the nymex is at $4.16 a dth

All this talk about……

Overflowing gas supplies

Storage levels being at a

5 year high

Has not dampened the market

I have had many conversations

With people in the energy industry

There is an….

Across the board agreement

That there is little substantiation

For this increase in pricing

Will prices go back down?

Hard to say…..

I do not see it dropping

To where prices were last May

Is having over a $4.00 nymex

The new normal

Stay tuned

For more insight contact george@hbsadvantage.com or call 856-857-1230

Visit us on the web http://www.hutchinsonbusinesssolutions.com

By SANDY SHORE, AP Business Writer–8 hours ago

Battered natural gas prices are getting a bit of a break as cooler spring weather raises expectations that demand may improve.

Natural gas rose 6 cents to finish at $2.186 per 1,000 cubic feet in Friday trading. That’s up nearly 15 percent from April 19 when the price hit the lowest level in more than a decade at $1.907 per 1,000 cubic feet.

The price has plunged this year as a natural gas production boom created a glut of supply and demand dropped during a mild winter.

Now, some in the market are suggesting demand will strengthen, which help boost prices.

Cooler weather moving across the Northeast, parts of the Midwest and the Rockies this weekend could prompt homeowners to turn up the heat, creating more need for natural gas.

In addition, utilities have been substituting cheaper natural gas for coal to generate electricity. As much as six billion cubic feet a day of natural gas has replaced coal-fired power generation this year, said Ron Denhardt, an analyst with Strategic Energy & Economic Research. Consumption on an annual basis is about 66 billion to 67 billion cubic feet a day.

In addition, some energy companies have cut production because low prices can make it unprofitable to drill for some types of natural gas.

Yet, several analysts believe any rally will be short-lived.

With May upon us, any pick-up in demand for heating will be brief. About 70 percent of the nation’s demand for natural gas comes during the winter to heat homes and businesses.

Natural gas inventories continue to build. Analysts say that underground storage could be filled to the brim by fall without additional production cuts or an extremely hot summer that boosts electricity demand for cooling.

“It’s fundamentally a disastrous market,” Denhardt said. “I can’t see any turnaround of any significance before November, December of this year.”

PFGBest analyst Phil Flynn said there has to be an even bigger drop in price to force companies to cut more production. He speculated that the price will test an all-time low of $1.35 per 1,000 cubic feet.

In other energy trading, oil prices rose slightly, as traders shrugged off a report that the economy grew more slowly in the first three months of the year as governments spent less and businesses cut back on investment. But consumers spent at the fastest pace in more than a year. The Commerce Department said Friday that the economy grew at an annual rate of 2.2 percent in the January-March quarter, compared with 3 percent in the final quarter of 2011.

Benchmark oil rose 38 cents to end at $104.93 per barrel in New York. Brent crude fell 9 cents to finish at $119.83 per barrel in London. Heating oil lost 1.37 cents to end at $3.1807 per gallon and gasoline futures rose 2.29 cents to finish at $3.2062 per gallon.

At the pump, gasoline prices were little changed at a national average of $3.826 per gallon, according to AAA, Wright Express and the Oil Price Information Service. That’s 8.5 cents less than a month ago and 5.3 cents lower than a year ago.

Written by Tom Zeller Jr

 For the Huffington Post

A veritable explosion in the number of natural gas wells in the United States in the late 2000’s resulted in only modest gains in production, a new study finds, suggesting that the promise of natural gas as a bountiful and economical domestic fuel source has been wildly oversold.

The findings, part of a broader analysis of natural gas published Thursday by the Post Carbon Institute, an energy and climate research organization in California, is one of a growing number of studies to undermine a natural gas catechism that has united industry, environmental groups and even the Obama White House in recent years.

It also comes on the heels of another study, published Monday, lending credence to claims that modern natural gas drilling techniques are contributing to methane contamination of drinking water wells in surrounding communities.

According to the author of Thursday’s study, David Hughes, a geoscientist and fellow at the institute, the bedrock assumptions of the natural gas revolution — that new drilling techniques have cracked open deep layers of shale and made available a 100-year supply of clean, domestic energy that could displace dirty coal and oil — are simply not true.

“The real takeaway here is scale,” Hughes said in a telephone interview. “If you look at the production estimates as the government is making them now, you’re talking about a near quadrupling of shale gas by 2035.”

The estimates come from the Energy Information Administration, which suggested in its most recent projections that shale gas would account for 45 percent of all natural gas production in the U.S. by 2035 — up from roughly 14 percent currently.

But the actual productivity profile of new, unconventional wells — often tapped at tremendous expense — is far less clear than is normally portrayed, Hughes said. Studies at existing fields, or plays, suggest that many shale wells tend to be highly productive in their first year, and then decline steeply — sometimes by as much as 80 percent or more — after that, requiring new wells to be plumbed

Indeed, while the number of active gas wells, which has nearly doubled since 1990, to half a million, has increased in the U.S, production per well has declined by nearly 50 percent over the same period, Hughes said, suggesting that as the industry converts increasingly to shale gas, more and more wells will be needed to maintain even a baseline level of production — much less to create a substantive increase.

If that’s the case, Hughes said, then those hoping that the shale gas boom might one day provide enough natural gas to replace coal for electricity generation, or oil as a transportation fuel, will be sadly disappointed. Indeed, he said, the number of new wells that would be needed to meet these goals would create a dystopian landscape of well pads and gas pipelines that few people would want to inhabit.

“If that were to happen, for those people living in Pennsylvania and New York, well, they haven’t seen anything yet,” Hughes said, referring to those states now sitting atop major shale gas deposits.

Mr. Hughes also highlighted the growing number of environmental costs that come with natural gas development. These include everything from water intensity and heavy truck traffic to the risks of localized pollution associated with hydraulic fracturing, or fracking — the high-pressure injection of water, sand and chemicals underground to break up rock formations and release gas.

More broadly, questions have been raised about the greenhouse gas footprint of natural gas development over its lifecycle, with at least one study suggesting that it may be no better than coal.

Dan Whitten, a spokesman for America’s Natural Gas Alliance, an industry lobby group, said in an e-mail message that the report was retreading old ground and amounted to a smear campaign on natural gas.

“This report is recycling the widely discredited claims of anti-drilling activists on greenhouse gas emissions,” Whitten said. “Their estimates run counter to the accepted scientific consensus and have been heavily criticized by climate scientists and others who are interested in a fact-based debate about our energy choices as a nation.”

Whitten also argued that it is now “the established scientific consensus” that the U.S. has “vast domestic supplies of natural gas that can play a growing role in meeting our country’s energy needs for generations.”

He also said that no one was seriously suggesting that coal or transportation fuel be entirely replaced by natural gas, and that such arguments amount to “unrealistic scenarios” presented by Hughes simply to be knocked down.

“Most experts in our energy debates understand and agree that it will take all kinds of energy to meet our nation’s growing future needs,” he said. “From our initial review, no new ground was broken with this report. As such, it doesn’t change the fact that the vast supplies of clean natural gas right here in North America give our country a chance to substantially improve energy security, clean our air and improve our economy.”

But while the resource is inarguably vast, Hughes is not alone in suggesting that the industry is overstating how much can be economically pulled out of the ground.

Arthur E. Berman, a geological consultant and director of Labyrinth Consulting Services, Inc., also argues that natural gas is not as abundant or as inexpensive as is commonly believed.

“I do not dispute for a minute that the resource size for natural gas is huge. There’s a lot of gas in place in shales,” Berman said in a telephone interview. “The question for me is how much can be produced for a profit?”

Berman says that reserves — meaning the amount of natural gas that is actually commercially available to produce — will last only about 22 years. This is partly because shale gas plays once touted to be monstrous in size have typically contracted to core areas of production a mere fraction of the originally advertised size.

Hughes, meanwhile, cited Berman and and other analysts who also say that gas, at roughly $4 per thousand cubic feet (mcf), is too cheap for companies to recoup the costs of producing it.

From Thursday’s study:

Analysts like Arthur Berman suggest the marginal cost is about $7.50/mcf compared to a current price of about $4.00/mcf. Others, such as Kenneth Medlock (2010), suggest that the break-even price ranges from $4.25/mcf to $7.00/mcf. The Bank of America (2008) has placed the mean break-even cost at $6.64/mcf with a range of $4.20/mcf to $11.50/mcf. One thing seems certain: Shale gas, which appears to be the only hope for significantly ramping up U.S. gas production, is expensive gas, much of which is marginally economic to non-economic at today’s gas prices.

And yet, with easier-to-reach, conventional sources of gas largely depleted, the ability to pull gas from deep layers of shale rock has been touted as a game changer, and the notion was quickly embraced by a broad cross-section of social, political and business interests.

Writes Mr. Hughes:

First, the shale gas industry was motivated to hype production prospects in order to attract large amounts of needed investment capital; it did this by drilling the best sites first and extrapolating initial robust results to apply to more problematic prospective regions. The energy policy establishment, desperate to identify a new energy source to support future economic growth, accepted the industry’s hype uncritically. This in turn led Wall Street Journal, Time Magazine, 60 Minutes, and many other media outlets to proclaim that shale gas would transform the energy world. Finally, several prominent environmental organizations, looking for a way to lobby for lower carbon emissions without calling for energy cutbacks, embraced shale gas as a necessary “bridge fuel” toward a renewable energy future. Each group saw in shale gas what it wanted and needed.

And at least for now, the 100-year slogan continues.

“A lot of times, things are right underneath our feet, and all we need to do is change the way we’re thinking about them,” says Erik Oswold, an ExxonMobil geologist, in an ad circulating on the online video service Hulu. “A couple decades ago, we didn’t realize just how much natural gas was trapped in rocks thousands of feet below us. Technology has made it possible to safely unlock this cleaner burning natural gas. These deposits can provide us with fuel for 100 years.”

President Obama, delivering a speech on energy policy at Georgetown University on March 30, echoed the industry’s mantra.

“Now, in terms of new sources of energy, we have a few different options,” the President said. “The first is natural gas. Recent innovations have given us the opportunity to tap large reserves — perhaps a century’s worth of reserves, a hundred years worth of reserves -– in the shale under our feet.”

CHRIS KAHN | 11/ 9/10 06:06 PM | AP

What’s Your Reaction?

Earns Exxon Mobil
 

NEW YORK — Pretty soon, Big Oil will be more like Big Gas.

The major oil companies are increasingly betting their futures on natural gas, with older oil fields producing less crude and newer ones either hard to reach or controlled by unfriendly nations.

They are focusing more than ever on natural gas because it burns cleaner than oil and is gaining traction as a fuel for transportation. The latest move came Tuesday, when Chevron made a $4.3 billion deal to buy up natural gas fields in the Northeast.

Earlier this year, Exxon Mobil bought XTO Energy to become America’s largest producer of natural gas. And Royal Dutch Shell expects natural gas to make up half its total global production in two years.

“If you look at most of the big developments now, they’re not about oil, it’s gas,” said Oppenheimer & Co. analyst Fadel Gheit.

The world will continue to run on crude oil for years to come, but even with new discoveries, oil production is expected to flatten out during the next few decades, according to the latest estimates from the International Energy Association.

Far down the road, Gheit believes, Exxon and Shell will lead the energy industry into a new era where oil companies devote most of their efforts to producing natural gas. The Energy Information Administration expects worldwide natural gas production to increase 46 percent from 2007 to 2035, compared with a 30 percent increase in world production of crude and natural gas liquids.

Gas is becoming more attractive to the oil companies because it’s more accessible. While OPEC controls most of the world’s oil reserves, it controls less than half of the natural gas reserves.

In the United States and Europe, natural gas is primarily used to heat homes. About three in five American homes use it for heat. And more and more power plants are using it to generate power. Natural gas is used to generate 23 percent of electricity in the U.S., up from 16 percent a decade ago.

If the country focuses more on reducing greenhouse gas emissions in years to come, the trend should accelerate. Natural gas emits less carbon dioxide than other fossil fuels.

Natural gas is used in small amounts for transportation in the U.S., mostly for city buses and garbage trucks. The oil industry is pressing Congress to add financial incentives for trucking and freight companies to convert their fleets.

Until recently, Big Oil watched the rise of U.S. natural gas from the sidelines, and smaller companies drilled into underground layers of shale. New techniques allowed companies to drill parallel to the ground and hit previously tough-to-reach deposits, helping them tap ever larger bounties of shale gas.

Production costs fell. Drilling rigs started popping up along America’s shale-rich regions in Appalachia, Texas and North Dakota. Experts now say the U.S. is sitting on enough natural gas to last the country for the next century.

This year, Big Oil jumped in. Exxon bought XTO for more than $30 billion, immediately making it America’s largest natural gas producer. XTO so far has helped Exxon increase its natural gas production by 50 percent.

Then Shell agreed to buy East Resources Inc. for $4.7 billion, and China’s state-owned offshore oil and gas company, CNOOC Ltd., invested $2.16 billion in oil and gas fields owned by Chesapeake Energy.

Production jumped to 1.94 trillion cubic feet in August, the highest monthly total since January 1973, according to available government data.

“Production is screaming,” said E. Russell Braziel, managing director of BENTEK Energy, which tracks natural gas prices in the U.S.

The U.S. now holds about 3.82 trillion cubic feet of natural gas in storage, about 10 percent more than the average over the past five years. And the industry keeps pumping more out of the ground.

There are challenges. The same low prices that make the assets affordable have caused some companies, namely ConocoPhillips, to pull back on production. Natural gas has dropped about 24 percent this year.

And people near shale rigs complained that groundwater supplies were contaminated by the industrial chemicals used in the drilling process. The Environmental Protection Agency is studying the possible effects on drinking water and the public health.

Still, most of the big companies continue to press ahead with multibillion-dollar acquisitions.

“When the market is weak, that’s when it’s time to act,” Argus Research analyst Phil Weiss said.

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.”

Vivi Gorman, GREENandSAVE.com

Governor Ed Rendell announced June 1 that the state is seeking $15 million in federal funding to expand the state’s use of biodiesel and alternative fuel vehicles by applying to the U.S. Department of Energy under the American Reinvestment and Recovery Act.

The governor explained that Pennsylvania’s Energy Independence Strategy includes an initiative mandating the production and use of renewable fuels to develop the state’s economy and reduce dependence on foreign fuels. The state initiative has set a goal to produce and use one billion gallons of domestically produced biofuels in Pennsylvania by 2017.

Under the plan, the Department of Environmental Protection will partner with the Pittsburgh Regional and the Greater Philadelphia Clean Cities programs, the National Biodiesel Board and eight other industry partners to install fueling infrastructure, retail sites, procure vehicles, promote the use of alternative fuels and educate the public. The eight industry partners included in the project are: Buckeye Partners LP, Centre Area Transportation Authority, Gulf Oil LP, Guttman Oil Co., Lower Merion School District, Lycoming County Resource Management Services, Pennsylvania Energy Co., and Sunoco Logistics Partners LP.

Governor Rendell remarked that Pennsylvania occupies one of the largest natural gas supplies in that country in the Marcellus Shale reserve. The project proposes to install 23 biofuel terminals and four retail stations throughout the state; l natural gas refueling facilities at two locations; and compressed natural gas equipment on 36 existing vehicles and purchasing 57 new natural gas vehicles for public transit agencies.

The project will allow for the displacement of 263 million gallons of petroleum-based fuel over four years, create at least 9,000 jobs, and reduce carbon dioxide emissions by 7.2 million pounds.

Commodities Drop, Rally in Dollar, Stocks Vindicate Bernanke

As reported in Bloomberg.com 

By Pham-Duy Nguyen

March 21 (Bloomberg) — The biggest commodity collapse in at least five decades may signal Federal Reserve Chairman Ben S. Bernanke has revived confidence in U.S. financial firms.

The Standard & Poor’s 500 Index posted its first weekly gain in a month, and the dollar leapt from its lowest level since 1973 after the Fed stepped in March 16 to rescue Bear Stearns Cos., the fifth-largest U.S. securities firm, and expanded its role as lender of last resort to embrace the biggest dealers in Treasury notes.

Investors who had poured money into gold, oil and corn, seeking a hedge against inflation and a weak dollar, sold commodities to raise cash or buy stocks. The Reuters/Jefferies CRB Index of 19 commodities tumbled 8.3 percent this week, the most since at least 1956, after touching a record on Feb. 29.

“Bernanke took care of the commodity bubble,” said Ron Goodis, the retail trading director at Equidex Brokerage Group Inc. in Closter, New Jersey. “Commodities are coming back to earth. The stock market looks OK, and Bernanke is starting to look a little better.”

Concern that the central bank would let inflation get out of control eased after the Fed cut its key interest rate by 0.75 percentage point on March 18, less than the reduction of at least 1 point that investors had expected.

“Clearly they’ve gotten some stability,” said Keith Hembre, a former Fed researcher and chief economist at FAF Advisors Inc. in Minneapolis, which oversees more than $107 billion in assets. “You have to stand back and say, for the time being, it looks to be a pretty successful combination of moves that have worked.”

 Our perspective

This seems like good news. We have all been looking for some sort of stability. However the market is so fickle and the current volatility urges us to proceed with caution.

Let’s see how things shake out over the next couple of weeks.

Will energy prices stabilize and start to drop? Natural gas prices are still inflated, reserves are still at an all time high. Temperatures continue to be moderate.

Let us know your thoughts. You can reach us @

george@hbsadvantage.com

Should you want to learn more about us, take a minute to look at our website.

www.hutchinsonbusinesssolutions.com

Your CFO on the Go.

Creating Opportunities Today…….Defining Savings for Tomorrow