This weekend the Anchorage Daily News (ADN) ran a story titled "Alaska natural gas gets new competition". This is not exactly what I would call news, this blog looked at the impact of shale gas back in February.
It's not yet time to give up on Alaskan gas and here's why:
1) Alaska gas can be delivered to the Alberta oil sands cheaper than shale gas from Albany NY. Take a look at the map from the ADN article and imagine the pipeline infrastructure needed to move an equal amount of gas to the oil sands. In Alberta heavy synthetic crude oil will be produced from Alaskan gas at a rate of 6 BTU (as oil) for every 1 BTU of gas consumed. It's a rock solid business model and gas from Pennsylvania can't compete.
2) Gas markets are extremely complex and volatile. T. Boone Pickens can nay-say the pipeline all he wants, but follow the money. Where's the money in natural gas these days?
- LNG (international stranded gas) isn't free (link to $50 Billion dollar LNG project story). The availability of LNG will figure into the cost analysis of any gas development project within 500 miles of any coastline.
- Shale Gas may be plentiful but it isn't free either. When the gas price drops the drill bits stop turning and producing wells are shut in. The tipping point seems to be around $4/MMBTU. Shale gas leader Chesapeake calls this "deferred production" and last April they deferred about 13% of their gas production including gas from the Barnett Shale . This quote from the Chesapeake news release says it all:
In addition, because of the steeply declining production profile of new natural gas wells and the upward trending slope of the NYMEX natural gas futures curve, Chesapeake believes deferring production and revenue to future periods with higher natural gas prices creates greater shareholder value than selling production into the current unusually low priced natural gas market.
- Coal: Natural gas demand will increase and displace coal over time. Clean zero emission syngas from coal is technologically possible, but not at $4/MMBTU.
- Nuclear: Fear, high cost and unresolved waste storage issues will continue to support the overall value of natural gas. Don't bet on the 1950's fantasy of nuclear power too cheap to meter.
- Wind/Solar - There's a good reason Boone Pickens likes wind turbines. For every megawatt of wind or solar we build plan on building a megawatt of power from a gas turbine - you'll need it at night or when the wind stops blowing, and Boone will be happy to contract some firm gas for that need.