Sunday, November 28, 2010

Glimmer of Hope

The Black and Veatch report titled "Growing Shale Resources: Understanding Implications for North American Natural Gas Prices" is now available for your review. It should help lawmakers craft some workable fiscal framework for the Alaska gas pipeline.

From the Petroleum News:

And the Black & Veatch analysts have found that, although there are major uncertainties around future North American gas markets, it is likely that gas prices in Alberta, Canada, will climb to somewhere between $5 and $7 per thousand cubic feet by 2020, with prices continuing to climb thereafter. And with a possible fee of $3.50 per thousand cubic feet for treating North Slope gas and carrying it by pipeline to Alberta, those gas prices could make a North Slope gas line viable, Antony Scott, a commercial analyst with Alaska’s Division of Oil and Gas, told Petroleum News Nov. 22.
The report projects Henry Hub gas prices of $6.00/MMBTU to $8.00/MMBTU and Canadian AECO prices in the range of $5.00/MMBTU to $6.20/MMBTU.

I keep and eye trained on the shale gas producers behavior. It's known that they shut in some wells at $4.00/MMBTU and that they are divesting at a rapid pace. There's more than few stories of outrageous lease cost paid and 25% royalty agreements. Given what I've seen I would not invest in a shale gas play for a penny less than $6.00/MMBTU on the revenue side.

Shale gas can't kill the Alaska gas pipeline but the politicians and the taxman can. I'm hoping the recent changes in Parnell's administration will pan out.

1 comment:

Brett Chandler said...

The simple answer is that there's no simple answer.

Let's assume there aren't any issues with shale gas. The optimistic/realistic view is that there still wouldn't be enough of the stuff to replace the depletion in the Western Canada basin.

And we actually can't assume there aren't any issues with shale; the picture that seems to be coming into focus is one of higher production costs and some VERY questionable environmental impacts in many situations.

We stand to see a huge spike in natural gas prices within the next two years.