Concerned about Shale Gas?

Check out shale gas heavy weight Chesapeake Energy's August 2010 Investor Presentation.

They want to sloooooow down drilling until gas prices reach $6/MMBTU and they are looking for more liquids.

(See page 6 of the presentation)

That puts the shale gas threat in perspective. $6/MMBTU gas sounds like a market for AK gas really does exist.

Weekend Update

The Canadians issued the "Report of the Joint Review Panel for the Mackenzie Gas Project" The report is supportive of the project. (LINK to press story). I take the view stated once by Dermot Cole - It's not a project until somebody starts ordering pipe (that goes for any Arctic Pipeline).

Shale OIL tidbit. It's not Shale GAS, but here's and interesting story on Exxon's research into production of shale oil in Colorado (LINK). They used a technique called “Electrofrac”. Basically they drill horizontal wells in the shale formation, fracture it, inject a conductive material then pour on the amps to resistively heat the formation until the hydrocarbons flow. What's the Alaska gas angle? Electrical power - lots of gas will be needed to produce the power needed to fry the foundations of Colorado and Utah. Note: the oil production objective is 162,000 bbls / acre. The overall resource is estimated in the Trillions of barrels of oil. Yeah they're gonna need some gas.

Speaking of Shale...Here's a story on shale gas in New York state (LINK). Apparently everyone does not have unconditional love for shale gas exploration and development. (LINK to Marcellus Shale info)

Finally - According to Halcro's website, something's cooking with DNR Commissioner Tom Irwin. With some luck maybe this player hater can move on.

The Threat of Shale Gas

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.
  

3) Finally - In the game of which gas projects will shut down other gas projects look for the Alaska Gas Pipeline to stall the Mackenzie pipeline. Both of these projects can supply gas to the oil sands, but Alaskan gas may just get to the finish line first.