Natural Gas - Growth, Growth, Growth

November 16, 2011  ExxonMobil Presentation Alaska Resource Development Council (LINK)

Quote from page 8:

Alaska North Slope Gas is competing in a growing & increasingly global  marketplace
• Resource development underpins economic growth for State
• Complexity of Alaska gas development dictates need for on-going stakeholder alignment
• Alignment with the State of Alaska
• Establish predictable and durable fiscal terms so an investment of this magnitude can be made
• Build on foundation of the Alaska Pipeline Project and AGIA framework
• Alignment among Producers
• Support from ExxonMobil, ConocoPhillips and BP essential
• ExxonMobil is poised to work with all key stakeholders to shape the next generation of North Slope development

LINK to Video of the presentation.

All true, but no Kumbaya moment yet.

Listening to the presentation I heard a hint of buy in for Alaskan LNG, or at least a pitch that ExxonMobil has what it takes to succeed at an Alaskan LNG project.

The Future of Natural Gas

The Economist has a new article on the future of natural gas. (LINK). No big surprise the future is shale gas and global trade in LNG. The article also points to a study conducted by the James Baker Institute (LINK).

The take away point of the article and the study is that shale gas has changed the global energy balance. The new global top three gas reserves are, in order, Russia, China and USA. If we combine Canadian and American gas the ranking becomes Russia, North America, and China.

Here's a tabulation of the data showing US Energy Information Agency (EIA) estimates of conventional gas and technically recoverable shale gas by country:

The Baker Institute study estimates American recoverable shale gas at 637 TCF. The Baker Institute also estimates the average break-even pricing of shale gas plays (Table 1). The average break even price works out to $5.42/MMBTU with a standard deviation of $1.00/MMBTU indicating that shale gas producers will drill and develop shale gas when the market price ranges no lower than $4.42 to $6.42 per MMBTU. The low range rings true based on the past year or two of gas prices and the upper range rings true as shale gas developers now tend to target "wet" shale gas to boost the net revenue per well.

What does this mean for Alaskan Gas? First I'm encouraged to see general agreement on the scale of global shale gas. No one can be expected to invest in Alaska if global shale gas was too cheap to meter - but that's not the case. Gas prices have tested the $4/MMBTU support level and producers will shut in wells rather than sell gas below that level. As the uncertainty fades away an Alaskan Gas Pipeline becomes bankable. It won't be wildly profitable, but a gas line can be built - keep in mind that conventional gas from Alaska is loaded with the same natural gas liquids (NGLs) the boost the revenues of "wet" shale gas plays.