Thats possible. However just the fact that it is known that we have NG (even if its non producing)can cause additional investment in the company. Below is another article on NG, which state the are only 1/2 the amount of rigs looking for NG as there was a year ago.
Natural-Gas Market Finds Fix for Low Prices That May Stick
by Myra P. Saefong
Friday, September 18, 2009
provided by
The natural-gas market has been struggling to lift itself back above prices traders hadn't seen in more than seven years, but the strategy among drillers to cut back on exploration and postpone new projects is finally starting to show signs of success as demand for the commodity begins to improve.
Natural-gas prices were poised to end this week with a hefty gain, up almost 17% as of Thursday in New York, when they closed at $3.46 per million British thermal units. Front-month futures prices have rallied 38% from the low near $2.50 reached earlier this month, a level not seen since early 2002.
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"Low prices are curing low prices," said Ben Smith, president of First Enercast Financial, an information vendor serving energy markets.
An oversupply of natural gas in the U.S. has been the key reason for weak prices and the market may soon see a record level in U.S. storage.
U.S. supplies, at their current rate of increase, are "nearly certain" to exceed the all-time high of 3.7 trillion cubic feet seen in late October 2007, analysts at Deutsche Bank wrote in a research note issued last week. The Energy Information Administration expects inventories to reach 3.84 trillion around Oct. 31.
Working gas in storage was pegged at 3.46 billion cubic feet as of Sept. 11, according to the EIA.
"New, quick-draining shale plays have kept the supply of natural gas strong so far this year," said Smith, referring to natural gas produced from shale, a geologic formation.
"Everyone is blaming fundamentals [for the low prices] and point to the large storage overhang, but the fundamentals have increasingly been more bullish in recent months," said Smith.
"The natural-gas market has been working all year to correct itself by reducing rig count and shelving projects," he said.
Pat on the Back
The hard work has hardly gone unnoticed in recent weeks.
Today, there are half the rigs searching for natural gas in the U.S. than there were last year, said Smith.
"The lower rate of exploration will eventually lead to lower U.S. production capacity," said James Williams, an economist at WTRG Economics, who expects supply and demand to come into balance sometime in the first half of 2010.
As of Sept. 11, the number of oil and natural-gas rigs running in the U.S. was at 999, down 1,032 from a year earlier, according to Baker Hughes (BHI). At the international level, the rig count as of August 2009 was 947, down 140 from a year ago.
Most of this drop was in the Barnett shale and other shale areas, according to Charles Perry, president of energy consulting firm Perry Management. The Barnett Shale in North Texas is the most developed shale formation.
'The natural-gas market has been working all year to correct itself by reducing rig count and shelving projects.'
Ben Smith, First Enercast Financial
"Drilling and completion of wells in shale are extremely expensive, and when prices drop drastically, much of the shale drilling is no longer economical," said Perry.
"On the other hand, since shale well production declines rapidly, and we are not drilling any replacement wells, this will hasten the time when we will loose excess supply," he said.
In the meantime, industrial demand has picked up since bottoming this past May, according to Smith.
"Industrial demand figures continue to improve -- not surprising given the cheap cost of natural gas along with economic stimulus aimed at spurring manufacturing," he said, pointing out that gas-flow scheduling into U.S. industrial facilities logged its 14th weekly increase in 15 weeks.
In a monthly report, the EIA said industrial natural-gas consumption declined by 12% in the first 6 months of 2009 compared with the same time a year ago. It expects year-over-year consumption decline to continue through the second half of this year, but also said the "trend will be less pronounced" and natural gas use in the electric sector will climb by 4.3%, year-over-year, during the second half of this year.
Natural gas' low price makes the fuel more economical to burn than coal, explained Smith.
And "now that [natural gas] storage is nearing capacity, curtailments are really kicking in," he said.
He estimates that the production cuts have managed to take over 2 billion cubic feet per day off the market and that could quickly grow to over 4 billion per day by next month.
In that case, "thanks to these production deferrals, the oversupply situation we have been in this year is over," he said.
Wrench in the Works
But there are a few things that could ruin the market's will to climb, including the buildup in spare output capacity and a lack of production disruptions from the current Atlantic hurricane season.
"There is a tremendous backlog of spare production capacity sitting idle and waiting for higher prices," said Smith.
"So we can anticipate any significant price recovery will be quickly met with additional supply," he said, expecting that to keep a lid on prices for at least six months.
Meanwhile, the Atlantic hurricane season ends on Nov. 30 and has so far proven to be a non-event, said Beth Sewell, a managing partner at Quantum Power & Gas Services.
Adding to the potential for lower prices, the EIA recently increased the level of "full" for U.S. storage by almost 3 trillion cubic feet "as a result of several new projects that are functional now," she said.
"We're on track to fill it to the new level, which should keep a damper on prices this winter even if we have a colder-than-normal winter," she said.
So it's not hard to figure out that a few more things need to happen for natural gas to continue higher. In fact, two things will have to happen to light a fire under natural gas, said Darin Newsom, senior analyst at Telvent/DTN, a provider of market analysis.
"As of now, the only support that is coming into the market is from light noncommercial (speculative) short-covering and that isn't going to get it done," he said, adding that the market would also need to see some sort of disruption in supplies, which can come in the form of a hurricane threat in the U.S. Gulf region.
Lack of Reaction
But surprisingly, the market isn't fazed by news this week of Australian government approval for a major natural-gas project, with many experts not expecting any detrimental impact on natural gas -- certainly not immediately, but maybe not even in the longer-term.
This week, Chevron (CVX) said it's received final approval from the Western Australian government for the massive Gorgon natural-gas project, which would be Australia's largest-ever resource venture.
"The Gorgon project will take quite awhile to develop," said Sewell. "Perhaps by the time it is online, the world economy will absorb it and Asia is a huge consumer of LNG (liquefied natural gas)."
The project will also take so long to develop that it will mostly replace other production that is depleting, said Perry. It'll "be at least 6 years, and more likely 10 years, before you will see substantial production from Gorgon."
The project intends to tap into 40 trillion cubic feet of natural gas and Chevron expects it to begin yielding gas in 2014. Ministers in Australia said they expect project construction to begin by next Easter.
"Gorgon is big, but we don't have to worry about it until 2014," said Smith.
And given the global abundance of natural gas, the commodity has "tremendous potential to be a major energy source for years to come," he said. "Once a fully international market for LNG is established, I envision a long period of stable prices."
Myra P. Saefong is MarketWatch's assistant global markets editor, based in Tokyo.
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