As the Fool article points out drilling rates are down and likely to remain so because of the glut of domestic NatGas with no market. Chesapeake Energy is selling off some of its prized acreage in the Eagle Ford play and one of the biggest buyers is CNOOC the Chinese Sovereign wealth fund. It doesn't take a genus to figure out where the gas under those lease hold acres will wind up. Its only a matter of time.
The Chinese and the government of Singapore have each invested half a billion dollars in Cheniere Energy's Sabine Pass liquefaction and export facility which has broke ground and expected to lift its first cargo in 2015. The entire production for the first two trains is already sold forward to buyers in Spain, Britain, India and South Korea. Cheniere also wants to build another plant in Corpus Christi which is very close to the Eagle Ford area.
Since granting the approval to Cheniere's Sabine Pass lobbying pressure has resulted in the Department of Energy placing a hold on any additional export facilities until a full report of what such action would have on the price of domestic gas. There are at least 11 applications pending.
As I mentioned long ago this is a double edged sword for Capstone. If more export terminals are built the price of natgas will rise, IMHO, and more wells will be drilled which would be good for Capstone. On the other hand the higher gas prices go the less attractive Capstone becomes as the cost spread narrows between Natgas and other fuels (this may be mitigated due flaring regulations.) Nevertheless, if Natgas prices rise the use of Capstones will be less attractive in other areas not related to drilling, i.e., hotels, swimming pools, data centers, and transportation.
All of that being said the price of Henry Hub continues to inch up as wells are shut down and storage facilities are filled. The drillers or gas producers need $5 spot gas to make it economical to sink new wells and build infrastructure.
Granted, all of the above only applies to domestic NatGas. Wells are still being drilled for heavies (oil and gas liquids) and there is some associated gas that needs to be consumed whether it be flared or used on site for power production. Our overseas customers become more crucial to the success of Capstone, unless of course we are bought out.
