Forbes: The Bakken, Natural Gas, CLR, and Oil

Link here.

Facing a supply glut, in recent years natural gas drillers like Chesapeake Energy, EOG Resources and SandRidge Energy have all shifted investment dollars away from gas in favor of higher-priced oil. That’s spurred a boom in new oil plays like the Bakken of North Dakota and the Eagle Ford shale of south Texas. As a result, U.S. crude oil production was up 150,000 barrels per day to 5.51 million bpd last year, despite downturns in Alaska and the Gulf of Mexico. The Energy Information Administration forecasts Lower-48 growth of 230,000 bpd this year. Given high enough prices, there is still an awful lot of oil left in the U.S.

But ironically, going after oil instead of gas isn’t helping reduce the gas glut at all, because in virtually every oil field you’ll also find associated gas. With the price of oil so high the drillers are incentivized to give away the gas for free and just make money on the liquids. In the Woodford shale of Oklahoma, Continental Resources says the gas they produce is so “wet” with other liquids like butane and propane that they can get $8 per mmbtu, far more than the going rate of $4.32 for dry gas.

Incidentally, one of the reasons I always enjoyed reading business media like The Wall Street Journal and Forbes was because the articles were so well written.

I am currently reading H.L. Mencken's The American Language, first edition, which is a most delightful book tracking the etymology of American words. In the Forbes article linked above, one almost misses a new American word:

If it works it will be a huge turnaround for a company that I heralded back in 2005 for being the first to navigate the nimby issues involved in building an import terminal. That was back when the fear was that the U.S. would soon run short of natural gas. Then came the shale gas boom.  Cheniere shares topped out at $40 back in 2007, then fell to $1.25 in 2008 and are at $8 today.

I hope to write more about H. L. Mencken's The American Language at my literature site when I find time.


Oh, back to the Forbes article:

Frankly, if the U.S. doesn’t export North America’s surplus gas, then Canada likely will. Apache Corp., with partners EOG Resources and Encana, is moving forward with plans to build an LNG plant at Kitimat in British Columbia. It would liquefy gas from the Montney and Horn River shale plays (where ExxonMobil is a big landholder) and send it to Asia.

Already, the Canadians are shipping coal to Asia out of their Pacific ports because Washington State and Oregon fear industrial growth in their communities.  (Except, of course, for Boeing. Apparently Seattle does not care how big the Boeing carbon footprint is as long as it belongs to Boeing in Seattle.)