TPT 0.00% 0.9¢ tangiers petroleum limited

article - gas crisis looming?

  1. 1,425 Posts.
    Good read as to why Aus assets could be very valuable with Nova and Super Nova. Last 2 paragraphs of particular interest...


    In the book, I take a very hard look at the facts. And I conclude that the U.S. has between a five- to seven-year supply of shale gas, and not 100 years. That is far lower than the rosy estimates put out by the U.S. Energy Information Administration and others. In the real world, many companies are taking write-downs of their reserves.

    Importantly, I give examples of how certain people and institutions are promoting the shale gas myth even as they benefit from it economically. This book will change a lot of opinions about how large the shale gas resources really are in the U.S. and around the planet.

    TER: How did you obtain your information?

    BP: I spent three years doggedly researching this book. Most of the information came from publicly available sources. I used a fair amount of work done by Art Berman, who has written the forward for the book. Art is a leading expert on determining the productivity of shale gas plays. I contacted a lot of other geologists and petroleum engineering professionals and had them review my conclusions about declining production.

    Put simply: There is production decline in the Haynesville and Barnett shales. Output is declining in the Woodford Shale in Oklahoma. Some of the older shale plays, such as the Fayetteville Shale, are starting to roll over. As these shale plays reverse direction and the Marcellus Shale slows down its production growth, overall U.S. production will fall. At the same time, Canadian production is falling. And Canada has historically been the main natural gas import source for the U.S. In fact, Canada has already experienced a significant decline in gas production—about 25%, since a peak in 2002—and has dramatically slowed its exports to the United States.

    TER: What does this mean for investors?

    BP: The decline is a set-up for a gas crisis, a supply crunch that will lead to much higher prices similar to what we saw in the 1970s.

    Interestingly, during the lead-up to that crisis, the gas industry mounted a significant advertising campaign trumpeting the theme, "There's plenty of gas!" Now, it is true that there was a huge ramp-up for gas during the post-World War II period that lasted through the late 1960s as demand for gas for the U.S. manufacturing base grew rapidly. But we hit a production peak in the early 1970s during a time of rapidly growing demand. This led to a huge spike in prices that lasted until 1984.

    It was very difficult to destroy demand, so the crisis was resolved by building hundreds of coal-fired power plants and dozens of nuclear power plants. But today, gas-fired plants are popular as we try to turn away from coal. This time around, those options are no longer available. Nuclear plants are still an option, but the time and money involved in keeping our aging nuclear power plant fleet operational, let alone building new plants, will be quite significant.

    TER: How will the contraction of the natural gas supply affect its price?

    BP: We will see a new equilibrium price for gas at much higher levels than the present. I vehemently disagree with industry observers who say that the U.S. is the next big exporter of liquefied natural gas (LNG). I believe that the U.S. will soon be increasing LNG imports, and that U.S. prices will move back to world levels.

    We are currently seeing between $13 per thousand cubic feet (Mcf) and $15/Mcf in South America as Brazil and Argentina import LNG. We're seeing $17/Mcf in Japan and similar prices in Korea. The only place that is not increasing its LNG imports right now is Europe, and that is being made up for by increasing demand in Asia.

    TER: How will a contracting supply affect the prospects of companies that are exploring and developing gas fields in North America today?

    BP: The companies that can find new reserves of oil and gas will enter a golden era as prices skyrocket. There has been a lot of consolidation in the industry over the last five years. In Canada, very few juniors have started up since 2007. This is the fifth anniversary of the Halloween Massacre, when the Canadian government changed the laws regarding trusts, which really shrank the amount of capital going into junior companies.

    The bigger North American companies are consolidating, because it is harder to acquire prospective land. Plus, the cost of drilling wells has gone up. But juniors that can find new reserves and that can increase production per share and cash-flow per share will have a wonderful rise over the next three to five years. Companies are helped by the upward trend of ever-higher oil prices and we will soon see much higher gas prices. And remember, all of this is happening at a time of historically low interest rates. So companies that can get to critical size and borrow money at today's low rates have a chance to deploy that capital into some very high-return projects. Good companies are trading at historically low multiples of cash flow or multiples of NAV (net asset value). So there are some great values out there that really make the energy sector attractive.
 
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