This argument might be relevant to Conti, given that they have indicated (in recent 3B appendix) an interest in US coal assets.
Here are a couple of good articles on US shale gas, clearly showing that current low gas prices are unsustainable, with very few (if any) companies capable of producing gas profitably at the moment:
U.S. Shale Gas: Less Abundance, Higher Cost
Gas Boom Goes Bust
Who can make money at these prices?
We know that prices below $4/mmbtu were typical before 2000 but very rare since then. Given our lead off quote’s contention that “gas shale wells are expensive to drill and complete” we need an assessment of which shale gas plays can turn a profit when prices are below $4/mmbtu.
Luckily, Goldman Sachs already did this analysis as reported in a recent presentation by Range Resources. (I would encourage anyone interested in shale gas production and finance to look at this report. While I am often skeptical of corporate reports, this presentation answered a number of questions with detailed information and charts.) Slide 11 from this report contains information from the Goldman Sachs report on the NYMEX price required to produce a 12% Internal Rate of Return — the threshold for a project to receive financing. Transcribing the information from the Range Resource presentation and adding on $3/mmbtu and $4/mmbtu thresholds paints a rather ugly picture for the shale gas industry today as seen here:
Relative profitability of various shale gas plays
http://www.wtrg.com/daily/gasprice.html
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