Oil and Gas Lawyer Blog

The information below is from the Energy Information Administration.  Note the wide variation in City Gate and Wellhead Prices among different states:

Below is the same information in graph form.  Why would average residential gas prices in Texas be $12.88 per mcf, while residential prices in California and Minnesota -- far from natural gas production -- be less than $10 per mcf? Why such variations in Residential prices?

Gas prices in Texas recently dipped below $2/mmbtu. Companies are shutting in wells to avoid selling at such low prices. Nevertheless, record volumes of gas are going into storage.

The chart shows the five-year monthly average of gas in storage for the last five years, and the red line shows gas in storage this year. Gas in storage for August is already well above the last five-years' highest volume, and is sure to climb higher. We are likely to find out the true limit of how much capacity there is for gas storage in the U.S. Unless we have a very cold winter, this excess gas may continue to suppress gas prices for months to come.

Items from this week:

Prices:  Natural gas prices continue to decline. Below is a comparison of gas NYMEX futures prices with S&P 500 for the last year:

On August 14, futures for September delivery settled at $3.24/MMBtu, a 52-week low.  Futures prices have declined about 65% from this time a year ago. The Energy Information Administration reports that gas in storage increased by 63 Bcf to 3.152 Tcf for the week ended August 7, compared to 2.65 Tcf a year ago, and well above the five-year average of 2.635 Bcf. Absent severe supply disruptions or a very cold winter, gas prices are likely to remain low for some time.

The price decline has resulted in a corresponding decline in lease and drilling activity. The chart below shows the number of oil and gas leases filed of record in Tarrant County, the center of Barnett Shale activity:

This shows a decline in leasing from 18,000 leases in May, 2008, the height of the leasing frenzy, to 2,000 in July 2009.

Earthquakes:  Scientists from Southern Methodist University have tentatively concluded that recent earthquakes in the vicinity of Dallas-Fort Worth Airport may have been caused by a salt water disposal well located at the southern end of the airport, operated by Chesapeake.

Continue reading "Energy News" »

Below is an interesting chart published by the U.S. Energy and Informaton Administration, showing how the U.S. used energy in the U.S. in 2007:

The sources of energy are on the left, the sectors of the economy that consume energy are on the right. The lines connecting supply sources and demand sectors show which sectors use which sources of energy. For example, petroleum represents 39.8% of the total supply of energy in the U.S. Seventy percent of that petroleum is used for transportation. Petroleum is the source of 96% of all sources of energy for the transportation sector. The transportation sector consumes 29% of all energy consumed in the U.S.

The chart reveals how natural gas is used in the U.S.: 34% in the industrial sector, 34% in the residential and commercial sector (as fuel to heat and cool homes and buildings), 30% to generate electricity. Most electricity is used by residential and commercial buildings, so in reality electricity is an intermediate demand sector. If it is eliminated as a demand sector, 61% of total demand would show as consumed by residential and commercial buildings. Natural gas would supply 14.8% of total energy used in residential and commercial buildings, either directly for heating and cooling or indirectly through its use to generate electricity. 

Unlike coal and petroleum, demand for natural gas is spread among three demand sectors -- industrial, residential and commercial, and electric power. Today demand for natural gas is depressed, principally because of increased supply and low demand in the industrial and electric power sectors. If natural gas' share of the transportation sector could be increased by conversion of vehicles to burn it, domestic supplies of natural gas could supplant imported petroleum as a source of supply for the transportation sector. For an excellent article on the use of natural gas as an alternative fuel for transportation, see Seeking Alpha's article.

The Energy Information Administration has revised its forecast for 2009 U.S. industrial natural gas demand, to decline by 7.4% this year. It predicts total natural gas consumption to fall 1.8% in 2009. U.S. natural gas production is expected to decline 0.3% in 2009, and to slip 1% in 2010. EIA predicts natural gas Henry Hub prices to average $4.24/mcf in 2009 and $5.83/mcf in 2010, compared with $9.13/mcf in 2008.

Chesapeake Energy has elected to further curtail its gas production, by a total of 400 mmcf in 2009, representing approximately 13% of Chesapeake's production capacity.

One petroleum geologist and industry consultant, Arthur Berman, believes that the Haynesville Shale in Lousiana, touted as the hottest onshore gas play in North America, is overrated. His analysis of early discoveries shows that the wells decline rapidly, cost about $7.5 million per well to drill and complete, and would require a price of $8/mcf to break even.  http://petroleumtruthreport.blogspot.com