Natural-gas producers hoping for cold winter
COMMENT: This is kind of funny. Here we've got gas drillers drilling like carpenter ants on speed, and producers producing like broken fire hydrants and now they're complaining that the price isn't good enough. Here in BC, our government is putting every giveaway incentive in place to encourage even more profligate production of natural gas into a market that doesn't want any more.
And what is their collective strategic response to a market awash in gas, and driving prices to lows not seen for years? Praying for hurricanes, for goodness sake.
Would any of them sit back and (as we've said before), hold off until production and demand fall back into some balance, and prices rise again? Not government, so dependent on revenues from the auctions of drilling rights and gas royalites. And certainly not industry.
Because these drillers and producers are programmed to do one thing only. Given changing circumstances, they still do the one thing they know how to do. In natural systems, the incapacity to adapt to changing circumstances leads to extinction. For corporations, bankruptcy. The number of producers and affiliated businesses in creditor protection is at an all time high. With more queued up.
And when they're not fending off creditors and laying off employees, what's left of their operation is out there drilling and producing. It's all they know how to do.
Actually, maybe it's kind of sad.
With vast underground natural-gas storage cells almost full across North America months earlier than normal, producers hope for an early, cold winter to eat up some of the surplus.
And perhaps even a hurricane or two to hit the Gulf of Mexico and take some gas production off-line.
"It's a heck of a way to run a business, hoping for storms and cold weather," said Gary Leach, executive director of the Small Explorers and Producers of Canada.
Sagging consumption because of the recession and less air-conditioner use during a cool summer in the U. S. has killed demand. But until recently, the supply has been strong from existing gas fields and new shale-gas plays.
U.S. producers are pumping more than 66 billion cubic feet of natural gas each week into storage reservoirs -- largely depleted oil and gas deposits
The situation is even more dramatic in Alberta, where producers have put almost 360 BCF into the 380 BCF of storage available here.
"We hit the 360 BCF in Alberta last year, and it was the highest figure ever. But we hit that in November, and the start of winter, not August,"
And that means months of oversupply and very low gas prices.
The spot price for natural gas in New York fell below $3 US per million BTUs and kept dropping Thursday, winding up at $2.94. The average home uses 120 Gj per year. That means there is enough natural gas in storage today in Alberta to supply 3.3 million homes.
Paul Amirault, senior vice-president of Niska Gas Storage, said his facilities in the Suffield and Countess areas of southern Alberta are, like most in North America, almost full. Niska rents storage space to producers. "If customers fill their space to 100 per cent and have more gas that they want to store, that's their problem. I've seen years when the capacity approaches full at the end of the injection season [in late fall] and the gas commodity price sees downward pressure until cold weather comes."
Natural gas was trading at less than $2 per GJ throughout the 1990s, but there is hope it will rise by next summer. Gas futures are trading at $6 for August 2010 in the U. S. -- much less than the $10 price peak in 2008.
While larger oil and gas companies have shut some of their gas fields, Leach says smaller producers don't always have that option because they need the cash flow to cover their operating costs.Posted by Arthur Caldicott on 23 Aug 2009