Economics

While numerous factors affect natural gas prices, the price floor rests on coal; that is, the economics of coal-fired power generation relative to gas-fired plants, Barclays Capital analysts said in a recent note.

The economics of shale gas development are fundamentally different than conventional resources, requiring a longer time line to reach profitability, according to Terry Engelder, the Pennsylvania State University geosciences professor who helped prove the value of the Marcellus Shale.

Operators have the tools today to tap into unconventional natural gas and oil reservoirs at a more efficient and more productive pace but the technologic advances have only scratched the rock’s surface, a Schlumberger Ltd. executive said earlier this month.

During the first quarter predominantly shale gas-focused EXCO Resources Inc. produced more and sold it for less. The company had planned to do the former and is making the best of the latter, said CEO Doug Miller, who told financial analysts Wednesday that “it’s hard to put lipstick on this pig.”

Proposed North American natural gas liquefaction projects have been popping up like dandelions over the last several months. By the count of Barclays Capital analysts, there are now nine proposals to liquefy the continent’s gas and send it abroad. Asian markets appear to be the most attractive destination, they said.

While the impacts of shale gas and lower overall natural gas prices could eventually alter the status quo, currently gas storage in the West looks adequate, according to sources at Pacific Gas and Electric Co. (PG&E), a partner in the region’s newest underground storage facility, Gill Ranch in Northern California (see Daily GPI, Oct. 5, 2010; Sept. 27, 2007).

Global gas producer BG Group plc, which has substantial production under way in the Haynesville Shale and growing output in the Marcellus, said Tuesday its net production in the United States by 2015 will nearly double to 190,000 boe/d from the current 100,000 boe/d.

SM Energy Co. said it plans to spend $1.04 billion next year, $830 million of that on drilling, mostly in the Eagle Ford Shale and the Bakken/Three Forks in the Williston Basin. The company’s putting its money in “all the right places,” according to an analyst at Tudor, Pickering, Holt & Co. Securities Inc.

Natural gas liquids (NGL) economics continued to improve in October, and the petrochemical industry’s conversion to lighter feedstocks, namely ethane, has been happening more quickly than expected, analysts at Wells Fargo Securities said Monday.