Best Financial Markets Analysis Article Maninder Singh Batra writes: Shale gas in the past few years , has emerged as a tough competitor to conventional natural gas due to the massive increase in spot natural gas prices and advancement in hydraulic fracturing technology . But lately,since 2009 , there has been a massive decline in the natural gas spot prices(Henry Hub) ,due to massive glut in the natural gas market .

Most Shale gas players cannot make profit and maintain at rates below 5$/Mcf , as proven by Chesapeake CEO’s Statement :
“McClendon admitted on the company’s February earnings call that $5.00 per million BTU pricing on the New York Mercantile Exchange (NYMEX) equates to $3.50 gas at the wellhead, once differentials like gathering and compression costs are included in the cost calculus. “Even $3.50 gas at the wellhead does not create enough cash flow in the industry to maintain today’s drilling price — even for the best-managed shale plays,” he said.

Excluding takeaway-pipeline expenses (like gathering and compression costs), Chesapeake posted, on average, production and development costs of $3.47 per Mcfe, according to the company’s 2009 annual earnings report.”

And currently , as the natural gas price chart shows that the current prices are below 5$. The only reason why Shale Gas players had managed to earn profit in the first quarter of 2010 ,was due to hedging gains.

But , this cannot continue forever and ultimately ,the shale gas industry will suffer losses ,if the natural gas spot prices continue to remain this low . But , there are better alternatives ,like converting this natural gas into synthetic diesel and Gasoline , or even synthetic light crude using FT process to convert the gas into liquids.

Considering that the crude oil prices are hovering around 72$ ,it will be very profitable to convert the gas into GTL Diesel, ATF , naphtha . also there are several new GTL technologies and small scale GTL plants coming up and these have conversion efficiencies and energy efficiencies much greater than conventional large scale GTL plants .

So, rather than just competing with natural gas , shale gas players should also invest in GTL .

By Maninder Singh Batra

maninder300@hotmail.com

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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