Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
UK Energy Firms Scamming Customers Out of Their Best Fixed Rate Gas Tariffs - 23rd Sep 21
Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Should School Children be Jabbed with Pfizer Covid-19 Vaccine To Foster Herd Immunity? - UK - 23rd Sep 21
HOW TO SAVE MONEY ON CAR INSURANCE - 23rd Sep 21
Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
Trading Crude Oil ETFs in Foreign Currencies: What to Focus On - 22nd Sep 21
URGENT - Crypto-trader event - 'Bitcoin... back to $65,000?' - 22nd Sep 21
Stock Market Time to Buy the Dip? - 22nd Sep 21
US Dollar Bears Are Fresh Out of Honey Pots - 22nd Sep 21
MetaTrader 5 Features Every Trader Should Know - 22nd Sep 21
Evergrande China's Lehman's Moment, Tip of the Ice Berg in Financial Crisis 2.0 - 21st Sep 21
The Fed Is Playing The Biggest Game Of Chicken In History - 21st Sep 21
Focus on Stock Market Short-term Cycle - 21st Sep 21
Lands End Cornwall In VR360 - UK Holidays, Staycations - 21st Sep 21
Stock Market FOMO Hits September CRASH Brick Wall - Dow Trend Forecast 2021 Review - 20th Sep 21
Two Huge, Overlooked Drains on Global Silver Supplies - 20th Sep 21
Gold gets hammered but Copper fails to seize the moment - 20th Sep 21
New arms race and nuclear risks could spell End to the Asian Century - 20th Sep 21
Stock Market FOMO Hits September Brick Wall - Dow Trend Forecast 2021 Review - 19th Sep 21
Dow Forecasting Neural Nets, Crossing the Rubicon With Three High Risk Chinese Tech Stocks - 18th Sep 21
If Post-1971 Monetary System Is Bad, Why Isn’t Gold Higher? - 18th Sep 21
Stock Market Shaking Off the Taper Blues - 18th Sep 21
So... This Happened! One Crypto Goes From "Little-Known" -to- "Top 10" in 6 Weeks - 18th Sep 21
Why a Financial Markets "Panic" May Be Just Around the Corner - 18th Sep 21
An Update on the End of College… and a New Way to Profit - 16th Sep 21
What Kind of Support and Services Can Your Accountant Provide? Your Main Questions Answered - 16th Sep 21
Consistent performance makes waste a good place to buy stocks - 16th Sep 21
Dow Stock Market Trend Forecasting Neural Nets Pattern Recognition - 15th Sep 21
Eurozone Impact on Gold: The ECB and the Phantom Taper - 15th Sep 21
Fed To Taper into Weakening Economy - 15th Sep 21
Gold Miners: Last of the Summer Wine - 15th Sep 21
How does product development affect a company’s market value? - 15th Sep 21
Types of Investment Property to Become Familiar with - 15th Sep 21
Is This the "Kiss of Death" for the Stocks Bull Market? - 14th Sep 21
Where Are the Stock Market Fireworks? - 14th Sep 21
Play-To-Earn Cryptocurrency Games Gain More and Is Set to Expand - 14th Sep 21
The CashFX TAP Platform - Catering to Bull Investors and Bear Investors Alike - 14th Sep 21
Why every serious investor should be focused on blockchain technology - 13th Sep 21
SPX Base Projection Reached – End of the Line? - 13th Sep 21
There are diverse ways to finance the purchase of a car - 13th Sep 21
6 Tips For Wise Investment - 13th Sep 21 - Mark_Adan

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Natural Gas Lies, Damn Lies, and Statistics

Commodities / Natural Gas Dec 29, 2011 - 10:19 AM GMT

By: Money_Morning

Commodities

Best Financial Markets Analysis ArticleDr. Kent Moors writes: It has been a while since I responded to your many emails.

So, as we await the latest developments in the European debt mess, today seems like a good time to answer a few. This time around, I am addressing some of your questions and comments that deal with natural gas.


By the way, my staff and I read all of the input and feedback you send our way, and we're very grateful for it. Please email me at customerservice@oilandenergyinvestor.com. (I can't offer any personalized investment advice, but I can address your questions and comments in future broadcasts.)

Let's get started...

Q: I've just read recently several articles stating that the EIA has revised downward its estimate of our natural gas shale reserve potential by deciding to accept, unconditionally, the most recent U.S. Geological Survey stating that the Marcellus, Eagle Ford, Barnett, and other shale formations hold only 20% of the heretofore accepted reserves. This is an 80% reduction! This changes everything if true.

That's the question - is this bogus, or is there factual evidence to conclusively support this new estimate? ~ Howard B.

A: Howard, this reminds me of a famous statement from the 19th-century British Prime Minister Benjamin Disraeli (though the comment is also variously ascribed to Mark Twain, Alfred Marshall, and many others): "There are three ways to hoodwink the masses - lies, damn lies, and statistics."

The Energy Information Administration (EIA) - a unit of the U.S. Department of Energy - continues to wrestle with the distinction between reserves and extractable reserves.

The first is the volume of gas indicated by field tests and analysis. The second is gas available for extraction at current methods. I would also stipulate as "extractable" reserves only the volume that market conditions allow.

When you equate the two, we are still in the same ballpark.

Current estimates put no more than 20% of known reserves as "extractable." As technologies improve, that figure could improve, too.

For now, the EIA estimate falls in line with most others.

So to answer your question, nothing much has changed here, aside from some government bureaucrats wanting their figures to be more accurate.

Q: Kent, your work appears to be expanding into areas of advisement that could affect the future profitability and wellbeing of nations and their business relationships with existing partners. A delicate balancing act if there ever was one! If such arrangements are not handled carefully, could sanctions and/or military skirmishes be the outcome? Are we facing the possibilities of "gas wars"? ~ Fred P.

A: Well, Fred, there are some flashpoints - such as the periodical problems between Russia and Ukraine on the movement of gas into Western Europe, or the ongoing tension over allowing Iran to pipe gas across Afghanistan and Pakistan to India.

But these are not likely to generate more than political conflicts.

Mostly because, with the advent of unconventional sources, such as shale gas and coal bed methane, there are now far more available sources than there were 10 years ago.

Certainly, significant questions remain: How much volume is actually extractable? What capital infusion is required to develop or upgrade processing and transport infrastructures?

Nonetheless, the added volume and ease of availability is changing the picture.

The latest multi-year survey puts the known global reserves of shale gas alone at more than 6.6 quadrillion cubic feet, contained in 688 identified plays in 162 basins, with some 10% to 20% extractable at current methods. And only about half of the world's territory was even included in these studies!

These basins are located throughout the world, making the "new age" of natural gas one that carries the prospect of providing more energy to more countries. That will require exporters to revise how they calculate contracts, especially with the volume coming into Europe. (That means you, Gazprom OAO (PINK: OGZPY), as we consider with the next question...)

This, combined with the rapid rise in liquefied natural gas (LNG) trade, allows for the rise of a more balanced and price-contained market.

We still have significant concerns over the environmental impact of fracking, and whether some countries (such as Ukraine) with such an immediate need for the energy can set up adequate regulations to oversee the extractions.

But on balance, the widespread availability of new sources is the best defense against the use of military or political or other pressure on the energy front.

Q: I own [shares of] Gazprom, as it is the cheapest large gas company in the world. However, they have yet to move to spot market pricing for gas, like the rest of the world. (The European and Asian gas prices are one-half the value of oil, while American prices are one-quarter, a much better price for us!) We Gazprom shareholders voted the government off of the board earlier this year, but the Russian government still has a controlling interest. ~ Eric T.

A: Westerners who own Gazprom shares usually do so via depositary receipts that trade at a premium to the domestic shares available in Moscow.

While Gazprom is the largest natural gas company in the world, they have stubbornly resisted moving from a standard pipeline contract for their gas exports.

That contract model is long-term, has a take-or-pay provision (the customer must accept a certain amount of gas or pay for it anyway), and has its pricing determined by a basket of crude oil and oil products.

That means, as oil prices increase, so does the price of gas.

Gazprom remains the primary exporter to Europe, although that position is not as secure as it once was, for two reasons.

First, we've seen a rush of LNG into Europe from Qatar (the first major gas producer in the world to commit all of its exports to LNG only) and Algeria, with the likelihood of U.S. volume coming in a few years. This has established a local spot market that typically significantly undercuts the price specified by Gazprom's pricing formula.

Second, the prospects of Western European shale have altered Gazprom's thinking. While the Russian giant still flatly dismisses shale as a "flash in the pan," it has quietly begun to discuss revising its own approach to contracts. But that will take time.

The LNG spot market has actually resulted in Gazprom providing "temporary" changes to its 20-year long contracts, in which a percentage of the volume is actually priced at the spot rather than pipeline price. Gazprom insists these revisions will not last long - that they are "exceptions." Of course, when such exceptions are provided to any one European customer, they will be demanded by all, or else the Stockholm Arbitration Court is likely to get involved, and Gazprom is hardly likely to win.

Spot markets tend to stabilize prices by providing a floor, since spot transactions are usually accomplished at a cheaper price.

The LNG factor allows that market to expand, since the ability to move liquefied gas by tanker means a pipeline confluence - such as Henry Hub or Baumgarten - is no longer required to set the price.

It is true that the government is not entirely out of the picture. It still controls the board and a majority of the company's voting shares. The board chair is no longer a sitting minister (it had earlier been Deputy Prime Minister Victor Zubkov), but that was not a decision of the stockholders.

Russian President Dmitri Medvedev ordered all ministers to vacate chairmanships of all corporate boards, leaving the impression that the Russian government is still firmly in charge.

Source :http://moneymorning.com/2011/12/29/natural-gas-qa-lies-damn-lies-and-statistics/

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in