For much of the last 3+ decades that I've been observing, natural gas prices in the USA were very low.  For many years I can recall see a recurring theme in trade journals about when the "gas bubble" (i.e., low gas prices) in the USA was finally going to burst.  There were a few years of higher prices, but mostly low prices.  All over the world stranded gas (i.e., gas produced from oil fields which had no accessible markets for gas) was simply flared as a worthless byproduct of producing oil.  LNG technology as well as horizontal drilling coupled with hydraulic fracturing have become a game changer for natural gas in the USA and the world.  The horizontal drilling and fracking technologies have caused an oil and gas drilling boom in the USA, despite the anti oil politics of the current regime.  Within a brief ~5 year period the USA has transitioned from being viewed as the targeted market for LNG imports by all LNG exporters around the world, to becoming oversupplied with a 100+ year supply from drilling and fracking shales.  Prices have plummeted to the point where industry has pivoted in a major way away from gas drilling to more "oily" gas and oil well drilling in order to make a profit.  The result of all this technology is that the USA is now again the largest oil producer in the world with production rates steadily climbing, recently surpassing Russia.  You may have read books on "Peak Oil" (I did years ago) making very believable arguments that we were running out of hydrocarbon resources in the world and that the Peak global oil production had been or was soon to be reached, meaning that in subsequent years the world would see continually declining production.  These statements were made by highly respected oilfield geologists.

The same technology which created the gas opportunity has now created the gas glut which has now destroyed the economic opportunity (hence "technology giveth & technology taketh away".  Huge economic losses have been incurred by many companies that paid too much and didn't get the best properties.  Those same companies are now working to replicate the same thing with gas development in the rest of the world to take advantage of higher prices.  Some countries have banned fracking, a practice successfully and safely in use in the industry for over 50 years.  So that will help prolong the high gas price period.  The other technology, LNG, is now becoming prolific.  Eventually gas prices globally may be moved significantly downward.  The floating LNG capability and modular expansion  will further build on this.

Yet another gas production technology is in its early stages of development.  That is the producton of gas hydrates (ice like crystals consisting of methane gas which occur in the shallow cold (typically cooler than 80F) sediments of oceans around the world.  Reportedly, the potential global volumes of methane gas hydrates in place are according to a US DOE publication (2011): "A frequently quoted estimate of the global methane hydrate resource is 20,000 trillion cubic meters, or about 700,000 Tcf." So that's about 100,000 Elk/Antelope fields. Needless to say, if/when the technology to develop and produce this resource is available, huge economic impacts will result and have a large downward pressure on prices.  It may be several decades away or could be much sooner.  Developing gas hydrates is a very complicated, costly problem to solve, but that's not stopping anyone yet.  A news search shows that a successful limited technology field trial/production test was conducted by Conoco and their partner, JOGMEC (Japan) in 2012 http://www.netl.doe.gov/technologies/oil-gas/FutureSupply/MethaneHydrates/projects/DOEProjects/MH_06553HydrateProdTrial.html.  Obviously, Japan has a huge incentive to make this technology succeed to tap the huge methane hydrate deposits they have in their own waters.  They clearly see this as a potential dream come true in terms of addressing their energy needs.

A current disruption is that ample suplies of low cost gas (along with the regime's actions to shut down dirty coal plants) in this country have crushed the coal industry which in turn is hurting railroads (I own both) which depend significantly on revenues from transporting coal.  Also pressures to reduce green house gases and improve air quality are drivng more countries away from coal.  The Fukishima incident also is driving more countries away from nuclear power.  So gas demand is increasing rapidly which means more investment is being made in developing all kinds of more effective technology to produce and deliver all kinds of gas resources.  The development of more, better, more cost effective, gas related technologies is accelerating.  No one could have ever predicted these things just a few years ago.  How supply, demand and prices will sort out over the next few years is something a lot of smart companies, investors and governments are spending a lot of effort thinking about.  No doubt this "creative destruction" as economist call this will drive the coal and nuclear boys to reach deep to come up with better, safer, cleaner, lower cost technology, but the cards currently in their hands don't look too good.  Gas is on its way to becoming king of the power generation fuels.  Coal use for power generation is still predicted to climb, but those predictions seem to keep shrinking as time goes on.

The Peak Oil argument is just another Malthusian argument that will be proven wrong or perhaps already is.  Just the opposite is happening. No one predicted the abundance of energy supplies that are coming forth in the USA.  One thing is certain, the pace of technological advancement is much faster each year.  And it is highly disruptive to the world and markets.  Individual companies thriving today, may be wiped out in a few years by some technological development they weren't expecting or able to adapt to. 

So the question is how long can the global gas opportunity last for producing companies?  No one knows.  It's capacity is ramping up quicky while demand is also growing.  That's great to see.   But the duration of high prices probably may be much shorter than anyone would guess.   The companies earliest to market and lowest cost producers with good market access will be the long term winners and survivors.  IOC appears to be in a very good position technically, economically and commercially (once the XOM deal is inked) to ride this wave, but valuable time is slipping away, if indeed a technology disruption of the market is down the road.  Further delay could end up being costly as more supplies become available.  I commented on the political risk recently as the biggest remaining risk for IOC.  But delay is not good.  Hession should know this as do XOM and RDS.  So Hession is right to resume drilling to reveal additional resource and accelerate its development and sale into the market.  Drill baby drill!  PNG please don't mess this up.

'Palm' pid='30011' datel Wrote:Yes but we also know PNG is not keen on being the first try try new things. They talked big talk with both FLNG and modular but they backed off of both quickly because they want the sure thing of a more traditional project. IOC is just fine with EA and other prospects time-wise. Hession knows what he's doing. This is a bit alarmist I'd say. Besides it being in the very early stages of study (in the US shale technology studies began in the 70s and early 80s) Japan recently announced that environmental issues have to be looked at. They are starting a 7 year study on that issue. Besides that what Japan comes up with already is being seen as not working elsewhere. India and China already know their geology is different enough that they will have to come up with their own technology. Besides that Japan is looking at this more to replace coal it is now burning not so much NG. Besides that this concerns methane which environmentally is far more "dangerous" than CO2. To say the least this is as much a threat to IOC as the meteor that might hit the earth in 2032. Anything on Wahoo yet, or is this the beginning of that analysis? Hope you find time this weekend once the day job is done for the week.

I think gas prices outside the USA are safe for a good while.  But I've work in technology and for a long time.  I'm more and more amazed by what I see and the pace at which it is occurring.  Very smart people who work all day on predicting global production and demand completely missed this.  "Alarmist"?....perhaps.  My job DNA is to find risks and threats and prevent bad outcomes.   I did some light reading on the potential for shale gas onshore in Austrailia, an untapped area as far as I know.  I would keep an eye on that one.  Yes I have heard that China shale gas is not working out as hoped, so that helps delay/avoid some downward pressure.  I suspect PNG may not want the FLNG because the shipe can ship off and leave the country if things aren't well.  That would be a great lever to have where politics are not stable.  Plus the construction is done elswhere, cutting them out of a lot of that opportunity.  Not sure what you mean by methane being "more dangerous than CO2."  As a greenhouse gas yes.  But methane is the 95+% of the content of natural gas produced from oil and gas wells.  When combusted in power plants it emits about half the CO2 as does coal.  Flaring of natural gas which is mostly methane is now illegal in a lot of petroleum basins and/or greatly restricted and regulated.  So I don't see it being dangerous.  My understanding is that the biggest global methane pollution source is flatulence from mammals.

Have started to review past presentations to learn more about Wahoo.  Could you please direct me to the best source for data on that?  I'm not seeing much so far.  Thanks.  Kaliboo.

'Palm' pid='30038' datel Wrote:The mention of the "danger" of these hydrates refers to the fact that these hydrates are stable only within a very narrow temperature range. There is concern that it wouldn't take much of an oooops to have this methane be released into the atmosphere and be more heat-trapping than what we now have with the CO2 theory. Again, with the thought today that this source, if and when they can produce and harness it cost-effectively, will most likely replace coal use, not sure what effect it has today on IOC and the deals being worked on. With this technology in the infant stages Japan and others have to be concerned still with near term energy sources. And with PNG being a low-cost country at present IOC sits in a very good position for some time to come. As far as Wahoo, the presentations and other info referenced elsewhere on SHU give lots of info. Look forward to your thoughts.

Yes, I've seen that on the internet sites that list the many really bad things like an asteroid collision, Yellowstone caldera blowing again, etc., that can happen in nature without man's assistance.  They are interesting reading and remind one how fragile our existence is.  In deepwater below ~1000 ft the temperature is always around 40F unless your talking Arctic, and the pressures are really high since water depths are 1000+ ft.  The combination of those two factors is what makes and keeps hydrates in the ice state.  As gas seeps migrate closer to the seafloor where it's cold, they form these gas hydrate accumulations.  If it's not cold enough, then the gas just percolates into the ocean.  So you have to drastically reduce the pressure and/or raise the temperature for them to become unstable.  That can't happen on the ocean floor unless there were e.g., some large, very hot natural thermal source or unless man introduces the change.  I haven't researched this disaster scenario, but the physics don't favor it.  In any case whatever man does technically is only going to affect a highly localized extraction point and thus can't release a large volume all at once.  I.e., it's not a dam bursting.    But true it is nothing like oil and gas drilling.  Totally different beast.  Shallow gas and gas hydrates are a common risk in offshore drilling that has to be mitigated in the design and operations.  It's SOP.  So all the comments about technology and risks to gas prices are a friendly note to the guys who are intending to go really long (as in years to come).  As someone else frequently says, "use or flush".

'ArtM72' pid='30051' datel Wrote:Kaliboo - Very interesting posts. Thank you. Just a little minutae. It is the ruminant type of mammals (e.g. cattle, sheep, goats, deer, and giraffes, characteristically having a stomach divided into four compartments and chewing a cud consisting of regurgitated, partially digested food) that are the mammalian methane producers. Not that my wife would necessarily agree.... A sheep can produce about 30 litres of methane each day and a dairy cow up to about 200.

I hadn't checked those stats out on the animals.  That's quite impressive.  Also it sounds like our wives might have a similar perspective.  Methane production seems to  increase wtih age.  Good thing I don't smoke.

'Palm' pid='30038' datel Wrote:The mention of the "danger" of these hydrates refers to the fact that these hydrates are stable only within a very narrow temperature range. There is concern that it wouldn't take much of an oooops to have this methane be released into the atmosphere and be more heat-trapping than what we now have with the CO2 theory. Again, with the thought today that this source, if and when they can produce and harness it cost-effectively, will most likely replace coal use, not sure what effect it has today on IOC and the deals being worked on. With this technology in the infant stages Japan and others have to be concerned still with near term energy sources. And with PNG being a low-cost country at present IOC sits in a very good position for some time to come. As far as Wahoo, the presentations and other info referenced elsewhere on SHU give lots of info. Look forward to your thoughts.

Everything I have read about methane hydrates indicate that they are also sensitive mechanical disturbances and can have massive releases in such cases.  That along with the temperature sensitivity and perhaps other factors make them very difficult to safely and efficiently harvest.

As long as the accidental release of methane into the sea and atmosphere remains of major concern (global climate) I believe it will take some major advances in technology to allow commercial harvesting of methane hydrates, IMHO.