Energy, Energy Service, Natural Gas & Oil Sectors
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» lcha - A Case for NG
I will try to present a case for the long term (2-5 years) prospects for natural gas(NG). My argument centers on the NG fired power generating plants expected to come on line over the next several years.Industrial Information Resources Inc. reports "1453 new power generating units in development capable of producing an additional 179,946 mega-watts (MW) of new capacity for the U.S., scheduled to come online over the next 24 months. This number represents 127,529 MW of new generating capacity from 1,010 units to be constructed at 340 new power plant sites, worth a total investment value (TIV) of $65.2 billion in construction, and 52,417 MW of new generation capacity from 443 units to be constructed at 167 operational power plants worth a TIV of $15.9 billion".
So the question is now much NG will this additional power capacity require. Lets assume that 75% of the NEW plants and 50% of the retrofitted plants will use NG. Then we have 95,647 MW of new NG power and 26,209 MW of retrofitted NG power for a total of 121,855 MW of NG power.
At 100% efficiency, 1 kilowatt hour = 3.3 cubic feet of NG on a BTU basis. NG plants don't run at 100% efficiency. Depending on the age and type of plant, the actual efficiency is between 50-60%. I will use 60%. So now 1 kilowatt hour = 3.3/0.6 = 5.5 cubic feet NG.
Using a plant load factor of 85% would give 1 kilowatt hour = 5.5 * .85 = 4.68 cubic feet NG. An energy analyst for Raymond James did this same type of calculation and came up with 4.5 cubic feet. Depending on assumptions, I have found estimates as high as 6.7 cubic feet NG. To be conservative I will use the 4.5 cubic feet figure.
To run a plant for a day, 1 MW/day = 24000 KW. So to run 121,855 MW for a day you would need 2.924 billion KW.
So using the 4.5 BTU conversion factor, 2.924 billion KW of power will need 13.1 Billion cubic feet (BCF) of NG per day.
The latest figures I have found show we are using around 61 BCF of NG per day, on average, over a years time.
This shows we will need 21% more NG just to run the power generating plants that are coming on line over the next 2 years. Last year, the U.S. increased NG production 2% over the previous year. We are going to need an incredible effort to increase NG production 21%.
The NG price spikes we saw last winter were a warning shot. Don't be fooled by the current, short term decrease in NG prices. We have 1453 new power plants to feed.
On top of this I suspect Kirk will some day want to run his hot tub again so add back the 10% power conservation CA mustered up. Also, add back in the extra energy a GROWING economy will use, thanks to uncle Al's rate cuts.
-- posted by lcha
» lcha - Re: A Case for NG
In response to message posted by lcha:How can I poke a big hole in this NG case?
How about looking at how many gas turbines GE, by far the largest manufacturer of gas turbines, will manufacture.
In 2001 GE expects to manufacture 230 turbines that produce an average 112 MW each. In 2002 they expect 280 turbines at 115 MW each.
The sum total of these turbines will produce 58,000 MW. This does not reconcile at all with the IIRs number and my assumptions. Using this 58,000 KW figure, we need an additional 6.3 BCF or a 10.3% increase in NG production to feed these turbines.
This is still not a bad increase in demand and assuming current demand does not collapse, still bodes well for NG E&P companies.
-- posted by lcha
» Rande - Re: Re: A Case for NG
In response to message posted by lcha:
What about the supply side? In CA, drilling permits are up nearly fourfold from a year ago. Permit activity is up dramatically all over the country:
CO increase 64%
This year the state is on track to approve nearly 2,500 drilling permits, said Rich Griebling, director of the Colorado Oil and Gas Conservation Commission. Last year, the state approved 1,529 permits compared with an average of 1,035 permits approved in each of the five previous years, he said. Oil and gas drilling permits are on pace to rise 65 percent this year after jumping 50 percent last year….
UT on pace for 35% increase
State permits for oil and gas drilling on state, federal and private land have jumped, too. All of last year, the state Division of Oil, Gas and Mining issued 673 permits. In only the first four months of this year, 303 were granted.
WY
The Bureau of Land Management's Wyoming state office has been hit with a surge of applications for permits to drill for natural gas.
Latest NG futures:
NGQ1 Aug 3.180 -0.100
NGU1 Sep 3.270 -0.081
Headed for the $2 range?
-- posted by Rande
» lcha - Re: Re: Re: A Case for NG
In response to message posted by Rande:There is definately more drilling going on. But permits are not working rigs. My clients tell me they are having to wait on drillling rigs, sometimes for months depending on what kind of rig they need. So the drilling will move slower than the permitting.
Last year Texas working gas rigs increased significantly over the previous year but overall production was up only 2% due to depleting older gas fields. It's production that counts.
If gas goes to $2 the next energy crisis will be a doozy.
-- posted by lcha
» Rande - Re: Re: Re: Re: A Case for NG
In response to message posted by lcha:Right, too much of a "good thing." Seems low $3s ought to be fine for all concerned. Same deal on crude -- I think we can all live with mid-$20s. Sure would be nice to find some equilbrium and hang out there awhile for a change.
-- posted by Rande
» lcha - Re: Re: Re: Re: Re: A Case for NG
In response to message posted by Rande:The smaller E&P companies may actual BENEFIT from NG prices in the $3-$4 range. Right now the larger exploration companies have an advantage in getting drilling rigs due to the volume of business they give the drilling companies. As such, the smaller E&P companies have to take sloppy seconds on rig availability and are getting pushed back. If lower NG prices cools drilling overall, the smaller guys get a better shot at rigs. Since they can make decent money in the $3-$3.5 range, they benefit.
I stole some Greka Energy (GRKA) today at $9.31 in a panic selloff. It closed at $10.40. Let the trend continue.
-- posted by lcha
» lcha - Gas Production Data
The following data was taken directly from the Texas Railroad Commission Web site. This is the state agency that oversees energy production in Texas. The actual web page is at:http://www.rrc.state.tx.us/divisions/og/...
The web page list stats back to 1995 but to fit my table on this page I just displayed back to 1998.
What should be disturbing to NG users long term is that in Texas, a MAJOR NG state, we are producing less gas in the first four months of this year than at any time since 1995 DESPITE substantially increased drilling for NG.
So far this year, unless Texas is an aberation in NG production, increases in our gas storage is probably coming from decreased demand, not increased supply.
The wacky way our commodity pricing works, we may well see $2.50 gas before it bottoms but I wouldn't count on it staying down there for too long.
MONTH 1998 1999 2000 2001January 495,526,643 480,505,877 478,243,802 482,907,784
February 449,310,715 433,219,853 446,205,941 432,844,265
March 495,786,021 472,732,077 482,966,123 469,680,114
April 481,792,637 456,646,803 468,892,979 440,320,019
-- posted by lcha
» lcha - Gas Production extra
Here are some other little tidbits to go along with my previous post.In 1998, the last year in which I could find available data, the U.S. produced 21,422 BCF (billion cubic feet) of NG. That same year Texas produced 5,800 BCF of NG or 27% of the U.S. NG production.
This week the Baker Hughes rig count showed 1275 rigs working in the U.S.. A year ago the number was 920. Texas has 513 rigs working now compared with 345 last year
The number of working NG rigs in the U.S. this week was 1060 and same time last year was 714.
This shows we have 48% MORE rigs looking for NG in the U.S. now than last year.
Last year at this time 77% of U.S. rigs were looking for NG. This year 83% are looking for NG.
My point with these statistics is this. We have 48% more rigs looking for NG than last year but as the table shows from my previous post, in Texas, a state that produces 27% of our NG, production is DOWN over last year for the first 4 months of this year. This is why you can not link drilling and drilling permits directly to production.
NG is a depletable, non-renewable resource. We are relying on it more but producing less of it for our effort. It is not easily importable and economically does not make sense to import LNG at NG prices under $4-5.
I am BULLISH NG longer term. I will also do my part to help find as much of the stuff as possible.
I would also like to thank all the people who sold me their shares of E&P companies at bargain basement prices this last week. I will be a very happy guy in a couple of years thanks to your shortsightedness.
-- posted by lcha
» lcha - NG to oil
Over the past couple of years, NG prices have been higher relative to oil prices. This has caused E&P companies to focus their drilling on their NG prospects and is why 83% of wells being drilled now are NG wells.If NG prices decline relative to oil prices you will see the E&P companies shift to their oil prospects that they have backlogged. This will have the effect of reducing the supply of NG in a couple of years, probably just when we need it again.
Don't you just love free markets.
-- posted by lcha
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