It’s the end of the day on December 1, 2016 and natural gas prices have broken $3.50/MCF. Impressive. I really hope that price holds. We have cold weather coming up in the next few days, so it probably will.
A Reuters article says that a lot of U.S. producers can produce oil and make money below $40/bbl. One area of the Bakken can even turn a profit at below $15/bbl! Those are numbers that rival Middle Eastern numbers. We may never see Saudi Arabia and OPEC power return, assuming we get more renewable energy sources built up in the next few decades.
For those interested in the environment, the natural gas industry is growing on pace to make it so that we will meet Paris accord emissions targets, even if Trump goes back on that agreement. That’s naturally, market driven, with no regulations or government mandates required. You could argue that coal regulations and renewables subsidies are forcing the market, but it appears that coal was already being phased out, and renewables are a pretty small part of the energy sector still.
Part of OPECs plan to cut 1.2 million barrels per day in production is to have non-OPEC countries also cut production by 600,000 barrels per day. Russia may not play ball. We’ll see what is said during the meeting on December 9.
A company called Blue Racer started shipping NLGs down the Ohio River to the Gulf Coast back in October. That’s great news for West Virginia royalty and mineral owners, since it’s a way of getting product out of West Virginia (it comes from the Natrium plant on the WV side of the Ohio) to a new market. The interesting thing about that is that not too long ago, there was a big stink about shipping produced water (water that comes back up the well after fracking) on the Ohio River, but there hasn’t been a peep about NGLs. Seems like NGLs would be far worse to ship, but what do I know?
A Reuters article says that Vladimir Putin was involved in getting Saudi Arabia and Iran to work together for the recent production cut/freeze agreement. If that’s the case, then it’s very likely that Russia will also cooperate. What will other countries do? If they all cooperate, then we could have a real production cut. Good news for U.S. producers!
There’s a very good story at FinancialTimes.com that goes into some detail about how the production cut/freeze agreement came about. It’s well worth the read.
There are some people out there saying that the production cut/freeze deal may succeed. They base their argument mainly around the fact that OPEC and Russia both need higher prices. OPEC didn’t expect the price of oil to fall as far as it did, and has been hemorrhaging money because of it. So it seems like the main arguments for and against are: It won’t succeed because all of the OPEC members cheat historically on these kinds of deals, and Russia’s oil production is partially privatized. It will succeed because OPEC members all need a higher price for oil, Vladimir Putin will strong-arm his cronies, and the private side of Russian production needs high oil prices too. It’ll be interesting to see what actually happens.
The cracker plant over in Ohio has reached another milestone. The property has been cleared of the old industrial plant, ready for new construction. The company has not come to a final decision, but since the cracker plant in Pennsylvania has been approved it’s expected that the Ohio one will be, too. This is excellent news for us in West Virginia. Greater demand for natural gas will increase the price, driving up royalty payments and bonus payments. The more they want your mineral rights the better a deal you’ll be able to wrangle from them. Too bad we can’t seem to make progress on the cracker plant in West Virginia.
December 12, 2016: Russia has agreed to participate in the oil production/freeze. Oil prices have jumped $1.33 per barrel.
December 19, 2016. Oil prices are at about $52/bbl, and natural gas prices are only at $3.40/MCF. The natural gas price is surprising. Considering the cold weather crossing the United States, I would have expected something closer to $3.75/MCF. We’ll take a look at why in the next edition.