Natural Gas Prices Could Rally this Year

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According to this MarketWatch article, natural gas prices could go up in the near future.

There are a couple of key factors to look at.  First, gas storage is 11% lower than the five year average.  That number alone is not enough to drive prices up as it’s likely that continued production will fill the gap easily.  There are, after all, quite a few wells which have been drilled but haven’t been brought online, and I was reading some posts on Go Marcellus Shale by mineral owners who think that Chesapeake has been closing valves on wells just because it doesn’t want to produce lots of gas in a low market.

Second, drilling rig numbers have dropped off.  We’re down 46% from last year.  That’s a lot of drilling rigs idled in one year.  That means we’re not drilling as many new wells, regardless of increases in drilling efficiency.  As old wells’ production numbers drop, new wells will be brought online to replace them, but wells won’t be drilled to replace the wells that have been waiting to be brought online.

Natural gas demand is going up.  This is a long-term trend, not a short-term blip.  Coal fired power plants are being shuttered, and will be replaced by natural gas fired plants.  Pipelines are being built, and demand for natural gas to heat homes is going to increase.

Oil prices are also likely to start going up again, as a lot of the same factors are going to affect oil stockpiles and production in the U.S.

The future for natural gas prices may not be all shiny and rose-tinted yet, but it’s certainly not bleak.

 

CNG doesn’t make sense for Long-Haul Truckers

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The reason that compressed natural gas isn’t a good idea for truckers lies in the trucker’s contract with the company they work for, not in the actual price of CNG.  This article over at Seeking Alpha explains it pretty well.  What it boils down to is this: trucking contracts are written in such a way that they protect the trucker from variations in gas prices, so a cheaper fuel isn’t going to help the trucker, and in some cases actually hurts.

It’s too bad, because if truckers would convert over to CNG there would be a huge demand for it.

What is Nuisance Oil?

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Question MarkWhat is nuisance oil?  To be honest, I don’t know.  I don’t have any problem admitting that, because I don’t think anybody knows what nuisance oil is.

I just read an article about a landowner in Ohio who received a lease from XTO which said that the landowner would receive royalties on material removed from his property, except for “non-commercial nuisance oil”.

I have never heard the term “nuisance oil” before, so I decided to do a little research to figure out what it could be.  First I checked my law school text on oil and gas.  It doesn’t have the term “nuisance oil” in the index.  Next I checked my Oil and Gas Law in a Nutshell.  It also doesn’t have the term in the index.  (Full disclosure, both books are in their 6th edition, and I have the 4th edition.)

Legal tomes failing me, I checked Google.  The only reference to oil as a nuisance was referring to those folks who were drilling for salt water and drinking water in the area where “Colonel” Drake dug his first oil well.  Before he started developing oil, they would hit oil all the time, but they considered it a nuisance because there wasn’t any use for it.  That was in the 1850s.  My how times have changed.

Google having failed me, I checked Fastcase.  There were no results for West Virginia.  There were two results for all jurisdictions.  Both had to do with nuisances resulting from oil and gas development.  There was nothing that indicated that there is any type of oil coming out of the ground and into a producer’s pipe that is considered a nuisance to the producer.

Nuisance oil is not defined in XTOs lease, it’s not defined in oil and gas law, and it’s not defined by the oil and gas industry.  That means that it’s up to XTO to define what “nuisance oil” is.  I guarantee that XTO will define “nuisance oil” in a way that will increase profits to XTO.  That will, unquestionably, reduce profits to the landowner.

Lesson: read your lease before you sign it, and make sure you understand what it says.  This landowner did, and has saved himself a lot of money, if he can get XTO to agree to a reasonable lease.

Cabot and the Rogersville Shale in West Virginia

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Rogersville Shale

The Charleston Gazette ran an article about possible development of the Rogersville shale in the western part of West Virginia.  Cabot Oil and Gas has been drilling the Cabot 50 in Putnam County for some time, and speculation is that it’s a good well.  Unfortunately, due to the downturn in the price of oil and gas, it’s unlikely that we’ll see any serious development of the Rogersville shale before the end of 2015.  As prices start to rise, I expect interest in the Rogersville shale to also rise.

Interestingly, there are at least two other formations that could turn out to be producible in that part of West Virginia.  They are the Trenton-Black River formation and the Loysburg formation.  They’re located in the Rome Trough, which seems to run pretty much in the same area where the maps we’ve seen are showing the Rogersville shale.  There’s a pretty good, if short, discussion from 2013 on the Go Marcellus Shale website about development of those formations over in New York.

Gas Power Plant Planned for Follansbee

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Brooke County, WV will hopefully be home to a gas powered electricity generator in a few years.  The City of Follansbee has approved a PILOT (payment in lieu of taxes) agreement with Energy Solutions Consortium, the company which will build and run the plant.  A PILOT agreement says that the city will own the plant and the company will lease it from the city.  This cuts down on the tax burden for the company, making the plant financially possible.  This is just one step in many yet to come.

The article also talks about the Marshall County plant which is further along in the development process, and says it is expected to come on line in June of 2018.

More Pipelines Break

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Broken Pipe

Heavy rains caused slips, which broke gas pipelines in Marshall County, West Virginia.  The Intelligencer out of Wheeling, WV carried a couple of stories about it, the most recent of which you can find here.

Anybody who’s read much of this blog knows I am pro-development.  But I also think that if you’re considering signing a lease or a right of way agreement, you need to know what you’re getting into.  The fact is, there are dangers and downsides.  The more you know, the more you can mitigate, and the better you’ll negotiate.  When you’re talking with a landman and you can say, “I’m concerned about the dangers to my property and my family because I know that heavy rains caused two broken pipelines back in April of 2015 and there were five pipeline accidents in January of 2015, and don’t forget about the Sissonville explosion,” you’re more likely to get a favorable response than if you say, “I think pipelines are dangerous and scary.”

Independent Water Testing Before Fracking

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Something I always tell surface owners to do is get their water tested.  I’ve never considered getting the air tested, as I’ve never thought that would be a long term problem.  After all, once drilling is done any air pollution will go away with the rig.  Air pollution from the well or pipelines shouldn’t be a problem, and if it is, it will have a pretty obvious source, such as a hissing crack in a pipe.  Apparently, though, air pollution is a concern.

Two Columbia University scientists are doing testing at 15 homes near fracking sites Pennsylvania.  They’re taking samples of both water and air.  They are gathering data to “provide an objective viewpoint to drive a more rational discussion.”  I’ll be very interested to see what their results are.

UPS Adds CNG Filling Stations

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UPS, the shipping company, is building fifteen new compressed natural gas filling stations.   They already have eight in operation, so this will bring their total CNG filling stations to 23, if I do my math correctly.  UPS has been using CNG since 1989, and uses a number of other alternative fuels in its fleet.  They have an alternative fuels factsheet over at their website if you’d like to check into a few more details.

One of the new CNG filling stations will be located in Charleston, WV.  This is great for us!  Not that the filling station itself will bring a lot of new jobs or anything.  We need more CNG filling stations and more CNG vehicles.  The vehicles are one of the things that will drive up demand for natural gas.  More demand equals higher prices.  Higher prices equal more royalties paid and more development.

Mountain Valley Pipeline Litigation is Getting Started

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People are lawyering up over the Mountain Valley Pipeline.  A while back, the MVP sent out letters to property owners saying that if the property owners didn’t allow the MVP surveyors onto their property, MVP would sue.  A few people took initiative and filed a suit asking that the MVP not be allowed onto their property.  Now MVP has filed suit asking to be allowed onto their property, and that of 100 other people who have refused access.  It’s an interesting question, whether the MVP can force people to allow surveyors under the eminent domain laws.  Certainly, Federal eminent domain won’t apply because the MVP hasn’t been approved by FERC yet.  State eminent domain laws might, but the surface owners’ argument is interesting.  West Virginia eminent domain allows eminent domain to be exercised for the public good, and since the pipeline is just passing through, there won’t be any good done to the West Virginia public.  If you’re interested in more details, the article over at the Register Herald is worth a quick read.