Shale Gas Hitting Global Thermal Coal Market

[HitandRun]

Yeokiwi

I'm disappointed with your comments as I believe that you are a good analyst. A person does not need to know how to grow a lemon to recognise a lemon.

In any case, I'm not sure whether Bill Powers is a good analyst but I've got special interests in energy related research.

A case in point is Chesapeake.

1. When Temasek invested in Chesapeake. My immediate reaction was "Oh Sh**!". Fortunately, they were invested in convertibles, which limited their downside. Currently, it appears unlikely that any conversion is going to take place. TH in CHK

2. Some experienced oilmen explained to me the potential problem in companies like Chesapeake. They have a voracious appetite for capital investments and has not shown a positive cash flow for many years. They have to keep raising debt or sell (inflated?) assets to survive. However, at the price of $4 per thousand cubic feet of NG, they can't make real money.

3. For the buyer of the assets, the quality has been rather questionable. BHP 1 and BHP 2
If BHP has to take a write-down of $2.84b on a $4.75b investment, it makes one wonder how much inflated assets Chesapeake is carrying.....

4. To quote another oilmen, we can't be sure of any reserves that is booked until the drill bit meets the oil (or gas).


I will leave valuebuddies to draw their own conclusions on the great shale "renaissance".

[greengiraffe]

Revolution or not - mining is a very risky business.

I still remember analysts stoking the fears of Peak Oil during 07/08and predicting that oil price will hit US$200/barrel.

Franking, who can tell with certainty that the amount of reserves that mother earth has underground - till today, I still don't understand the methodology behind estimates.

Who is right or who is wrong doesn't matter. Its how much $ you can make out of the process and what use have you got for the $ that you make.

$ on its own is just a cold figure. You can have all the $ sitting in the bank but if you don't spend it wisely and responsibly, it remains a cold figure staring blankly at you.

As an analyst, we just have to ensure that we have a view, make the best out of the view, make adjustments out of that view and enjoy the game of investments. Ultimately, investments is just part of our limited life journey.

Half full, Half empty - you decide.

YMMV
GG

[yeokiwi]

A person does not need to know how to grow a lemon to recognise a lemon.

True to only a certain extent. How about a diamond? Is it man-made or from mine? Probably, you reach the level to distinguish the twos. I can't.

For more complicated scenario, components, systems or in this case, shale that are stored underground. It is more than just analyzing the output of the drill wells to put forth a paper, a book, a theory to debunk the hard work that had put in by engineers, geologists and scientists that analyse the geographical layers, perform drills and make sense of the seismic results.

All theories must be backed up with proper experimental results and approved methods of conducting the experiments.

It's who you trust more, EIA or bill powers.
No one, unless you live below the earth crust, can estimate the amount of shale to an accurate figure. Not to mention giving a prediction that the shale will not last 10 years.
http://www.eia.gov/analysis/studies/usshalegas/

Estimating the technically recoverable oil and natural gas resource base in the United States is an evolving process. For shale gas and oil, the evolution of resource estimates is likely to continue for some time. The size of the technically recoverable oil and natural gas resource base in the United States becomes evident only as producers drill into geologic deposits with oil and gas potential and attempt to produce from them on a commercial basis. As producers find plays to be more or less bountiful than expected, resource estimates are adjusted to reflect that information. As time passes and our knowledge of the resource base and future technologies and management practices improves, estimates of the technically recoverable resource base will be refined. Consequently, the resource estimates in the current report will be modified over time as more wells are drilled and completed, technologies evolve, and the long-term performance of shale wells becomes better established.

The estimates of shale oil and shale gas resources provided here represent a reasonable estimate of the resource potential for those shale plays for which public information is currently available. The potential impacts of the current uncertainty regarding shale gas resources on projected natural gas supply, consumption, and prices are described in the AEO2011 Issues in Focus article, "Prospects for shale gas."

Or another analyst that thinks differently from Bill??
http://oilprice.com/Finance/investing-an...estor.html

[smallcaps]

Don't worry, another Bill will save us all...

http://terrapower.com/pages/benefits

[specuvestor]

Shale Gas is not the Saviour you Think – Bill Powers Interview

http://oilprice.com/Finance/investing-an...rview.html

Quote: "In fact, most shale gas wells will produce the majority of their reserves within their first five years of production."

That's what I have written previously as well. People think Shale gas fields last as long as oil fields and I think this is the key variable.

No matter how I look at it, Mr Bill Powers does not look like he had drilled a well, know how to drill a well and has an army of scientists and engineers behind him analysing the shale gas reserve.

He is probably more interested to sell his book and get some instant fame.

If he is right, then exxonmobil, shell, Chevron must be mad to put in money to develop shale gas.

IIRC the cost of developing shale gas fields are much cheaper than oil fields and they are abundant. They were previously hampered not because of capex but because of environmental damage if you understand how they are extracted. But the issue is the fields don't last long because of leakage ie they are gas reserves spread across much more thinly than NG which is usually contained together with oil. I am not a geologist but it seems that you would have a huge spike in production but you need to keep opening new fields as the existing ones will exhaust after around 3-5 years. They have short "half-life". Economically it means we will have a relatively short spike in production before it stabilises with more fields being opened in 3 years to repake the "peaked" ones.

The key macro question is how sustainable is opening the new fields after the low hanging fruits are plucked? There is however little doubt that they will be abundant in next 3-5 years, so it depends on your time frame on being optimisstic.

[mrEngineer]

Any technology when new would have a long learning curve and be non-economical in the beginning. No one can really predict how e events will turn out. Are the reserves estimates are true, are there side effects of fracking like contamination of ground water, earth quake causing or soil erosion. But the truth is natural gas is relatively untapped. Check out coal bed methane reserves worldwide with largest reserves in Indonesia and Australia.

The only exception in alternative energy is solar which I think physically is too inefficient to process solar energy enough to be cost effective against coal or fuel. IMHO.

[HitandRun]

I still remember analysts stoking the fears of Peak Oil during 07/08and predicting that oil price will hit US$200/barrel.

Allow me to offer a different interpretation of events. When these analysts were giving these predictions, they forgot one variable, a variable that is even more significant than the shale oil (personally, I prefer to call it tight oil) and fracturing stuff.

If you examine the BP statistical review, you will realise that OECD countries has pulled back significantly on their oil consumption!! The drop from 2005 as compared to 2011 is almost 4 million barrels a day, even bigger than the 1.5 million barrels a day increase in production in the US.

Therefore, from the view point of oil consumption, OECD countries have suffered a negative growth of 8% from 2005 to 2011.

---

It's who you trust more, EIA or bill powers.

Very true. [Just wanted to poke you a little ]

And there are certain analyst reports that I have seen that showed that EIA and USGS do have a bad record of forecasting. A case of too many known unknowns or unknown unknowns?

[yeokiwi]

Very true. [Just wanted to poke you a little ]
And there are certain analyst reports that I have seen that showed that EIA and USGS do have a bad record of forecasting. A case of too many known unknowns or unknown unknowns?

Certainly, I am not surprised by that since data collection and experimental setup maybe flawed or incorrect which lead to wrong forecasting.
But, generally, EIA had no vested interest to be incorrect or trying to wow the crowd.
That cannot be said of Mr Powers.

The current truth presented in US is the ease of withdrawing the shale gas and oil from earth crust in comparison with offshore oil exploration.
And.. the area for exploration is HUGE.

http://www.eia.gov/oil_gas/rpd/conventional_gas.jpg

http://www.eia.gov/oil_gas/rpd/northamer_gas.jpg

[thefarside]

And there are certain analyst reports that I have seen that showed that EIA and USGS do have a bad record of forecasting. A case of too many known unknowns or unknown unknowns?

Certainly, I am not surprised by that since data collection and experimental setup maybe flawed or incorrect which lead to wrong forecasting.

The speed of development in the shale business (gas or oil) has surprised even close industry watchers. Most underestimated the scale to which production will grow, how quickly companies were climbing the technology learning curve to lower cost, maximise drilling resources and prolong well life, and how fast the players were using all means necessary (albeit in a highly developed country) to open up new plays and bring the resources to the market. The energy business in the US is an example of how free market works (for good or ill). I think similar developments will be much harder to take off overseas, for various reasons.

Industry forecasting is also often constrained (or hostage) to analysis by historical data. Not unreasonable because many sectors of the energy industry are often shaped by multi-year mega-trends. There could be future developments that could blow all context out of the water. In this case the US shale story has drawn up its own history over the past two years. And now people are running out of superlatives to estimate the growth rates. Eventually it will plateau and again, those forecasts will be incorrect.

As for coal the elephant in the story is China. In recent years China has been the main growth outlet for coal exporters in Asia, allowing the market to absorb incremental production and pricing it to be competitive to oil. Now... somewhat different as the Chinese economy is not growing fast enough to go back to the old days of ever-increasing energy imports....

[greengiraffe]

Reuters - Rise in shale oil boosts global crude supply estimate -U.S. EIA

601 words
11 Jun 2013
Reuters News
LBA
English
© 2013 Reuters Limited
* Shale reserves boost global reserves by 11 percent
* Russia tops list of oil shale holders
* Algeria shale gas resource estimate jumps threefold

By Edward McAllister and Timothy Gardner
NEW YORK/WASHINGTON June 10 (Reuters) - Estimated global
reserves of oil in shale rock deposits will boost total world crude resources by 11 percent, a U.S. government report said on Monday, offering a preliminary glimpse of the hydrocarbons that remain untapped across the world. In the first study of its kind by the U.S. government, the Energy Information Administration estimated technically recoverable shale oil reserves in 41 countries at 345 billion barrels. Previous EIA reports only included U.S. shale oil resources, which in 2011 were estimated at 32 billion barrels. It now estimates U.S. shale oil reserves at 58 billion barrels. Meanwhile, global shale gas reserves have risen to 7,299 trillion cubic feet, up from 6,622 tcf estimated in 2011, said the EIA, the independent statistics arm of the Department of Energy. Technically recoverable reserves are an estimation of the amount of oil or gas that can be extracted with today's technology. Russia topped the list of oil reserves, with 75 billion barrels, ahead of the United States with 48 billion, China with 32 billion and Argentina with 27 billion barrels, according to an assessment prepared for the EIA by Advanced Resources International (ARI). ARI's estimate of U.S. technically recoverable shale oil resources was 48 billion barrels, 10 billion less than the EIA's
estimate.
The United States, with 1,161 tcf, held the highest natural
gas reserves, according to ARI, ahead of China with 1,115, Argentina with 802 tcf and Algeria with 707 tcf. Algeria's estimate has more than tripled from the 231 tcf estimated in 2011. Oil and natural gas production has rocketed in the United States in recent years due to the emergence of horizontal drilling and hydraulic fracturing, or fracking, that have unlocked decades of supply from shale deposits dotted across the country. But while the EIA report offers a comprehensive glimpse of global shale potential, technically recoverable reserves are not a guarantee of supply and it is unclear if deposits outside the United States, with varying geology, can be developed economically. Even inside the United States some areas have proved to be more difficult and expensive to develop than others, halting development. "The reserves are one thing, but the ability to scale up the production for those reserves is another thing, which is not as straightforward in many parts of the world as it has proved to be in the U.S.," said Jan Stuart, head of energy research at Credit Suisse in New York. A clear example is Poland, ranked twelfth in the list of shale gas reserves, which has attracted a lot of interest in its shale potential over the past few years. Early drilling suggested extraction would be difficult and companies including Exxon Mobil, Talisman Energy and Marathon have since quit shale drilling there. Still, David Pumphrey, a senior fellow at the Center for Strategic and International Studies, said the report could help push countries like Argentina and Poland to develop their reserves. "The fact that it is there in the ground keeps reinforcing this is a big story," he said. Pumphrey expected further evolution in drilling technologies could make more and more of the resources economically favorable to produce in the future.

Reuters Limited

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