Friday, May 28, 2010

The Marcellus Shale and Natural Gas Prices

The New York Times reports that Royal Dutch Shell is buying natural gas reserves, including the Marcellus Shale, from East Resources for $4.7 billion.
Those who imagine that exploitation of the Marcellus Shale will lead to an endless supply of cheap natural gas should take note of a revealing comment from Jason Kenney, an energy analyst at ING:
“You have to throw a lot of capex at drilling,” Mr. Kenney said, referring to capital expenditures. While natural gas prices are modest in the United States now, he added, they are expected to rise.
If the supply is growing, why wouldn't prices come down? The answer is the capital cost of extraction. No sane energy executive is going to spend money to bring the price of energy down.
If you add
the potentially high environmental costs, the Marcellus Shale starts to look less like a bargain. The Marcellus Shale may significantly extend the supply of domestic natural gas, but we should not expect it to usher in a golden age of cheap, clean energy.


Anonymous Mike Ferris said...

Just a thought on the following statement from the above post ...

"No sane energy executive is going to spend money to bring the price of energy down."

Except if, by not drilling, the lease reverts to the original owner. This is what the whole issue seems to be about. The gas producers are in the invidious position of being forced to produce gas uneconomically in order to maintain their leases. How crazy is that?

3:39 PM, May 28, 2010  

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