It takes years to permit and actually plan new production. The world is well on its way toward a very serious energy crisis.
The story in the USA energy wise for the last 20-years isn't shale. It's Natural Gas. More specifically the Marcelus and Haynesville. The Marcelus is refered to as the "Beast in the East", it's size as a field is truly stunning. Also, most of the infrastructure for these fields was already in place making infastructure cost to develop them minimal. The US has at least a couple of centuries worth of cheap Natural Gas. And there is a 2nd Marcelus size field in Canada by the name of Montney/Duverney.
Very true. It was natural gas prices that led energy complex lower. That's why I thought the inflection higher in long date NG in 2021 was such a big deal. 2023 has seen price ease a bit - but nothing like weak pricing we saw in 2020
Suspect may be correct over 5 years but market is currently focused on short term data which indicates ample supply of oil. Global instability has not affected supply or prices at all recently. Personally see the direct opposite and oil at $50 rather than $100 over next few months. HNY
Russell, that is true for crude oil production and I don't doubt that the WTI crude price will increase in the coming years. Nat gas however is the greatest source of energy in North America (and indeed, increasingly in much of the world except Europe due to the geopolitical situation). The gas-oil ratio in the Permian will only increase further as the basin matures, and this will displace the already prolific Appalachian reserves. Long-dated (2030 Nat Gas) futures trade at $4.5/MMBtu vs $2.5/MMBtu spot. However even at the higher price, it works out to less than $30/bbl on an energy equivalent basis.
Given that much of end-consumer energy prices are actually attributable to taxes, levies and green subsidies - I question how much a, say $30/bbl increase in crude or $3/MMBtu increase in nat gas will translate into end consumer prices. Ironically this may actually be a bullish argument for energy prices in itself, as the share of household expenditures attributable to primary energy is small, the price elasticity is even lower. Much the same that Iron ore is only a fraction of the final steel price - 1.6 tonnes of iron ore (1.6 * $140 = $224 Iron) vs $550/ton Steel Rebar in China or $1100/ton HRC Steel in the US.
True except ignores the capital cost of land acquisition. Include that back in , then energy prices in the US need to be much higher to justify a ROI. That is what I think the majors are trying to engineer.
Yes, although if the shale patch stops competing against each other by consolidating - the capital cost of land acquisition will fall significantly (just look at land premiums in HK 2023 vs circa 2018!). The breakeven cost is thus a moving and not static figure, affected by competition for land rights, drilling costs and productivity improvements vs natural resource degradation, amongst other things.
For me, I'd need to see a fall off in Permian new well productivity before getting bullish on crude.
If you are correct, that may play havoc with the ongoing declining inflation projections and all that means for the assumed Fed rate cuts. I know that is my view, but that it is also a minority one.
It takes years to permit and actually plan new production. The world is well on its way toward a very serious energy crisis.
The story in the USA energy wise for the last 20-years isn't shale. It's Natural Gas. More specifically the Marcelus and Haynesville. The Marcelus is refered to as the "Beast in the East", it's size as a field is truly stunning. Also, most of the infrastructure for these fields was already in place making infastructure cost to develop them minimal. The US has at least a couple of centuries worth of cheap Natural Gas. And there is a 2nd Marcelus size field in Canada by the name of Montney/Duverney.
Very true. It was natural gas prices that led energy complex lower. That's why I thought the inflection higher in long date NG in 2021 was such a big deal. 2023 has seen price ease a bit - but nothing like weak pricing we saw in 2020
Suspect may be correct over 5 years but market is currently focused on short term data which indicates ample supply of oil. Global instability has not affected supply or prices at all recently. Personally see the direct opposite and oil at $50 rather than $100 over next few months. HNY
Russell, that is true for crude oil production and I don't doubt that the WTI crude price will increase in the coming years. Nat gas however is the greatest source of energy in North America (and indeed, increasingly in much of the world except Europe due to the geopolitical situation). The gas-oil ratio in the Permian will only increase further as the basin matures, and this will displace the already prolific Appalachian reserves. Long-dated (2030 Nat Gas) futures trade at $4.5/MMBtu vs $2.5/MMBtu spot. However even at the higher price, it works out to less than $30/bbl on an energy equivalent basis.
Given that much of end-consumer energy prices are actually attributable to taxes, levies and green subsidies - I question how much a, say $30/bbl increase in crude or $3/MMBtu increase in nat gas will translate into end consumer prices. Ironically this may actually be a bullish argument for energy prices in itself, as the share of household expenditures attributable to primary energy is small, the price elasticity is even lower. Much the same that Iron ore is only a fraction of the final steel price - 1.6 tonnes of iron ore (1.6 * $140 = $224 Iron) vs $550/ton Steel Rebar in China or $1100/ton HRC Steel in the US.
True except ignores the capital cost of land acquisition. Include that back in , then energy prices in the US need to be much higher to justify a ROI. That is what I think the majors are trying to engineer.
Yes, although if the shale patch stops competing against each other by consolidating - the capital cost of land acquisition will fall significantly (just look at land premiums in HK 2023 vs circa 2018!). The breakeven cost is thus a moving and not static figure, affected by competition for land rights, drilling costs and productivity improvements vs natural resource degradation, amongst other things.
For me, I'd need to see a fall off in Permian new well productivity before getting bullish on crude.
If you are correct, that may play havoc with the ongoing declining inflation projections and all that means for the assumed Fed rate cuts. I know that is my view, but that it is also a minority one.