Gas reserves up, prices down

The riddle of natural gas prices is still puzzling the experts and analysts who failed to reach an accurate reason behind the sliding prices of natural gas, despite the beginning of seasonal hurricanes usually leading to high prices and more demand

Last month, the prices of natural gas witnessed another seven-month low of $2.84 per 1000 cubic feet and according to analysts; this slide was due to an increase in the supplies of natural gas inventory. In the U.S, the total natural gas capacity ranges between 3.6 trillion cubic feet to 3.9 TCF. The problem for the natural gas market lies in the fact that gas production continues to remain strong due to the continued development of new producing wells from the highly gas shale which sprout up around the country. The impact of these new wells, coupled with the decline in domestic gas demand due to the weak economy, have been greater than the expected weekly gas storage injections. In other words, if gas injections continue to average in between 50 and 55 BCF until the winter heating season arrives and when gas being withdrawn, storage capacity will reach in full, so in 10 more weeks of injection season and at the current injection rate, the industry will try to absorb another 550 BCF of gas into already jam packed facilities around the country.
The sharp price decline of natural gas to below $3 per MCF from a peak of over $13 last summer of 2008, has been caused by a drop in demand from factories and homes because of recession, coupled with a big expansion of production over the last few years, as Thomas F. Darden, Chief Executive of Quicksilver Resources, a major natural gas producer, said “prices today are below our costs to produce, so in our view this is not a sustainable scenario“. The declining price of natural gas will be good for many industries and consumers; it gradually brings down utility bills for 60 percent of American homes that use natural gas in fuel stoves, water heaters, furnaces and other appliances. Since natural gas is an important fuel for domestic utilities, factories and a feedstock for the chemical and fertilizer industries, the price collapse helps cut their costs.
Based on recent studies, the amount of natural gas available for production in the U.S has soared 58 percent over the past four years, accompanied by a drilling boom and the discovery of huge gas fields in Texas, Louisiana and Pennsylvania. The report, prepared by nonprofit gas committee, concludes that the U.S has more than 2000 trillion cubic feet of natural gas still in the ground, or nearly a century’s worth of production at current rates, which is more than 35 percent. The natural gas industry has promoted gas as a more environment-friendly and domestically produced alternative to coal and oil. Industry supporters said that they agree the report supports their case by showing the U.S can rely more heavily on gas without running out of reserves.

Storms with little effects
Energy consultant Valerie Wood of Energy Solutions Inc in Verona mentioned that supplies are plentiful and demand is down because of the economy and in turn gas prices will spike. In addition, hurricanes do not have much impact on natural gas prices as they did several years ago because onshore production of gas has expanded. For example, if we refer back to 2005, prices soared after hurricanes Katrina and Rita led to shutdown of natural gas rigs operating in the Gulf of Mexico. While in summer 2008, oil prices soared to more than $140 per barrel and natural gas prices soared to more than $13.5 per 1000 cubic feet. The public utilities were concerned that home heating costs would soar by 50 percent or more. But the commencement of the recession, financial market collapse and factory shutdowns all helped to lower prices. Some natural gas market watchers are predicting prices could go as low as $2.8 or even below $2 per 1000 cubic feet. Most experts hope that low natural gas prices can temper some of the electricity rate increases.

Oil reserves hoax
In a report by Byron W. King, a geologist worked in a major international oil companies in the U.S and currently the editor of Outstanding Investments, he mentioned the dilemma of knowing the real volume of oil or gas reserves, and specifically oil reserves; in most countries, No one knows for sure how much oil these countries have got in the ground, or how much they produce or could produce each year if they wanted to push it to the maximum, it is all secret but experts try to figure out how much oil they sell by monitoring tanker traffic in and out of the world’s ports.
When some countries took over companies, the figures for proven reserves kept going up and up even though they didn’t find any major new oil fields. In the 1980s, OPEC’s claimed of total reserves magically leaped from 353 to 643 billion barrels without a single major discovery. Industry experts call it the quota war. OPEC had to limit how much oil each member could sell, because prices were too low, the quota were based on each member’s oil reserves.
The amount of oil OPEC would let a member pump depended on how much that member had in the ground. Therefore, it paid for OPEC members to claim the biggest reserves they could. Saudi Arabia alone jacked up their estimate by100 billion approximately, Kuwait added 50 percent to its reserves in 1985, and Venezuela doubled its reserves in 1987 similarly to Iraq and Iran, which doubled their estimates too.
Many OPEC members did like the Saudis and kept their reserves estimates the same year after year, as if no oil were being pumped out and sold. Everyone claimed to have a bottomless well. Experts prefer to base their financial decisions on the real world, not on a fantasy. In the 1970s, when western managers were still in charge, they believed for a time that Saudi output could reach 20 million bpd. But by the time the Americans lost control in 1979, they figured the peak would be 12 million. They also predicted that peak production would last only 15-20 years i.e. till 1999.
This confirms that the truth is that the production never got to 12 million bpd, but in 1981 output peaked at a level of about 10.5 million bpd. Also Fatih Birol, Chief Economist said at the International Energy Agency in Paris “the public and many governments are ignoring reports that the oil is running out faster than predicted.” He added global production likely would peak in about a decade, 10 years sooner than most governments have estimated. In assessment of more than 800 oil fields in the world, Birol found most of the biggest fields already have peaked, and the rate of decline in oil production is running at nearly twice the pace calculated just two years ago. The following table shows the top 10 oil proved reserves (bbl) country ranks during 2008 and 2009 (CIA World Fact Book).


In conclusion, the leading oil producing countries never give accurate figures of reserves, in addition, some scientific and petroleum centers and institutes issue periodical statistical reports about the oil reserves based on data from producers themselves, but it was remarkable that these statistics are quite different and we cannot assert its creditability, anyhow it is kind of canvassing.

OPEC Summit
Nothing new, OPEC appeared ready to keep oil production targets unchanged at its Vienna meeting. None of the 12 OPEC members has stated any need to cut production beyond the 4.2 million barrels per day since last autumn, to certain extent; the members adhere with the quota already defined by 70 percent approximately. Lead cartel, Saudi Arabian Oil Minister Ali al-Naimi told reporters when asked if OPEC needed to change its output policy he said, “With the price ranging between $68 and $73, what else do you want? The price, everybody likes, consumers and producers”. The weak dollar and the stock markets are up make crude future higher at this time. Since this summer, the price of crude oil has been locked in a trading range $ 65 and $ 75 per barrel, despite numerous attempts to break out this range but the price of oil remains steady. The expectation by the close of 2009, the price will be in the mid-$ 70s.

By Mostafa Mabrouk
VP for Economic affairs, Ganope


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