Place your bets wisely because 2014 may turn out to be quite the pivotal year for the markets. As the MSM and Wall Street continue to push the hype regarding the Great U.S. Shale Energy Boom, serious cracks are beginning to appear in the natural gas market.
The forecast by the Shale Energy Industry that the U.S. will be able to grow its natural gas production for a decade at a price below $4.50 MMBtu, seems to be losing credibility as the price of natural gas has already shot above the $5 level.
Here we can see that in the first few weeks of 2014, the price of natural gas reached $5.20 MMBtu (million British thermal units – standard market trading unit).
Well, how can this be? According to the EIA’s forecast published in an article during the middle of last year by EnergyWire:
Shale gas production doesn’t make a major upward move until 2016, according to EIA. Spot prices for natural gas at the major Louisiana pricing hub will drop to $3.12 per million British thermal units in 2014 and 2015, below this year’s average forecast price of $3.25, according to EIA’s Annual Energy Outlook. Prices don’t pick up until 2016 either, in the EIA assessment.
The EIA – U.S. Energy Information Agency stated in the summer of 2013 that the price of natural gas would drop to $3.12 in 2014 and 2015 (from this point on I am going to show natural gas prices without the MMBtu).
If we check out Bloomberg’s most recent energy market data, we can see that the current price of natural gas is almost $2.00 higher than the EIA’s forecast of $3.12, just a mere six months ago.
While many in the industry are stunned by this $2.00 spike in the price of natural gas, if you follow the correct energy analysts… this is no surprise whatsoever.
One such energy analyst is Bill Powers of Bill-Powers.com, who recently wrote the book, “Exploding the Natural Gas Supply Myth: COLD, HUNGRY AND IN THE DARK.”
Many of Bill’s predictions in the book have already come true. In a recent interview on The Energy Report, Bill stated the following:
Several of the predictions I made in the book have come true since the book hit the shelves in July. First, we’ve seen numerous shale plays head into decline. We’ve seen big declines from the Haynesville as well as the Barnett. The Fayetteville is in decline; there have been further declines in the Gulf of Mexico and Wyoming. But what has really changed is the North American natural gas market has become extremely unbalanced, which was what I had predicted would come to pass sometime in the 2013–2015 time-frame. The cold weather over the last six weeks has accelerated what I have been talking about in the book.
I predicted that gas prices would lead to layoffs and industry supply disruptions, and that’s already occurred. We’ve seen paper mills in New Hampshire lay people off because natural gas prices in New England were north of $50/million Btu ($50/MMBtu) for a period and remain very high. We’ve also seen incredibly high prices in New York, and this is a time of record production coming out of the Marcellus. These are really the first examples of the violent price spikes and industrial shutdowns we will see in other parts of the country.
(Bill Powers, Bill-Powers.com)
I spoke with Bill last week and he shared some very troubling information and data on the U.S. Shale Gas Industry. Bill believes a peak in U.S. shale gas production could occur in 2014 or 2015 at the outset.
The reason why Bill suspects shale gas production in the United States will soon peak is due to the fact that there is basically only one shale gas field that is still growing its production. This is the Marcellus, located in Pennsylvania and West Virginia. Without the growth of the mighty Marcellus, U.S. shale gas production would already be declining.
In the chart below, we can see that except for the Marcellus, the rest of the shale gas fields in the U.S. are in decline:
As the Barnett, Fayetteville, Woodford and Haynesville shale fields peaked, gas production from the Marcellus (shown in brown) has increased substantially allowing overall production in the United States to continue to grow.
While the Eagle Ford Field (dark brown and on the top) is showing an increase in gas production, it is more a liquid oil play and without the huge growth from the Marcellus, its contribution alone would have not offset the declines in the other shale gas fields.
If the Marcellus peaks and declines in 2014, Bill thinks it may turn out to be a peak in overall U.S. gas production. We must not forget, the average annual decline rate for U.S. natural gas production is currently in the 23-24% range (CitiResearch). It takes a great deal of new production to offset the loss of supply due to this high annual decline rate.
Bill also told me that due to the extreme cold weather and natural gas supply disruptions in the northeast, some energy utility companies in New York have been paying $150 for natural gas.
Furthermore, the cold arctic weather conditions taking place in the Midwest and Northeast have resulted in record natural gas withdrawals from the country’s underground storage. In just the past two months, natural gas storage went from being in the middle of the 5-year average to a new record low.
As we can see from the blue line, the country’s working gas in storage is now below the 5-year minimum average. This is bad news as there seems to be no let-up in the ice-cold temperatures plaguing eastern part of the nation.
Bill forecasts that we are going to see prices of natural gas in the $5-$7 range in the next few years, with the possibility of much higher price spikes. These price spikes could occur due to what Bill warns as much lower than average underground gas storage levels from the continued record withdrawals on top of flat or declining domestic gas production in 2014.
Bill’s gloomy forecast for the future of the shale gas industry is stark in comparison to many in the industry. One analyst who sees things much differently in the shale gas industry, is Ron Muhlencamp.
(Ronald Muhlencamp, Muhlencamp.com)
Ron who was interviewed by the same website – The Energy Report (a week after Bill’s interview) had this to say about the U.S. shale gas industry:
The gist of my presentation is that natural gas has become an energy game changer in the U.S. We are cutting the cost of energy in half.
…..Our production of gas has not peaked and is not declining. We are using fewer rigs drilling for gas, but each well, particularly if you drill horizontally instead of just vertically, is producing so much more gas. Production is not declining and isn’t likely to for at least a decade. At current rates, we can drill in Pennsylvania for another 50 years.
My forecast is $4/Mcf, give or take $1. We just had a big cold snap on the East Coast. What used to happen is any time you had a cold winter, the price of gas jumped. For instance, in 2005, when crude was selling about $50/barrel ($50/bbl), gas began the year at about $7/Mcf, which was on par with crude, but in the wintertime, it doubled and ran up to $14/Mcf. The recent cold snap took gas all the way up to ~$4.20/Mcf. Gas is going to be in that range for a long time.
Ron believes that natural gas in the U.S. will remain at the $4.20 level for a “long time.” As I mentioned in the beginning of the article, the price of natural gas is already above $5.00.
Ron is so sure of his long-term natural gas forecast, he went on to make this comment in response to a question regarding Bill Powers’ predictions:
I’d be very surprised if the price in the next decade gets over $5/Mcf for any extended period of time because there’s an awful lot of gas that’s very profitable at that price. I’m willing to make that bet with Bill Powers.
It will be interesting to see how events in the U.S. natural gas markets unfold in 2014. I got my money on Bill Powers. I have been following Bill for several years and I believe his understanding of the shale gas industry is spot on.
I highly recommend reading Bill Powers book, Cold, Hungry And In The Dark. You can also follow Bill at his twitter feed below:
I will be including a great deal of information on the shale oil & gas industry in my upcoming first paid report, The U.S. & Global Collapse Report. I have only touched on the subject matter in this article.
The Coming Boom In Precious Metals
I am not going to spend much time on the precious metals in this article, however, the next image says it all. If a picture is worth a thousand words, then the table below is worth over $400 million (at current market prices):
In another stunning withdrawal, JP Morgan had an additional 321,500 oz gold ounces removed from its vaults today. Since last Thursday, JP Morgan has lost 44% (20 metric tons = 643,000 oz) of its gold inventories.
Here is the Comex inventory table for last Thursday:
According to Harvey Organ, February is going to be a big delivery month with nearly 40 metric tons standing for delivery at the Comex. It will be interesting to see if the Comex has the ability to settle with physical gold… or if will they be forced to settle paper gold contracts with cash only.
At some point in time, we are going to see a DEFAULT on the Comex. All the naysayers who believe the precious metal markets are not manipulated…. 2014 may be the year “Ya Gonna Have to Eat Ya Hat.”