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Is natural gas price in future affected by low fracked oil production

David Argilla | Posted in General Questions on

Curious if low oil prices and subsequent reduction of expensive fracked wells will result in lower natural gas production and an increase in natural gas prices?  I thought I had read somewhere that the glut in natural gas in US is partially a result of increased oil production from fracking.  I.e the oil extracted helps support the cost of natural gas production in the same field.  Anyone know if this is the case?  Can’t find the source of my info, and wondering how this will all shake out over the coming year.

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Replies

  1. Tom May | | #1

    Isn't it funny how everybody who invested in 1000's of dollars in electric can now get fuel oil cheap, cheap, cheap...it's all a game and you gotta know how to play. Sad part is they make up and change the rules as they go.

    1. Expert Member
      Dana Dorsett | | #3

      >Isn't it funny how everybody who invested in 1000's of dollars in electric can now get fuel oil cheap, cheap, cheap...

      A temporary price crash due to a pandemic toward the end of the heating season isn't very significant unless you have a 100,000 gallon tank to store the cheap stuff in. While the glut may hang on for a year or three it won't be there forever. This market glitch is only going to drive price volatility.

      Many US producers in the fracking biz are going to have to declare bankruptcy, and it takes more than a few months to get that production back on line once the world price recovers to where frackers can make a living at it. Very few US producers are making money or even their debt service at $10/bbl, and no producers are making money at negative pricing on the spot markets (as happened yesterday.)

      Crude pricing does affect natural gas pricing, but it's a complicated connection. Gas futures are currently trading under $2/MMBTU on the wholesale markets, but haven't crashed- it's nothing like the oil markets:

      https://www.bloomberg.com/quote/NG1:COM

      1. Tom May | | #4

        Stop picking on other peoples comments and just stick to speaking your own mind if you can, all I see from you is internet links from which you gain your information......most of which can't be trusted....but it's on the internet so it must be true......
        And lots of people use fuel oil year round......

        1. Expert Member
          Zephyr7 | | #5

          Dana’s link was showing a graph of market prices. I think we can trust graphs of recent market trends. There are about million places you can verify that info if you want to.

          Your original post appears to imply that because oil is really cheap right now, we should make decisions based on current cheap prices. The problem with that is we all know the current crisis will pass, and then oil prices will rise back up to somewhere around their norms. When exactly everything stabilizes is not exactly known, but probably within a year or so.

          Decisions need to be made based on more than just a single point in time for things like this.

          Bill

          1. Tom May | | #13

            Well we can all make predictions, but our predictions really don't matter because we have no say.....anybody can produce a graph to show whatever they want...
            You use oil, fill up now.

        2. Expert Member
          Dana Dorsett | | #6

          Just curious, but what part of your response #1 addressed the question posed by David Argilla?

          Without going into a full on analysis I at least acknowledged that the price linkage between oil & natural gas markets is complicated, and that gas pricing hasn't followed oil pricing down a negative-profit rat hole for the producers, at least for now.

          Commodity futures pricing posted at Bloomberg are facts in evidence, not some internet theory.

          1. Tom May | | #12

            My response was based on my opinion of Davids post.......the complications of which are questionable....
            Prove bloomberg's pricings are a fact.....if you can.

        3. Expert Member
          Malcolm Taylor | | #9

          Tom,

          A question and answer board isn't intended as a forum for posters to "speak (their) own mind". It's to respond to the questioner's post with relevant information. You might try that rather than the constant hostility which characterizes your participation here.

          1. Tom May | | #11

            Then posters should respond to the original poster not the commenters....If you don't want to speak your own mind then why even comment?
            And if you believe in bloomberg...then that is your problem....think for yourself and don't believe all of which you read on the internet....
            It's your opinion that I am being hostile...you don't have to agree or listen to what I say. You attack me you're getting attacked back. Be nice.

  2. Expert Member
    Zephyr7 | | #2

    Natural gas is a byproduct of oil production in many cases, but there are also many gas-only wells. Much of the fracking has been for natural gas production and not oil, and I don’t expect that production to be as affected by oil prices as oil wells are.

    Natural gas prices normally drop over the summer due to reduced heating demand, and were already into that cycle, so the natural gas market is used to it. If there were to be a major recession (which I very much doubt), reduced electricity and chemical feedstock demand due to reduced industrial output may result in a drop in demand for natural gas. Enough of a drop in demand and there will be supply reductions starting with the most expensive wells.

    In the short term (this year), I think the normal winter/summer transition will mask any effect the current crisis may have otherwise had on natural gas demand and supply (and thus pricing). In the long term (multiple years), I doubt we’ll see any significant change in natural gas supply and demand, or prices, so I wouldn’t make natural gas decisions based solely on the current virus crisis.

    Bill

  3. Doug McEvers | | #7

    To take the short term to the extreme, how about an ethanol fueled heating system? The ethanol market has collapsed due to empty roads. We will likely see consolidation in the oil/natural gas industry, fewer players rarely leads to lower prices for consumers.

    1. Expert Member
      Zephyr7 | | #8

      Ethanol is a very poor choice in terms of overall system efficiency when all the energy going into the production of ethanol is taken into account. Ethanol as an additive or niche energy source may have merit, but a primary energy source it is not.

      Bill

    2. Tom May | | #14

      Doug you are correct, the illusion of choice. When one company owns the market they control the pricing.

  4. Expert Member
    Dana Dorsett | | #10

    +1 on that assessment of ethanol as a heating/motor fuel! It's one of the lousiest subsidies in the US that has been going on ~40 years now, never coming even close to meeting any of it's policy goals (except for perhaps modest improvements on auto air pollutant emissions numbers.)

    There may be some local markets where the wholesale price of natural gas ticks up when the residual gas production from oil fracking goes down as fracking operations cut back or go bust, but this is the tail end of the heating season in the US, with gas storage nearing record highs, nearly twice what it was last year at this time, and well above the 5 year average: http://ir.eia.gov/ngs/ngs.html (I know, another EIA inspired internet theory :-) )

    A glut of stored natural gas is going to keep natural gas prices low for the near and intermediate term. If chemical, plastic, fertilizer production, & natural gas exports don't pick up over the summer (is any of that shut down?) that storage glut could continue into next year's heating season too (TBD). To be sure, lower demand from slowed economic activity worldwide puts downward pressure on gas pricing too, just not as abruptly as with oil pricing.

  5. David Argilla | | #15

    Hey all thanks for the info. Was just curious if there might be an increase in Nat gas prices that could also increase electrical generation costs. We still plan on going all electric on our retrofit, with the desire to add photovoltaic solar in future.
    For what it is worth, I think one main benefit of these message boards is that responses are filtered through multiple comments and responses to the original poster and to others that post responses.
    Dave

    1. Expert Member
      Zephyr7 | | #16

      The electric companies don’t buy gas the same way we do at home. The utilities have bulk contracts where they basically say “we will buy [huge amount] of gas for [long time], so you (gas supplier) can build out your Pipeline to us and give as a smokin’ good deal on gas over this contract period”. The gas companies like this, it gives them a predictable customer load, which helps them for both system planning and financials.

      The utility wins by locking in their fuel costs (somewhat, depends on the contact), but can have issues if their own demand drops since they’re still committed to buy a certain minimum amount of gas over the contracted time period, which is typically a year or more.

      What this means is that electric prices are somewhat insulated from natural gas prices in the short term. There are some exceptions to this (recent rejection of LNG deliveries by India citing force majeur clauses in their contracts due to the current virus crisis causing a big drop in their industrial demand).

      I expect the market to stabilize near normal pricing levels later this year. I doubt we’ll see any long term pricing changes due to the current crisis. I would NOT use any current short-term pricing in any long-term cost forecasts or projections you’re trying to use for your own system planning.

      For the purposes of solar, I think any trend you were planning on seeing will continue into the foreseeable future. I was recently looking into system pricing and was very surprised at how much cheaper things have gotten in the past decade or so! A 3kw system is pretty close to $3,000 (materials only). $1/watt is a LOT better than it used to be!

      Bill

      1. Tom May | | #17

        Right Bill, paying attention now and thinking about getting yourself some solar for some off grid back up and daily use while prices are low would be a good investment. If more people would have their own supply of power, they may be able to reduce their dependency on other fuel types thus changing the market through the ol' supply and demand thing.
        We also need good people in the fuel industry to stand up to regulations/restrictions and give us those 100 mpg cars along with other more fuel efficient products that we rely on. After all It all comes from the planet that we all share so who owns the right to all that comes from it.....I've got a bucket of air I can sell you.

  6. Nola Sweats | | #18

    Zephyr7's post (#16) is one of the more informative things I've read recently, so thanks. In my area (Gulf Coast), solar deals abound right now because a lot of residential projects have been stalled or cancelled because of the pandemic. It's a good time to get solar if you want it now ... but it will probably still be cheaper in a few years. Win-win.

    1. Expert Member
      Zephyr7 | | #19

      You're welcome :-)

      With some of the newer grid tie inverters operating (on the solar side) with basically a fixed current rating but a wide voltage rating, you can start with a small solar system and add more panels in series down the road as the cost of the panels comes down. Spread your costs out a bit that way. Costs will eventually get to where adding some amount of solar is a no-brainer, and if you combine it with a "time of day" electric rate, you can do peak shave and not have to be concerned with the political ups and downs of net metering.

      Bill

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