November 23, 2017

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Shale Gas: a High-Cost Resource

shale gas

Shale Gas – Despite much talk about how it’s going to revolutionize global supplies, investors in the shares have seen them perform poorly for years, major companies in the sector such as Shell and BHP Billiton have been taking some big write-downs and the much-predicted improvement in natural gas prices fails to arrive.

What’s been happening?

“It is going to take much longer, and require much more money, to get that unconventional gas produced than global strategists presume,” says the FT’s erudite commentator John Dizard.

“The shale gas boom of the past decade turned a set of engineering advances into a property bubble. Investors were selling development rights to each other.”

Promoters of exploration and development companies “were spending multiples of their operating cash flow on buying properties and drilling them to show more production, then selling more stock and more debt.” But “eventually the promoters could not pedal fast enough… “The investment world backed away from shale even as the political world embraced it.”

Dizard emphasizes: “Unconventional gas is not a miracle; it is a high-cost source of fuel that requires a lot of technical skill, time and capital.” It’s probably going to require gas prices in the US a couple of dollars a unit higher than current levels (around $4.50) to make it pay in invest in the drilling rigs and crews, processing plants and pipelines to bring large volumes of shale gas to the domestic and export markets.

CopyRight – OnTarget 2014 by Martin Spring