Oh Shet, Here Comes the Gas

Keith Kohl

Written By Keith Kohl

Posted April 20, 2010

Editor’s Note: For more information on the topic, check out our updated resource page on natural gas companies

nat gas price collapse


 One false move could send natural gas prices tumbling, again.

Of course, I’m referring to the dangerous game that companies are playing with the glut in natural gas.

Think about it.

Every time a natural gas recovery appears on the horizon, our hopes are dashed by another round of bullish supply news.

And it’s a dangerous game that producers are playing.

Within the last two years, how many times have you seen a positive outlook for North American natural gas production. Trust me, you’ll run out of fingers and toes by the time you’re done counting. Despite the supply glut dragging prices in the dirt, there’s a good chance you’ve taken advantage of the situation, using a little unconventional wisdom for your natural gas investments.

After all, we’ve seen the U.S. shale basins come alive. If it wasn’t for the massive supply glut, all of my readers would have retired by now.

Feeding the Natural Gas Glut

Total SA, a French oil company, recently got the green light from the UK government to develop two natural gas fields to the west of the Shetland islands.

The company is planning to spend approximately $3.8 billion USD to develop the Laggan and Tormore gas fields. According to the March news release, the fields hold 230 million boe of reserves.

Sounds simple, right?

Unfortunately, it’s not as easy as it sounds.

Drilling in the waters of the North Sea is difficult, mostly due to the volatile weather. With natural gas prices in the trenches, Total is obviously making a long term bet with the Shetland gas fields.

Here’s a few reasons the gas fields off the west coast of the Shetland Islands isn’t my kind of natural gas bet:

  • The UK gets most of its gas from the hazardous waters of the North Sea.
  • Natural gas production in the North Sea peaked ten years ago. There’s only one direction it’ll go from here.
  • Last year, BP predicted its production output in the North Sea will declince by 9%.
  • If oil prices drop, so will North Sea drilling activity. 

Then again, they don’t have a choice in the matter. Even though the company planned to start work as soon as possible, they won’t see one cubic foot of production for another four years at the very least.

Total’s Shetland gas gamble could play out well for them. Personally, I think there’s a much better way to play natural gas in the long run. Once prices recover within the next year or two, we know those shale plays will be even more profitable.

Tomorrow, I want to show you how the major oil companies are grabbing as many shale assets as they can get their hands on. The interesting part, however, is that we beat them to the punch. Moreover, we’ll talk about the reason why a natural gas comeback is inevitable.

Stay tuned.

Until next time,

keith kohl

Keith Kohl

Energy and Capital

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