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Draining America First—The Beginning of the End for Shale Gas

Energy Aware II

The United States is the biggest producer of natural gas in the world and recently became the largest exporter of LNG. The industry is scrambling to build LNG (liquefied natural gas) export terminals as fast as permitting and funding will allow.

This couldn’t come at a worse time. Instead of having an almost infinite amount of natural gas as many believe, we may be witnessing hard limits to that supply.

Figure 1 shows that shale gas plays have reached an apparent peak and may be starting to decline. It’s not a good sign although some of this may be related to seasonal effects or regulatory matters. At the very least, the rate of production growth is slowing.

Shale gas plays have begun to decline as U.S. becomes biggest world LNG exporter.
Figure 1. Drain America FirstShale gas plays have begun to decline as U.S. becomes biggest world LNG exporter. Source: EIA, Enverus & Labyrinth Consulting Services, Inc.

Any decrease in the growth of shale gas could become an acute problem because it accounts for 82% of U.S. dry gas production (Figure 2).

Shale gas accounts for 82% of U.S. dry gas production.
Figure 2. Shale gas accounts for 82% of U.S. dry gas production. Source: EIA, Enverus & Labyrinth Consulting Services, Inc.

I am frankly less concerned about whether or not shale gas production is currently in decline as I am about what will happen to supply in five or ten years.

That concern is based on plans for increased LNG and pipeline exports. Net LNG exports are expected to increase +6.4 bcf/d by 2030 & another +7.1 bcf/d by 2035 (Figure 3). Total net exports are projected to increase +15 bcf/d by 2035 from 13 to 29 bcf/d.

Total net exports to increase +15 bcf/d by 2035 from 13 to 29 bcf/d.
Figure 3. Net LNG exports expected to increase +6.4 bcf/d by 2030 & another +7.1 bcf/d by 2035Total net exports to increase +15 bcf/d by 2035 from 13 to 29 bcf/d. Source: EIA & Labyrinth Consulting Services, Inc.                                     

Let’s take a quick look at production from the three biggest pure shale gas plays (Figure 4).

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European Natural Gas Prices Surge Ahead Of Cold Spell

European Natural Gas Prices Surge Ahead Of Cold Spell

  • The Dutch TTF benchmark price jumped by 11% on Tuesday morning, recovering from a 17% price slump last week.
  • An unplanned outage at a Norwegian gas processing plan and short covering combined to add upward pressure to gas prices.
  • Next week, temperatures could be lower than initially expected, which would boost demand for natural gas after a mild winter so far.

Europe’s benchmark gas prices have rebounded this week as traders closed short positions at the expiry of the front-month contract and some weather forecasts suggested colder weather in northern and central Europe next week than previously expected.

The Dutch TTF benchmark price jumped by 11% at over $65 (60 euros) per megawatt-hour (MWh) at the opening of trade in Amsterdam on Tuesday, extending small gains from Monday and recovering some of the losses from last week, when prices slumped by 17%.

On Monday, the prices were supported by short covering and an unplanned outage at a Norwegian gas processing plant. However, wind power generation is still expected to be strong, which could curb some demand for gas-fired power generation.

But next week, temperatures could be lower than initially expected, which would boost demand for household heating. Colder spells are set to return to northern and central Europe next week, according to weather models by Maxar Technologies Inc, cited by Bloomberg.

Still, the record gas prices in Europe could be behind us, according to ING’s revised outlook on natural gas for this year.

“Mild weather and weak industrial demand have ensured that gas storage has remained strong. The region should get through this winter comfortably and prospects also look better for the 23/24 winter,” Warren Patterson, Head of Commodities Strategy at ING, said on Monday.

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Germany Still Years Away From Replacing Russian NatGas, Official Admits To “Unspoken Strategy To Pay Crazy Prices”

Germany Still Years Away From Replacing Russian NatGas, Official Admits To “Unspoken Strategy To Pay Crazy Prices”

Some European politicians and economists are breathing a sigh of relief after mild temperatures, increasing liquefied natural gas shipments, and above-average natural gas stockpiles have so far averted a worsening energy crisis this winter. Other politicians believe the energy crunch won’t be over for many years.

“Gas storage is up and gas prices are down. Inflation is falling and uncertainty is declining,” Deutsche Bank AG wrote in a note this week, adding, “We can afford to be more optimistic.”

As of late, Europe’s biggest economy, Germany, has seen an improvement in business outlook as recession fears recede, according to data from the Ifo Institute, a Munich-based economic researcher.

Ifo President Clemens Fuest told Bloomberg TV:

“The most important risk for the German economy was a gas-rationing scenario … and that risk is off the table now.”

There’s a lot to be happy about in Europe: Dutch front-month NatGas, the continent’s benchmark, slid as much as 5% to 55 euros a megawatt-hour today, the lowest level since late 2021. Prices have collapsed by more than 83% since peaking at 311 euros a megawatt-hour last August.

However, the optimism could be short-lived because Germany is years from entirely substituting Russian NatGas flows with LNG shipments.

Last week, Chancellor Olaf Scholz told Bloomberg that German learned a hard lesson in its addiction for cheap Russian NatGas. He said the country is now rejiggering supply chains that will increase capacity for LNG imports at major ports. 

A new report via the country’s Economy Ministry shows Germany will install 56 billion cubic meters of domestic LNG import capacity by 2026. By 2030, capacities will increase to 76.5 billion cubic meters or about 80% of total German NatGas consumption in 2021.

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Netherlands To Shut Down Europe’s Largest Gas Field

Netherlands To Shut Down Europe’s Largest Gas Field

The Dutch government plans to close the Groningen gas field this year despite Europe’s precarious supply position. Groningen is the largest gas field in Europe.

The field is dangerous, a government official from the Hague told the Financial Times, and the government has no plans to boost production from it.

“We won’t open up more because of the safety issues,” Hans Vijbrief told the FT. “It is politically totally unviable. But apart from that, I’m not going to do it because it means that you increase the chances of earthquakes, which I don’t want to be responsible for.”

Production from Groningen has been curtailed substantially, and there were plans in place to phase out production altogether because of increased seismic activity in the vicinity of the field even before the energy crisis began in 2021.

As gas prices began to climb in the autumn of 2021 and then took off in the spring of 2022, some began speculating that the Netherlands could keep the field operating to contribute to filling the gap in gas supply left by Russian pipeline deliveries.

The Dutch government was skeptical about that from the start and instead suggested production be extended, although at a minimum rate of some 2.8 billion cu m. Now, this, too, is being reconsidered.

“It’s very, very simple: everybody who has some knowledge of earthquake danger tells me that it’s really very dangerous to keep on producing there. I’m quite convinced it’s wise to close it down,” Vijbrief told the FT.

Since the 1980s, the FT notes, there have been some 100 earthquakes annually around Groningen, resulting in more than 150,000 claims for property damage. The operator of the field, a Shell-Exxon joint venture, was ordered to start reducing output in 2013 with a view to shutting the field down eventually.

What’s Behind California’s Skyrocketing Natural Gas Bills: Insiders

What’s Behind California’s Skyrocketing Natural Gas Bills: Insiders

Californians are expecting skyrocketing natural gas bills this month, but this can’t all be blamed on the weather, according to industry insiders.

Southern California Gas Company (SoCalGas), which serves about 5.9 million households and businesses, warned customers to expect “shockingly high” January bills that could be 128 percent higher compared to December.

Those who typically paid around $65 a month last winter are likely to pay about $160 this year, SoCalGas said in a statement Dec. 29. Those with bills around $130 a month could see charges jump to $315.

Last December, wholesale natural gas prices already cost five times more than that of 2021. The utility also paid unprecedented prices for the supply in January, the company reported.

Natural gas prices rose in 2022 for five reasons, according to a biennial report (pdf) published by California Gas and Electric Utilities, a group of utility providers including SoCalGas, San Diego Gas & Electric, and SoCal Edison.

First, North American inventories fell below the five-year average last year. Second, the national supply was also strained by Europe’s steady demand for American natural gas during the Ukraine conflict.

Third, the Biden administration restricted licensing and drilling in the country for fossil fuels, and investment for such production has lagged behind the rapidly growing demand for natural gas over the past year, according to the report.

Lastly, the growing electric power sectors nationwide also consume natural gas, the company reported.

“From an economic standpoint [reducing reliance on fossil fuels] may be costly and is certainly not expected to be rapid or easy,” the utility reported. “Nonetheless, the push to find ways forward and to provide energy solutions to customers in a clean and affordable way is an imperative.”

Climate Goals Restrict Production, Grow Demand

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Colder Weather Might Return To Northwest Europe Next Week

Colder Weather Might Return To Northwest Europe Next Week

European natural gas prices have plunged to pre-Ukraine invasion levels on mild winter. Heating demand across the EU has declined, allowing fuel storage tanks to continue injections and remain above seasonal levels. This bodes well for the energy-stricken continent, but new weather forecasts suggest a late-month return to winter.

The benchmark Dutch TTF futures contract for February was down to 65.80 euros a megawatt-hour or more than 6% on the session. On the eve of Russia’s invasion last February, the contract sold for about 88 euros.

Several factors have allowed the EU to skirt around an energy crisis, including alternatives to Russian NatGas, such as increased imports of US LNG, widespread conservation efforts for residential and business customers, and a very mild winter.

NatGas stockpiles across the continent are well above a 12-year mean for this time of the year. The percentage of NatGas full has yet to fall from around 83% since Christmas.

Meanwhile, new weather models are pointing to a possible flip back to colder temperatures next week for parts of Europe. Natgas traders will be focused on the severity of the cold and the impacts on heating demand.

The return of wintry conditions follows a record-warm start to the year, which provided relief from an energy crunch that has hammered Europe for months. The mild weather curbed demand for heating, allowing some countries to top up natural gas stockpiles at a time when they’d usually be tapping supplies.

Most of Britain will see below-average temperatures by the end of next week, with snow possible in northern areas, according to the country’s Met Office. –Bloomberg

A few models show the possible cold snap for parts of the EU next week.

Colder temperatures could be arriving in North West EU in days.

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Global NatGas Prices Sink As Warm Weather Spreads

Global NatGas Prices Sink As Warm Weather Spreads

US and European natural gas prices are sliding as warmer weather reduces demand for the heating fuel, and storage levels remain high. Risks of a global energy crisis are diminishing for now — well — that’s until the next cold blast strikes.

The polar vortex that sent much of the Lower 48 into a deep freeze at the end of 2022 ended last week. Now, much of the US will see warmer-than-normal temperatures through mid-Jan.

The National Oceanic and Atmospheric Administration’s latest 6-10 Day Temperature Outlook shows that nearly all Lower 48 will experience above-average weather.

NOAA’s 8-14 Day Temperature Outlook suggests the same.

Weather data via Bloomberg shows Lower 48 temperatures are expected to remain above a 30-year average through mid-month.

And this will reduce heating demand.

US NatGas storage entered into a drawing period in mid-Nov. and has been sliding since.

A weaker heating demand outlook has sent US NatGas prices down nearly 9% to $4.062 per million British thermal units on the New York Mercantile Exchange in early Tuesday trading. Prices are back to levels not seen since early February 2022.

Across the Atlantic, EU NatGas touched the lowest levels since the start of the Ukraine war.

“The risk of extreme market tightness that people were worried about before the winter started seems low now,” BloombergNEF’s Abhishek Rohatgi wrote.

Warmer weather in Europe has eased concerns about blackouts and rationing as stockpiles increase:

In fact, Europe has been able to add more gas into storage in the last few days amid a mix of curbed heating needs and typically lower consumption during the holiday season. -Bloomberg

EU NatGas storage increased last week.

Temperatures across Central EU are expected to hold above seasonal levels through at least the mid-month.

Sign of relief worldwide: NatGas prices slide in the US, EU, and Asia.

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Europe’s Energy Crisis Is Just Getting Started

Europe’s Energy Crisis Is Just Getting Started

  • While Europe managed to fill its gas storage ahead of winter this year, it will have to import huge amounts of LNG in a competitive market to survive next winter.
  • The next 12 to 24 months will be critical in establishing whether Europe can stave off a long-term energy crisis.
  • According to the IEA, if Russian gas supply drops to zero and Chinese LNG demand hits 2021 levels, the EU could have a supply-demand gap of 27 billion cubic meters in 2023.

Despite successfully filling its gas storage ahead of winter this year, Europe’s energy crisis is far from over. The situation for Europe could, in fact, be worse next winter when Russian pipeline gas supply will be down to a trickle, at best.

European households and businesses have already seen a rise in total energy costs by $1.06 trillion (1 trillion euros), according to estimates by European economic think-tank Bruegel published by the International Monetary Fund (IMF). According to Bruegel’s analysts, if governments in Europe do nothing except offer financial support, and if they cover the price increases, this sum would represent a massive 6% of the annual GDP of the EU.

“Massive government support could delay adjustment to a new price equilibrium and create the need for even more support,” Bruegel’s experts say.

Instead, the EU needs a “grand bargain” to encourage savings and increase supply at the same time.

The next 12 to 24 months will determine whether Europe will be able to cope with the energy crisis without having to resort to mandatory rationing or without losing too much industry competitiveness.

Europe’s energy systems were already put to the first real test this month amid an Arctic blast that swept through most of northwestern Europe, bringing freezing temperatures, snow in the UK, and depressing wind speeds in Germany.

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Germany Unleashed Half-Trillion Dollar ‘Energy Bazooka’ To Keep Lights On

Germany Unleashed Half-Trillion Dollar ‘Energy Bazooka’ To Keep Lights On

Western sanctions on Moscow have backfired, failed to paralyze Russia’s economy, and ultimately sparked financial pain for ordinary Europeans and the largest economy in the block.

According to Reuters calculations, Germany has hemorrhaged cash to the tune of 440 billion euros ($465 billion) in energy bailouts and schemes, as well as keeping energy supplies flowing while it lost access to inexpensive natural gas from its leading supplier Russia in 2022.

“How severe this crisis will be and how long it will last greatly depends on how the energy crisis will develop,” said Michael Groemling at the German Economic Institute (IW). He added: “The national economy as a whole is facing a huge loss of wealth.”

Reuters said the “cumulative scale” of energy bailouts and other schemes employed by Berlin equates to 1.5 billion euros per day since Russia invaded Ukraine, or about 12% of national economic output, or 5,400 euros for each German.

Germany has shown Europe how backfiring sanctions ruin its country’s finances and send millions of its citizens crashing into energy poverty overnight. These anti-Russian measures have caused soaring electricity and NatGas prices and elevated risks of entering a recession in 2023.

“The German economy is now in a very critical phase because the future of energy supply is more uncertain than ever.

“Where does the German economy stand? If we look at price inflation, it has a high fever,” said Stefan Kooths, vice president and research director of business cycles and growth at the Kiel Institute for the World Economy.

Many other European countries find themselves at the mercy of the weather as NatGas injections into EU storage facilities have flipped to draws amid a wicked cold spell boosting heating demand.

“The country has turned to the pricier spot, or cash, energy market to replace some of the lost Russian supplies, helping drive inflation into double-digits,” Reuters noted.

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First Big Freeze Puts “Heavy Strain” On European Power Grids

First Big Freeze Puts “Heavy Strain” On European Power Grids

Europe’s cold blast is due to a weak, polar vortex split in the stratosphere, which allowed high pressure to build across Greenland last week. As a result, Arctic air poured over the energy-stricken continent, sending natural gas and power prices higher.

The unseasonably cold weather will continue through this week. North West and Central Europe are recording average temperatures well below normal, boosting residential and commercial heating demand.

In the North West region, temperatures are forecasted to average around 30 degrees Fahrenheit this week, about 10 degrees less than the 30-year mean.

A similar setup is for Central Europe.

The arrival of the cold snap has already sent UK electricity prices to record highs.

Bloomberg’s energy crisis index shows gas storage percentages full for top European countries have already flipped from injections to drawing season. Power prices in France, Germany, Italy, and the UK are elevated as the cost of producing electricity is surging.

Here’s a better view of the gas storage situation. Even though significant progress was made to refill storage in an unusually warm autumn, cold snaps will draw down supplies much quicker as supply gaps persist due to Russian flows to the continent severed at some key entry points.

“The first winter blast is placing a heavy strain on European power grids, after a mild autumn allowed utilities to replenish depleted natural gas reserves. The energy crunch has forced some countries to return to coal, with the UK’s National Grid asking two coal-fired units from its winter reserve to run on Monday,” Bloomberg reported.

In a separate report, Bloomberg outlined three reasons why Europe’s addiction to NatGas persists:

  • First, nuclear outages in France have resulted in the loss of a sizable chunk of electricity generation. 

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Coast-To-Coast Winter Storm Sends US NatGas Surging

Coast-To-Coast Winter Storm Sends US NatGas Surging

In what’s forecasted to be the first coast-to-coast major winter storm of the season across the Lower 48, traders have furiously panic bid US natural gas futures due to the prospects of increased heating demand.

On Sunday, wintery precipitation, powerful winds, and heavy rains battered Intermountain West as a powerful storm was set to traverse the rest of the country in the new week. The next stop for the storm is the Plains, South, and Northeast, according to The Weather Channel.

Heavy mountain snow has already blanketed parts of California’s Sierra. Snow will spread across the high country of Colorado and northern New Mexico today. Then this evening, the system moves into the Northern Plains. By night into Tuesday, heavy snow and strong winds could spark blizzard conditions across eastern Montana, eastern Wyoming, western Nebraska, the Dakotas, and Minnesota.

Later in the week, moisture from the storm and cold air will be in place in the East. However, it’s still early to forecast where snow will fall in the Northeast.

The storm is coupled with a cold blast pouring across the Lower 48 starting Friday. Temperatures are forecasted to dive between Friday and next Wednesday.

Most of the Lower 48 could be well under average temperatures.

Which means heating demand erupts.

And why energy traders are bidding NatGas prices higher this morning. At one point, prices were up 12% to $7.010/mmbtu.

Cold season is in — drawing down on inventories began on Nov. 10 (read: “US Flips Into Withdrawal Season” As NatGas Prices Surge).

Also, Freeport LNG is expected to ramp up exports out of its Texas facility soon, along with cold weather; this could keep a bid under NatGas prices this heating season.

Peter Zeihan: You’re Being Instructed Not to Notice This!!!

Peter Zeihan: You’re Being Instructed Not to Notice This!!!

https://youtu.be/6pLAaWUUM6c

Germany Preparing For Emergency Cash Deliveries, Bank Runs And “Aggressive Discontent” Ahead Of Winter Power Cuts

Germany Preparing For Emergency Cash Deliveries, Bank Runs And “Aggressive Discontent” Ahead Of Winter Power Cuts

While Europe has been keeping a generally optimistic facade ahead of the coming cold winter, signaling that it has more than enough gas in storage to make up for loss of Russian supply even in a “coldest-case” scenario, behind the scenes Europe’s largest economy is quietly preparing for a worst case scenario which include angry mobs and bankruns should blackouts prevent the population from accessing cash.

As Reuters reports citing four sources, German authorities have stepped up preparations for emergency cash deliveries in case of a blackout (or rather blackouts) to keep the economy running, as the nation braces for possible power cuts arising from the war in Ukraine. The plans include the Bundesbank hoarding extra billions to cope with a surge in demand, as well as “possible limits on withdrawals”, one of the people said. And if you think crypto investors are angry when they can’t access their digital tokens in a bankrupt exchange, just wait until you see a German whose cash has just been locked out.

Officials and banks are looking not only at origination (i.e., money-printing) but also at distribution, discussing for example priority fuel access for cash transporters, according to other sources commenting on preparations that accelerated in recent weeks after Russia throttled gas supplies.

The planning discussions involve the central bank, its financial market regulator BaFin, and multiple financial industry associations, said the Reuters sources most of whom spoke on condition of anonymity about plans that are private and in flux.

Although German authorities have publicly played down the likelihood of a blackout and bank runs – for obvious reasons  – the discussions show both how seriously they take the threat and how they struggle to prepare for potential crippling power outages caused by soaring energy costs or even sabotage…

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Pakistan ‘Has No Option But To Ration’ Natural Gas Supply This Winter

Pakistan ‘Has No Option But To Ration’ Natural Gas Supply This Winter

  • The energy crisis in Pakistan has deepened this year.
  • Gas supplies available for households will be very limited this winter.
  • Pakistani households will have gas available for three hours in the morning, two hours in the afternoon, and three hours in the evening.

Pakistan has no other option but to ration natural gas supply this winter, with gas provided three times a day for cooking to households, amid acute shortages and a forex crisis in the world’s fifth most populous country, an official from the petroleum ministry told a Parliament panel this week.

The energy crisis in Pakistan has deepened this year, and now, natural gas supplies will be very limited for households, according to officials.

“There would be no gas supply (to household consumers) for 16 hours” a day, Muhammad Mahmood told the Parliament’s Standing Committee on Petroleum, as carried by the local outlet Dawn.

Pakistani households will have gas available for three hours in the morning, two hours in the afternoon, and three hours in the evening, Mahmood added.

Pakistan—whose population is the fifth largest in the world after China, India, the United States, and Indonesia—has been experiencing an energy crisis as the country cannot afford to import a lot of energy products at the current high prices. The stronger U.S. dollar and the sky-high LNG prices have worsened the country’s finances, with foreign exchange reserves down in October to their lowest level in three years.

In April, soaring prices of LNG and coal on the international markets left Pakistan with having to cut electricity supply to households and industry as the country, in a deep political and economic crisis, could not afford to buy more of the expensive fossil fuels.

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US NatGas Futures Jump As Frigid Weather Set To Swoop Across Country

US NatGas Futures Jump As Frigid Weather Set To Swoop Across Country

US natural gas futures bottomed on Oct. 24 after a 50% haircut on warmer weather. In the last two weeks, prices have staged a rally on the prospect of cold weather and tighter supplies. Last Monday, we penned a note titled “US NatGas Spikes As Temperatures Are About To Dive Nationwide.” Now, with colder weather sweeping across the US, NatGas prices are up a staggering 49% in eleven sessions.

On Monday morning alone, NatGas futures are up 10%. Bloomberg said the move higher is weather-related, “as a winter storm hits the Pacific Northwest and frigid weather is expected across most of the country.”

National Oceanic and Atmospheric Administration released a 6-10 day temperature outlook for the lower 48 states showing that most of the country will experience below-average temperatures.

An 8-14 day temperature outlook by the weather agency also points to continued below-average temperatures for much of the US.

After an unseasonably warm end of October and the first week of November, the warm spell is forecasted to turn today. Average temperatures are expected around 58 degrees Fahrenheit and will revert to a downward sloping 30-year mean of the mid-40s by mid-month.

Colder weather indicates heating demand will rise, and so will the demand for NatGas.

The latest rally in NatGas outlines how sensitive traders are to potential cold snaps, as below-normal stockpiles and surging exports could strain domestic stockpiles in a deep freeze in the months ahead.

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