Making Shale Gas Profitable When It Isn’t

The shale gas boom has busted natural gas prices below $4 per MCF until 2016, risking sub-$3.50 in the meantime, particularly in the shoulder months. (Note: 1 MCF = 1.02 MMBtu.) At $3.50 per MCF, shale gas production is barely profitable, if at all, for some producers. Shell Oil, for example, just announced they're abandoning Eagle Ford in south Texas even as Mexico provides a demand relief valve. If Shell Oil can't profit on shale gas at $3.50, how well can other producers be doing? Is their gas much cheaper to produce? If so, it's not by much.

Can most gas producers hold on until demand for natural gas catches up to supply in 2017 and prices finally break over $4.50? Do they have to - or is there something they can do in the meantime to avoid a "cut losses" decision like Shell's? As the title of this post suggests, the answer is "Yes" - and not change a thing they're doing operationally.

Smart producers can capitalize on the possibility of higher prices today. They need not wait for 2017 when futures prices indicate they should be high enough to be consistently profitable thanks to spiking industrial demand (see ICIS information below) and higher demand from electric utilities, LNG exports, and natural gas-fueled vehicles. (For demand forecasts by sector, see the EIA's Market Trends - Natural Gas.)...

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