Chevron Strategist Warns Era of 'Too Cheap' Natural Gas Will End Soon

Chevron estimates that the abundance of cheap natural gas in the U.S. will be short-livedChevron estimates that the abundance of cheap natural gas in the U.S. will be short-lived, according to one of its key strategy staff.

Andrew Peterhans, manager of strategic planning, last week told a group at the BERC Energy Symposium at UC Berkeley that "$2 gas has perhaps come and gone."

"Two-dollar gas is really not sustainable when you look at what it takes to go and drill shale gas wells and further develop our industry -- you're not looking at $2 gas forever. It's more likely to be $4 or above that's the message that the market is delivering.

"Yes, there is an abundance of gas, but cheap? Perhaps, not necessarily so. The market is telling us that it has been too cheap and that's not realistically in the future of gas development."

Chevron, one of the world's six oil "supermajors" with revenues last year of $253.7 billion, has increased its natural gas assets with an expanding portfolio of investments in Australia. The California-headquartered company has invested billions already in liquefied natural gas (LNG) projects in Australia, including the $43 billion Gorgon project, to serve the Asian market where prices hover around $15 per mmbtu.

Prices of natural gas have already increased from below $2 per mmbtu in April to around $3.60. Although an increase in prices is expected over the long term, drilling rates are expected fluctuate, leading to short- and medium-term price drops.

Is Natural Gas Killing Renewables?

Although low natural gas prices had been blamed for distracting investors from renewables, Peterhans said that natural gas and renewables could have a "symbiotic relationship" as the world's demand for energy grows, particularly in developing countries.

"We expect the sector with the fastest growth to be renewables -- 60% faster than even the growth of natural gas.

"We don't expect that natural gas is going to be killing renewables, in fact we think there is a dynamic partnership there and that they are perfectly complementary."

But Jochen Harnisch, coordinator of climate change policy at the German government-owned KFW Development Bank, said that natural gas had already had a negative impact on renewable investments.

"Already in the course of this year this is starting to decline. Without strong additional [policy] measures we will see a significant decline of new deployment of renewables in the coming year."

He anticipated that the decline in renewable deployment would be in the range of 40%-50% because demand is driven by only a handful of countries, such as the US, UK, India, Spain and China, where policy incentives were changing in response to the ongoing global economic recession.

We don't expect that natural gas is going to be killing renewables, in fact we think there is a dynamic partnership there and that they are perfectly complementary."

"We need to broaden the regional penetration of new renewables from just a handful of key markets and provide a global incentive framework and remove the subsidies for fossil fuels," he said.

Nancy Pfund, founding partner of DBL Investors, also said that extreme variation in how the natural gas and renewables industries are regulated also distorted the market and increased regulation of fracking would lead to increased prices.

"Natural gas is having a huge impact on the renewables sector," she said. "At the same time, there is a lack of consistency in the way we approach natural gas."

She said that some operators in the natural gas industry had objected to new regulations that require drillers to notify the Environmental Protection Agency before they start fracking.

"Having to tell the EPA that you're about to frack is seen as an intrusion in the natural gas industry. Whereas if a solar operator doesn't tell you when they're pulling a weed out of a farm that they're developing, if they don't have an iron clad record of what they're doing, they're out of business.

"Solar operators have grown up in an era where everything they do has to be environmentally measured and there's all kinds of costs associated with that. And yet natural gas is still not subject to that same rigour and there is a double standard.

"We feel that's going to become more accentuated over time and that we're going to get into some culture wars over that across the country. And that will be an opportunity for [energy] storage and other renewables-related investments."

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21 Comments

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jerrym930

It is obvious from some comments on this thread that many have no idea what it costs to drill for Natural Gas. I have leased my property to XTO (Exxon). My property sits over the Haynesville Shale in East Texas. To get to this Natural Gas, they have to drill down 14,000 feet, and then horizontal drill another 4,000 feet.

To break even on the cost of drilling, Natural Gas has to be between $4 and $6. There are other areas in the country where the Shale is not as deep, so costs are not as high. The drilling has basically stopped in East Texas and Northwest Louisiana in the Haynesville Shale. The only drilling that is taking place is the drilling necessary to secure the leases. Most of the drilling rigs have left for South Texas and the Eagle Ford oil field.

October 30 2012 at 6:52 AM Report abuse rate up rate down Reply
PandaMan9

Really?? So, YOU have already decided to raise the price?! What a surprise. Too bad, we have only been pulling oil from ONE Alaskan field. Gee, I guess that means YOU can't just raise prices because?! Your price fixing days are over. Oh and don't forget: Just how many of your fields are on FEDERAL LAND????! I wonder?

October 27 2012 at 9:12 PM Report abuse rate up rate down Reply
coochiescooter

Nice porterhouse smothered in onions peppers and mushrooms: marinated in 4 shots of southern comfort, one slice off a ghost pepper, half a budweiser, 1/2 cup Worschestershire sauce, two cloves of diced garlic, and the juice from one freshly picked Key lime and 6 table spoons of honey, add erregano, basil , cuman , garlic salt . Medium hot charcoal grill 4 minutes per side depending on size of steak. Enjoy.

October 26 2012 at 4:49 PM Report abuse -1 rate up rate down Reply
1 reply to coochiescooter's comment
coochiescooter

No gas, gotta do charcoal, but if you have to, gas cuts the grill time shorter. I only do charcoal (Kingsford) . God Bless Henry Ford.

October 26 2012 at 4:55 PM Report abuse rate up rate down Reply
1 reply to coochiescooter's comment
coochiescooter

lmao

October 26 2012 at 4:57 PM Report abuse rate up rate down
coochiescooter

Global warming is created by UFO's coming to our planet stealing our ocean waters from our planet further contributing to making our ice caps to melt into the oceans, creating more flooding and drought. Those no good stinking aliens, you can't ever expect them to do the right thing, just like our elected officials.

October 26 2012 at 3:54 PM Report abuse rate up rate down Reply
1 reply to coochiescooter's comment
coochiescooter

I know Ravi ! , It's the Clingons !!!!!! Spok was right all along ! Hey I know, we should call up Batman and have him call comissioner Gordon up and have him let Mr. Freeze out of prison to stop the global warming thing. And hey while we're at it we can get Clark Kent to call Superman, damn, he's good at freezing stuff too. No problem Ravi, we've got this problem solved.

October 26 2012 at 4:03 PM Report abuse rate up rate down Reply
1 reply to coochiescooter's comment
coochiescooter

More than likely

October 26 2012 at 4:50 PM Report abuse rate up rate down
jlf0425

ONE WONDERS WHAT UNIVERSE NANCY PFUND RESIDES IN. DRILLING BY ITS VERY NATURE CREATES A MESS ON THE SURFACE OF THE EARTH HOWEVER NECESSARY IT MAY BE TO DRILL FOR GAS. THE EPA WAS CREATED TO PREVENT DAMAGE TO OUR WATER AND AIR SUPPLIES. DO WE REALLY WANT WATER AQUIFERS SPOILED SUCH THAT IT TAKES BILLIONS OF DOLLARS TO CLEAN THEM UP? WHAT IS CHEAP GAS REALLY WORTH WHEN WATER SUPPLIES MAKE PEOPLE SICK AND THE HEALTH SPENDING TO RECTIFY THE PROBLEMS BALOON? AS AN AVOWED CAPITALIST, I THINK WE NEED TO BE EXTREMELY CAREFUL ABOUT FRACKING AND ENSURE WE DONT HAVE A FUTURE LAWSUIT MESS.

October 26 2012 at 2:43 PM Report abuse rate up rate down Reply
1 reply to jlf0425's comment
coochiescooter

Can you repeat that in English without yelling ?

October 26 2012 at 3:12 PM Report abuse rate up rate down Reply
5 replies to coochiescooter's comment
scottvtm

Chevron Strategist: Move along folks. Nothing to see here. That natural gas boom lasted only a couple of years. Theres nothing behind the curtain... Really... Give us some time to buy up the reserves and control the supply...
Reneables, Yeah thats the real competition folks. Invest in that and you could put us oil folks in the poor house. wink wink..

October 26 2012 at 2:32 PM Report abuse +1 rate up rate down Reply
cabo79

When the "fracking" started an article stated that from the start of drilling to production was cut to 3 weeks time, and they {gas producers) could make good money at $2.50. The problem the gas producers have is marketing. I would love to get gas to my house and there is a line a block away, but no one will even call me back about hooking me up??? You have the gas, now you have to market it.

October 26 2012 at 9:05 AM Report abuse +1 rate up rate down Reply
k4jlp

And of course it's all about the "investor" and profits.
Remember this, crude/gas speculation on the commodity market jacks the price at the pump about 60%....
scamming profits via high speed computer trading without even taking delivery of the product.

October 25 2012 at 10:33 PM Report abuse +1 rate up rate down Reply
1 reply to k4jlp's comment
coochiescooter

The obvious choice is to become an inveastor as opposed to whining about the situation. I never knew that oil and gas companies were in the business of not turning a profit, did you ?

October 26 2012 at 8:59 AM Report abuse rate up rate down Reply
ga7smi

natural gas is a renewable resource

October 25 2012 at 4:22 PM Report abuse +1 rate up rate down Reply
1 reply to ga7smi's comment
coochiescooter

pull my finger. plenty of renewable gas.

October 26 2012 at 3:18 PM Report abuse rate up rate down Reply
2 replies to coochiescooter's comment
ravivgreenberg

Moron conservatives don't believe in global warming, no matter what most scientist say. Global warming, like rape, is God's will according to those morons. I hope Hurricane Sandy destroys their homes.... it will be God's will.

October 26 2012 at 3:32 PM Report abuse rate up rate down
coochiescooter

Whatever. I'm not a conservative, enjoy your day Ravi. Global warming is a myth propageted by a bunch of individuals seeking to reap the rewards from added legislation to line one pockets off of the common planet dwellers. Hey what ever happened to all those E-Mails years ago from scientists at the g-20 summit stating false information? Bueller , Bueller ,Bueller ?

October 26 2012 at 3:46 PM Report abuse rate up rate down