Will Free market forces stop natural gas fracking or will the 1% demand a tax break and loans from the government?

 

Natural gas fell 3 cents to finish at $2.27 per 1,000 cubic feet in New York. The price has fallen about 27 percent this year and is at the lowest level in a decade.

http://www.lasvegassun.com/news/2012/mar/11/us-oil-prices/

Meanwhile, a supply glut has depressed the natural gas market, contradicting the industry line that it would stabilize what has historically been a volatile market. Instead, gas prices have dropped from about $13 per MMBTU (million metric, or one million, BTU) at the beginning of the boom to $4, barely a break-even point.

http://newyork.sierraclub.org/SA/Vol41/wounded.htm

My bold I assume that with natural gas at $2.27 and $4 the break even point that the Frackers will  scream for tax break and government loans pretty soon.

But why make them any loans unlike the sun or wind which never run out we have only 11 years of Natural gas reserves with current technology at best 100 years but even Chesapeak Energy the largest company fracking for natural gas does not use that number.

 

The “reality” of 100 years of natural gas. This claim is a great example of the kind of misleading rhetoric that Chesapeake – and the natural gas industry as a whole – specializes in. The assertion deliberately confuses what geologists refer to as the “resource” and the “reserves.” The resource is basically all the natural gas that geologists believe exists; the proved reserve is what they believe is currently recoverable at today’s prices, with today’s technology.  The resource is indeed close to 100 years; but according to most calculations (including the Potential Gas Committee, a respected source that is cited by Chesapeake), the reserve is more like 11 years.

http://www.rollingstone.com/politics/blogs/national-affairs/rolling-stone-responds-to-chesapeake-energy-on-the-fracking-bubble-20120306

 

Chesapeake has piled on $10 billion in long-term debt.

 

Chesapeake’s debt-to-capital ratio of 40% is the highest in its peer group.

 

Even when the company finds gas, it sometimes doesn’t pay to drill. For instance, the company needs natural gas prices of only $2.25 per thousand cubic feet to break even in the Marcellus (prices are currently around $4). But in Louisiana they need $3.50 and in Texas, $4.50.


http://www.forbes.com/sites/christopherhelman/2011/10/05/aubrey-mcclendon-chesapeake-billionaire-wildcatter-shale/3/

We can achieve energy independence now forever ( assuming the sun keeps shining and the wind keeps blowing ) if we back wind and solar. We can at current levels of drilling technology and consumption have 11 years maybe 100 if we back natural gas.

The thing is without government support of some kind Fracking for Natural Gas does not make money. We can thank Global Warming warm winters for decreasing the price of natural gas below the break even point.

Given that Fracking for natural gas poisons well water and causes earthquakes one does wonder just how efficient financial markets are at allocating cash.

With wind and solar there is no danger of poisoning well water or earthquakes.

If we back wind and solar now and protect them from low cost competitionfrom China  until we get savings from economy of scale.  We create jobs in America. We create consumer demand in America and get our economy running for more than the 11 years maybe 100 that we expect Natural Gas Reserves to last. Also the fuel is Free!

Given all these facts just why did the Banks loan Cheasapeak any money in the first place? Chesapeake has Enron type off book accounting any bailout of the Natural Gas industry should in my opinion not save Cheasapeak they should be allowed to fail. Let the 1% bankers that loaned them money eat the losses for their own stupidity for once!

 

The land business amounts to a shadow company within Chesapeake, sucking in some $6.5 billion in cash a year for land acquisitions and spitting out $5 billion in proceeds from acreage sales. That’s almost as much cash in and cash out as the supposedly core oil-and-gas business. But you wouldn’t know it from the income statement. No land acquisitions or sales show up there.

That’s because Chesapeake uses the so-called full-cost accounting method rather than the more common “successful efforts.” Full cost is legit, but it has the effect of obscuring the extent of Chesapeake’s land deals and the impact of the debt load it carries to finance them. Instead of being listed as expenses deducted from revenue, all of Chesapeake’s big costs—of land and drilling and its $700 million a year in interest payments—are capitalized on the balance sheet.

The effect is that net income looks higher (or lower, depending on the deal). If Chesapeake used successful efforts, the proceeds of selling land would flow through the income statement and end up as higher earnings per share—$14 billion since 2008. Instead that $14 billion is deducted from its carried costs, effectively reducing its cost basis on the rest of its acreage. This is how Chesapeake can boast the industry’s lowest cost reserves.

http://www.forbes.com/sites/christopherhelman/2011/10/05/aubrey-mcclendon-chesapeake-billionaire-wildcatter-shale/3/

ThingsComeUndone

ThingsComeUndone

A jack of all trades master of none a pot felon who can't get a job worthy of his talents so I write for free.

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