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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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Is Australia The Next Big Thing In Shale?


As natural gas prices have seen a bit of a correction, it’s easy to forget that natural gas is actually a pretty good play right now — at least in certain parts of the world.

As the chart below shows, North American natgas prices have been uninspiring recently. With rates at the Henry Hub slipping back to near $3/mcf — trading at $3.16 as I write.

(Click to enlarge)

North American natural gas prices have been subdued over the past year (source: Energy Information Administration)

That gives little to get excited about for traders. A far cry from the end of 2014, when a surge to over $5/mcf suddenly (and briefly) brought the natgas market back to life.

But natural gas markets are very different elsewhere in the world — as news this week from Australia and Argentina shows.

Unlike oil, natgas prices show big regional variations. A consequence of the difficulty and cost associated with transporting natgas around the world.

I’ve written before about Argentina being one of the world’s best gas markets right now. With prices currently pegged by the government at $7.50/MMBtu — more than double prevailing U.S. prices.

That’s a great rate, and a big part of the reason majors like Exxon and Chevron are spending billions on Argentina’s shales.

But the natgas story is actually even better in other parts of the globe.

The thing is, Argentina’s high gas prices won’t last forever. With the $7.50/MMBtu rate slated to last until the end of 2018 — after which prices will be eased downward to $6 by 2021. Argentinean officials will then move to free-market pricing in 2022.

Those rates are likely enough to support Argentina’s unconventional development efforts. But they’re far from the best going globally — as evidenced by the recent price spikes in Australia.

Spot pricing for Aussie markets is tougher to find than in the U.S. But some recent figures from local producers show how rates here are some of the most attractive in the world right now.

Origin Energy, for example, earned A$1.946 billion from the sale of 228.2 petajoules of natgas for the year ended June 30, 2016. That equates to A$8.53 per gigajoule — or US$6.75 per MMBtu.

Recent concern from Australia’s politicians shows prices may be spiking even higher of late. Which should help spur drilling — with Aussie unconventional plays being a contender for the “next big thing” in shale. Related: Gas Prices In North Korea Shoot Up 83% As China Mulls Oil Embargo

In fact, the Asia-Pacific region as a whole is looking good for natgas producers right now. With recent reports suggesting that Indonesian domestic prices are averaging $9/MMBtu. I’ve looked at projects in the country recently where local pipelines are selling gas at over $10/MMBtu.

Prices in other Southeast Asian markets have subsided a bit. With Thailand’s PTTEP reporting a natgas sales price of $5.60/MMBtu in 2016, down from $7.20/MMBtu in 2015. But as a whole, this part of the world is still a great place to pump gas.

Where else? I had a call this week with Colombian producer Canacol Energy — who are getting a very decent average price of $5.60/MMBtu for production in northern South America.

Eastern Europe is also a market to watch. With Romania recently liberalizing natgas prices — which could lead to more-attractive pricing here, and in nearby countries like Hungary.

Gas may be down in North America, but it’s far from out globally. Watch for ongoing pricing developments, especially in currently-volatile markets like Australia — these could create some great opportunities for local producers.

Here’s to going where the money is.

By Dave Forest

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