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Why Natural Gas Prices Collapsed

Natural gas prices have collapsed…

Dave Forest

Dave Forest

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

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Here's an Unexpected Shale Gas Play

Argentina. - U.S. producer Apache said Friday it plans to drill a well by year-end to test shale gas potential in the La Calera field of the Neuquen Basin. The area already hosts conventional oil and gas production.

A few year's back Argentina would have been the last place on Earth for any kind of gas play. Let alone an experimental shale gas test.

Government price fixes in country have resulted in one of the lowest domestic gas prices in the Americas. Currently, gas sells for around $2.50 per MMBtu.

But the low price is curing the low price. With no incentive for gas producers to explore, Argentina's gas production has fallen off a cliff. To the point where the nation is having trouble honoring export contracts with neighboring countries like Chile.

In response, the government has implemented a two-tiered pricing system. Gas brought on-line from new fields can now be sold at prices above the domestic average. It's up to producers to negotiate the sales deals with prospective buyers.

The result being that producers have recently done deals as high as $5 per MMBtu. A relatively decent price. And one where shale gas could be economic (geology depending, of course).

This actually could be an ideal environment for shale.

If a producer like Apache can get a handle on the dynamics of a shale play, they can figure out what price they need to make it work. Cover costs, and build in an acceptable profit.
They can then negotiate to lock this price in, ensuring the continuing viability of the play.

The concept is sound. We'll see what the test results look like.

By. Dave Forest of Notela Resources




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