Thursday, July 21, 2011

More Impacts of Shale

One of the overarching messages of this web site is that shale gas will transform the North American energy market for a long time to come.  Part of that is obvious - you are seeing monster natural gas wells in Texas, Louisiana, Pennsylvania, etc. where there weren't any four years ago.  But it's the domino effect that is most interesting.  Two new tidbits of information:

The Mackenzie project is a consortium that also includes subsidiaries of ConocoPhillips and Exxon Mobil, so it's not officially dead.  Shell is not the largest partner, but it is one of the earliest participants in the project.  Shell sees (as I'm sure the other partners do too) that the North American gas market can't support any additional supply and that the commodity price mechanics of natural gas have been changed permanently by the advent of shale gas.

Just as we will not see in our lifetimes a natural gas pipeline from Alaska to the Lower 48 (the famous Alaska Gasline Inducement Act-funded project), I doubt we will see additional Arctic gas from Canada making its way south of the border.

While the Mackenzie project might not be realized any time soon, at least Cheneire was able to pull a backup plan out of its hat by reversing the flow of the gas and exporting it rather than importing it.  Five years ago, Cheniere was in the proverbial catbird seat with its Sabine Pass import facility approaching completion while experts were predicting continued natural gas production declines in the U.S. What a difference a few years makes.  Shale gas has decimated the LNG import model. (Read more about shale's impact on world politics in new Baker Institute Study.)

This upgrade is no slam dunk:  realizing the conversion will take billions of dollars and three to four years of construction, not to mention some strong contracts.  Until now, Cheniere has not been a Haynesville Shale player, but it is hard to find a stock that is more directly and consistently impacted than Cheniere's:

The company's price didn't see any upward movement until it found a way to "monetize the shale" - both the Haynesville and Eagle Ford - by exporting it.

These are just two more examples of the domino effect of shale gas.

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