Crude Observations

Turkey Time 2

Every once in a while, I will realize that I have spent way too much time talking about oil, complaining about pipelines, Permania, free money and the impending “End of Big Oil because of Electric Vehicles”. And it’s on those days that my attention turns to oil and coal’s neglected stepsister who we know as natural gas. And in the spirit of American Thanksgiving, I would like to say that I, for one, am thankful for natural gas, the current turkey of the energy sector.


Like oil, natural gas is a prolific fossil fuel with many uses, however I feel that it floats unnoticed under the radar, particularly because it is so much easier to carpet bomb oil and coal into submission (as opposed to cute and cuddly natural gas) in the great anti-fossil fuel war of attrition.


So herewith – 50 (or is it 54?) things to know, love, think and be thankful for about natural gas, in no particular order of importance and apologies if I miss really obvious ones.


  1. Natural gas is used to provide heat, hot water and cooktop fuel to almost 80 million homes in North America
  2. Natural gas represents almost 25% of all primary energy use in North America and globally, rapidly closing the gap on coal
  3. It is cleaner burning than all the other combustible fuel alternatives such as whale blubber, wood, peat, coal, rolled-up newspapers and oil.
  4. It is so plentiful in North America that supplies are estimated at anywhere from 50 to 100 years at current consumption levels, although this might involve fracking under Philadelphia, so maybe not. Canadian supplies are somewhere in the 300 year range. Because the supplies are so prolific in North America, the prices are quite disconnected from oil and on a heat content basis, significantly undervalued
  5. It is cleaner, cheaper and easier to drill for than oil and wells require less maintenance after being brought on stream.
  6. It is easier to gather, process and subsequently ship and you never have to worry about spills. Sure it can blow up but that’s rare.
  7. No one has ever compared a gas drilling operation to Mordor.
  8. Natural gas pipelines are rarely protested the way oil ones are, unless you live in New York, then you are full on NIMBY about anything that involves digging up your property
  9. It can be compressed and liquefied for export.
  10. When prices are on, gas is a cash cow for government. Back in the Alberta energy heydays, royalties from natural gas pretty much paid for our health care system.
  11. Aside from heating our homes, natural gas is used to make plastic, fertilizer, generate electrical power. It is also used in vinyl, aspirin (not sure how) and pretty much as many products as oil.
  12. It also smells like rotten eggs. Actually it doesn’t – it is odourless, the smell is added – because breathing gas is bad.
  13. Natural gas reserves in British Columbia are so vast that more than 20 LNG projects were proposed for the West Coast. Just because government got in the way and all the projects are dying off doesn’t mean the potential isn’t there
  14. Gas keeps it real – While “shale gas” is an actual real thing (gas comes from the shale), “shale oil” is just an expression, it’s really “tight oil” – go figure. Just close the loop – oil from shale is an actual thing. Confused yet? Stop smelling the gas.
  15. In many cases when you are drilling for oil, associated gas is produced. The reverse isn’t always true.
  16. When excess gas is produced, it is often flared because gas isn’t considered as valuable as oil and no one ever knows what to do with it.
  17. In the Permian, the amount of gas being produced is overwhelming the take-away capacity and with new rules on venting and flaring, wells are actually being shut in to work off the excess gas
  18. The US produces (and consumes) about 77 billion cubic feet of gas a day. That’s a lot of gas.
  19. There is close to 4,000 BCF of gas is in storage in the US, which is about 50 days of supply, compared to the oil storage days supply of about 27 days.
  20. Gas usage is a seasonal business – in winter storage levels are drawn down (for heating) and in summer months (injection season), stocks are rebuilt. Stocks can swing as much as 1,500 Bcf during the year
  21. In the last few years, natural gas has supplanted coal as the number one fuel source for electricity in the United States
  22. The US is a net exporter of natural gas – sending gas to Mexico, Canada and elsewhere.
  23. Pipelines to Mexico provide an ever-increasing source of demand as their power sector shifts from coal and are expected to account for 7 Bcf/day of exports in the next few years
  24. Similarly, current LNG export capacity in the US is about 3 Bcf/day and is expected to grow by between 3 and 6 Bcf/day in the next few years.
  25. Combined, this new export capacity ultimately represents about 20% of US production, so new supplies are going to be needed to keep the system in balance.
  26. Since 2010, US production of conventional gas has been in terminal decline. Shale gas from places like the Eagle Ford, the Barnett, the Haynesville and other shale basins have been key to maintaining supply
  27. The most prolific region is by far the Marcellus shale in the Pennsylvania Appalachian region which accounts for a whopping 18 Bcf/day of production or just under 25% of all US gas
  28. In January of 2000, shale gas accounted for 2 Bcf/day of production and by October 2017 that number was 47 Bcf/day or 2/3 of production
  29. In the 2000’s, the US was facing a critical shortage of natural gas and started building LNG receiving facilities.
  30. The largest (and first to export) LNG facility in the US, which exports 3 Bcf/day via four “trains” was originally built to receive imports
  31. There are close to 3 million miles of natural gas distribution and transmission pipelines in North America – enough to go to the moon and back, six times
  32. Natural gas emits only 50% as much CO2 as coal for comparable amounts of electricity generation. What does this mean? Simple, it means that if we could replace all the coal generation in China, India and the United States with gas fired generation, we would be well on our way to meeting our global climate goals and all those annoying conferences and doom and gloomers could end.
  33. By replacing coal with gas and renewables, the UK was able to reduce emissions to Victorian era levels.
  34. The US has the 4th highest proven reserves of natural gas in the world, behind Russia, Iran and Qatar. Canada ranks 17th, but this doesn’t include vast reserves in the northern part of British Columbia. Interestingly, Australia, which has about half the reserves as Canada and ranks a paltry 26th has a thriving LNG industry.
  35. More than 15 million vehicles worldwide run on natural gas – both compressed and liquefied. Take that Tesla.
  36. Gas was first discovered in the Middle East when seepages were ignited by lightning strikes.
  37. Natural gas was used in 500 BC China, gas was moved via bamboo pipeline and used to make evaporated salt brine from sea water
  38. The first lamp to be lit by natural gas was in 1792 in the UK
  39. Natural gas is referred to as “dry” or “wet”. Dry gas is almost entirely methane. Wet gas is less than 85% methane and contains other gases such as ethane, butane, propane and naptha.
  40. 90% of chefs prefer to cook with natural gas. It evenly distributes heat which means evenly cooked food.
  41. The Temple of Apollo, known as the Oracle of Delphi, was built over a flaming gas vent
  42. Home use of natural gas premiered in the first century AD in Persia, when ground seepage was ignited next to the royal kitchen
  43. Eclipse Resources, a Marcellus/Utica pure play driller broke its own record for drilling the longest land-based lateral well in the world by drilling a Utica well with a lateral that’s 19,300 feet long (3.7 miles)
  44. Remember in the movie Gasland, when someone lit their tap water on fire and blamed fracking? Apparently this is common in areas where shallow gas and underground aquifers co-exist and isn’t caused by fracking. Go figure.
  45. As recently as 2008, the Alberta government received close to $5 billion in royalties from natural gas. By 2014 that number had been reduced by 90%
  46. Cooling natural gas to -162 Celsius converts it to a liquid that can then be shipped worldwide
  47. Because natural gas markets tend to be continental instead of global (like oil), prices vary considerably around the globe, hence the push for the big reserve holders to LNG for export
  48. The flaring of gas from oilfields in the Middle East is visible from space
  49. The first natural gas well drilled in Alberta was in 1883 in Medicine Hat, otherwise known as “Gas City”. The first gas well in Canada was in New Brunswick in 1859.
  50. 68% of Canada’s natural gas production comes from Alberta
  51. The now abandoned Energy East pipeline project was to have been built by repurposing a TransCanada owned natural gas pipeline. If demand or price was to pick up, perhaps we can convince TransCanada to repurpose the repurposing
  52. Coalbed methane is natural gas found in coal seams. There may be up to 500 trillion cubic feet of coalbed methane in Alberta which is an absurdly massive amount, although not all of this will be recoverable
  53. Based on current consumption and comparative inventory, natural gas prices should be approaching $3.50/Mcf (a 20% premium to today’s closing price). It may be time to load up on some natural gas stocks after all – but you didn’t hear that from me!
  54. Bonus Item – there is a book about natural gas called “The Prize”. No, actually there isn’t. That one’s about oil. But one of the top sellers on Amazon about natural gas is called the “Handbook of Natural Gas Transmission and Processing: Principles and Practices. I hear it’s a real page turner.


So that’s it, it’s a gas, gas, gas.


Didn’t think I could do 50, so I’m glad I got a little further.


Prices as at November 24, 2017 (November 17, 2017)

  • The price of oil rose during the week on OPEC and pipeline spill concerns and closed a short week at two year high – Yay!
    • Storage posted a decrease
    • Production was up marginally
    • The rig count in the US was up
  • Natural gas slumped during the week – primarily on weather – c’mon gas, I wrote about you!


  • WTI Crude: $58.92 ($56.65)
  • Nymex Gas: $2.827 ($3.124)
  • US/Canadian Dollar: $0.7867 ($ 0.7842)


  • As at November 17, 2017, US crude oil supplies were at 457.1 million barrels, a decrease of 1.9 million barrels from the previous week and 31.9 million barrels below last year.
    • The number of days oil supply in storage was 27.8 behind last year’s 30.7.
    • Production was up for the week by 13,000 barrels a day at 9.658 million barrels per day. Production last year at the same time was 8.690 million barrels per day. The change in production this week came from a decrease in Alaska deliveries and a rise in Lower 48 production.
    • Imports fell slightly from 7.898 million barrels a day to 7.873 compared to 7.578 million barrels per day last year.
    • Exports from the US rose to 1.591 million barrels a day from 1.129 and 0.469 a year ago
    • Canadian exports to the US were 3.300 million barrels a day, down from 3.371
    • Refinery inputs were up during the week at 16.838 million barrels a day
  • As at November 10, 2017, US natural gas in storage was 3.726 billion cubic feet (Bcf), which is 3% lower than the 5-year average and about 8% less than last year’s level, following an implied net withdrawal of 46 Bcf during the report week.
    • No other data was released because of the short Thanksgiving week
  • As of November 20 the Canadian rig count was 201 – 143 Alberta, 25 BC, 30 Saskatchewan, 3 Manitoba. Rig count for the same period last year was about 165.
  • US Onshore Oil rig count at November 22 was at 747, 9 up from the week prior.
    • Peak rig count was October 10, 2014 at 1,609
  • Natural gas rigs drilling in the United States was down 1 at 176.
    • Peak rig count before the downturn was November 11, 2014 at 356 (note the actual peak gas rig count was 1,606 on August 29, 2008)
  • Offshore rig count was up 1 at 22
    • Offshore rig count at January 1, 2015 was 55
  • US split of Oil vs Gas rigs is 80%/20%, in Canada the split is 56%/44%


  • TransCanada continued to investigate and clean up its spill. It is estimated the pipeline will remain clsoed for several weeks
  • In other TransCanada news, the Keystone XL pipeline received regulatory approval for its “alternate route” through Nebraska. Everyone at the company is sounding the right notes of caution and market study and all that, but you have to know they are pretty pumped.
  • Canada made its first shipment of LNG to China from a little know LNG plant in Delta BC operated by Fortis. The shipment is the first of its kind to China from Canada. The size of the shipment was estimated as sufficient to fill a seacan. Did I mention it was a pilot shipment?
  • Despite my misgivings, Premier Rachel Notley is acquitting herself quite well in her cross-Canada “build my damn pipeline already” tour. From distancing herself from the federal arm of the NDP to calling out the Liberals for being wimps and wusses and telling Trudeau to “man up” or chastising the BC provincial and municipal governments for being small-minded, obtructionist pin-heads (not her words, mine) and telling the environmental movement that it needs to pay attention to the regular working stiff or become irrelevant her speeches have actually been a broadside of common sense directed at all the special interest groups and spineless politicians surrounding what is really a very simple project and economic calculus. Credit where it’s due. Jason Kenney should pay attention, the 2019 gauntlet has been emphatically thrown down, Rachel has the bully pulpit and the upper hand.
  • Trump Watch: Trump pardoned a couple of turkeys and got into a Twitter altercation with the father of one of the basketball players from UCLA he supposedly rescued from jail in China. Then he went to Florida to play golf – hey, even the big guy needs a break!
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