$6 per MCF

I like to follow the plans of Shale Gas leader Chesapeake - they like the idea of $6/mcf gas and want to shift gears and target liquid rich plays.

Good! $6 / mcf is the kind of basement price that can help the rate of return of the Alaska Gas Pipeline.

Shale Gas - Is the magic wearing off?

The Alaska Dispatch carried Larry Persily's recent speech on the future of the Alaska Gas Pipeline. (LINK). According to Persily:

I'm not here to tell you it will be built this decade. But I assure you it is not dead; shale gas has not driven a silver stake through the Alaska pipeline; the market has not forgotten us. It may not be paying as much attention as we would like, but that could change.

What about shale gas? Well ExxonMobil (XOM) joined the shale game through acquisition of XTO. Exxon has ideas about exploring for shale gas around the world. XTO cost Exxon $41 Billion (with a "B") in stock. My guess is that Exxon's investment in shale gas will pay off with the greatest successes in Europe.

Chesapeake Energy on the other hand shows signs that owning big shale gas plays + debt + $4/MMBTU may be a bad business plan. Yesterday they announced a $600 million cash infusion from Asian investors (LINK).

In a separate announcement Chesapeake says

Through a series of transactions over the next 24 months, including the preferred stock placement announced today, the company is planning to raise up to $5.0 billion in order to repay up to $3.5 billion of senior indebtedness and increase its investment in liquids-rich plays by up to $1.5 billion.

So judging from their actions it looks like $4/MMBTU shale gas can break you and leave you wanting some liquid hydrocarbons. So I tend to agree with Mr. Persily - Shale gas at $4/MMBTU is not going to drive a stake in the heart of the Alaska Pipeline, that's a job for the politicians.

Natural Gas Value

Here's a link to a Chesapeake Energy presentation on their natural gas projects in the lower 48. It makes good reading and puts the value of Alaskan natural gas in perspective.

Here's the short version: There are lots and lots of new large scale natural gas plays in the lower 48 :Haynesville, Marcellus, Fayetteville and Barnett shales.

The upside: Natural gas will experience increase demand as all things coal are demonized in the new world order.

Perspective / Opinion: There's still a role for Alaskan Natural gas. Current shale gas production is 600 bcf/yr (1.6 bcfd) (data source) vs. 5.0 bcf/d for the Alaska Gas Pipeline (data source).