Natural gas price has Fitch warning on investments

Looking a Gift Horse in the Mouth

Low natural gas prices and the rising concern about oppressive regulation is putting one of the greatest things that the US economy has going for it in danger. Directional drilling and the miracle of shale gas should be heralded as an economic and techhnological miracle but instead is being attacked by environmentalist and the most militant Environmental Protection Agencies in history, possibly squandering jobs and opportunity because of what really amounts to an environmental witch-hunt.

In fact, yesterday Fitch's rating service raised waning signals about making investments in the US natural gas industry because of what they say is uncertain US regulatory environment. Fitch said that they "regard the measured conversion of some U.S. liquefied natural gas (LNG) terminals to allow the export of liquid natural gas as positive. However, currently favorable margins for U.S. LNG exports may not be sustainable and could set up long-term risks for these infrastructure projects. They say that most pricing projections for liquid natural gas assume that fracking will continue to be used. The immediate future is uncertain as the short- and long-term potential environmental impacts are examined."

Yet at the same time they also acknowledge that other producers in the world will more than likely take this US created miracle and run with it. Fitch says that they also see the potential for exploitation of shale gas reserves in many other countries. Some have significant advantages over U.S. distributors. Perhaps one of those advantages is a reasonable regulatory environment.

Now do not get me wrong. I am all for protecting the environment, yet it seems that the EPA really wants to create problems where they do not exist. The EPA, unable to prove that fracking is doing any damage, is looking for new ways to harass producers. The EPA is investigating a well being drilled in western Pennsylvania for possible violations of air, water or hazardous-materials rules. Bloomberg News reported that the agency began its inspections of the gas-drilling site, which it declined to identify, in September. “The investigation was disclosed today by the Pittsburgh Post-Gazette, which reported that Washington County, south of Pittsburgh, has more wells and compressor stations to pump natural gas than any other county in the region."

At the same time, low prices are putting pressure on smaller producers that could also be driven out of business by more government pressure. Fitch Ratings Service says that, "The combination of shale gas reserves and weak economy has pushed prices to a level approaching the marginal cost of production. We expect the recent low prices for natural gas to continue, as supply should remain high."

Low price has forced Chesapeake to put up for sale some of their precious assets in the Permian Basin. This comes as Fitch warns that it is possible that if natural gas prices stay low they may have to change the outlook on the company.

The EPA is also trying to put more refiners out of business with news gas rules. Our refining capacity is falling already and is one of the reasons we are seeing this spike in gas prices. Not the only reason, but a reason.

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