Here are the breakeven points of different natural gas locations across the US for 15% after-tax rate of return (data from Credit Suisse).Many people’s claims saying that natural gas prices will continue to be depressed cite all the new supply due to shale gas discoveries. Because of this, they say, natural gas prices are forced to stay depressed. The one mistake in this argument is that it assumes all supply sources are equal. Judging from the chart above, this is hardly the case.
Simply put, there are low-cost gas fields and high-cost gas fields. As you can see from the data, cost structures of different gas fields vary wildly.
Currently, natural gas prices sit just above $4. According to the above data, many gas fields have breakeven levels much higher than this to achieve the industry standard 15% after-tax rate of return. A good number of these gas fields even range from $5.11 to $7.81.
These breakeven economics leave companies with only high-cost gas fields in the uncomfortable situation of having to purchase lower cost acreage to push their average breakeven points lower, or keep producing at a loss. (more)
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