I spoke with Dave Forest recently about where he sees the opportunities for oil and gas investors.  Dave is a former editor at Casey Energy Report.

I was particularly interested to hear his thoughts about Europe, as energy companies have rushed in there looking for shale gas and shale oil deposits, and is getting a lot of press in magazines like The Economist and Financial Times of London.

(The FT wrote a great article on this a couple weeks ago – see here: http://tinyurl.com/yaythqf)

I asked Dave if he thought all the excitement around this continental play was warranted.  He had a interesting take on the issue that the Financial Times article didn’t talk about:

“Some of the logic for eastern European shale gas is that these countries enjoy strong gas pricing. That’s because European gas prices have traditionally been linked to oil prices, on long-term contracts. With oil flying high, we should have great gas prices in Europe.

“But LNG has changed that. There was a massive build-out in LNG capacity over the last few years in places like Qatar. The assumption was America would be the “if all else fails” market for this gas. But now America has more gas than it needs, thanks to shale gas production. The U.S. is actually threatening to become an exporter of LNG.

“With Henry Hub prices lagging NBP, LNG cargos are increasingly landing in Europe. And $5/mcf spot gas is undercutting $10/mcf oil-linked take-or-pay contracts. No one wants to pay oil-linked prices, when they can buy much, much cheaper at spot. It looks like the death of oil-linked pricing may thus be at hand. Even Gazprom recently announced it would sell 20% of its European export gas at spot prices. They have to, or risk pricing themselves out of the market.

“A transition to spot pricing may mean that assumption used for shale gas projects in eastern Europe are suddenly more severe. We’ll see if these projects still stand up.”

A piercing point of view.  Sign up for Dave’s brief and insightful free daily blog post at www.piercepoints.com.  I read it every day.

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