Natural Gas Industry Faces Plummet in Price; Stored Supplies, Milder Weather Depress Demand

The Washington Times (Washington, DC), February 24, 2012 | Go to article overview

Natural Gas Industry Faces Plummet in Price; Stored Supplies, Milder Weather Depress Demand


Byline: Ben Wolfgang, THE WASHINGTON TIMES

As Americans struggle with climbing costs at the gas pump, the natural gas industry faces a crisis of its own: prices are too low.

The drilling boom that began nearly five years ago is finally being slowed by decreasing values, as a glut on the market has major firms rethinking their long-term strategies and scaling back operations in places like the Marcellus Shale region, thought to be one of the richest natural gas deposits in the world.

In 2008, natural gas costs hovered around $8 per thousand cubic feet. As more and more rigs went up in Pennsylvania, West Virginia and elsewhere over the next few years, the price began its decline to the current 10-year low.

On Thursday, the price per thousand cubic feet was $2.58 - less than one-third what it had been.

The low figures have led to the highest stockpiles in nearly 30 years, with excess gas packing underground storage facilities all across the nation. The Energy Information Administration now says current supplies are more than 40 percent higher than the five-year average. The agency predicts that, by the end of March, almost 2.1 trillion cubic feet of natural gas will be in storage, the most since 1983 and about what the U.S. uses per month.

Bargain-basement prices are one factor, while warmer-than-normal temperatures this winter that reduced gas heating demand have also played a role, the EIA said in a recent report.

Convinced prices will remain low for at least the remainder of 2012, energy companies are now looking to other fuels for money-making opportunities.

Right now, companies are saying, 'Are we going to invest in producing natural gas right now, or are we going to target other things?'" said Daniel Kish, senior vice president of policy at the Institute for Energy Research. If you've got a chance to drill for natural gas that would get you $15 a barrel, or you have the chance to drill for what will get you $100 a barrel, you don't have to have a masters degree to know that you'll target the liquids.

Over the past few months, leaders in the natural gas industry have announced they'll scale back in areas like the Marcellus Shale, turning their attention instead to oil and more valuable wet gas.

Last month, Chesapeake Energy, one of the largest players in the business, announced plans to slash daily natural gas production by 500 million cubic feet this year, an 8 percent drop from previous levels.

The company said it may go even further, predicting flat or lower total natural gas production in the U.S. in 2012 as supply continues to outpace demand by a wide margin.

Other firms are taking a similar tack. Consol Energy, which operates more than 12,500 oil and gas wells and owns more than 4 billion tons of coal in Pennsylvania, Ohio, West Virginia and elsewhere, announced last month it's cutting investment in the Marcellus Shale by $130 million and will delay plans to drill 23 new gas wells in the region. …

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Natural Gas Industry Faces Plummet in Price; Stored Supplies, Milder Weather Depress Demand
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