10:06am: Talkline with Hoppy Kercheval

Natural gas waits for the next boom

You frequently heard the term “game changer” to describe the impact on energy production when the natural gas boom hit several years ago because of improved hydraulic fracturing technology.

But as with any dramatic shift in direction, one is never quite sure where it’s headed.

In West Virginia, the boom has settled into a lull.  Drillers have discovered and tapped into so much gas that there is a glut, driving down prices below profitability.  The Wall Street Journal reported recently that when EQT Corp. drilled into one gas-gorged well in Greene County, Pennsylvania last summer it actually hurt its business.

“In a glutted industry in which natural gas prices are plunging as record amounts of unused gas build up in storage, it is a problem,” the Journal reported.  “Since EQT finished drilling the gusher in July, its shares have lost 29 percent, while U.S. natural gas prices have fallen 24 percent.”

EQT did announce this week plans to invest $820 million for well development, and drill 72 Marcellus wells in 2016, but that’s a reduction from 122 wells and a $1.9 billion investment the company planned for this year.

But the slowdown in drilling has not lead to a corresponding decline in production. Horizontally drilled wells into Marcellus and Utica Shale formations mean greater production with fewer holes and well pads.

“Unconventional wells (horizontally drilled) can produce twice as much in one day as conventional wells (vertically drilled) can produce in a year,” said Corky DeMarco, executive director of the West Virginia Oil and Natural Gas Association.

The slumping prices have added to the strain on the state budget, which is already under pressure from the dramatic decline in the coal industry.

Natural gas severance tax collections peaked at $161 million in fiscal year 2014, and then fell to $137 million last year.  State officials project collections will fall below $100 million this year.  As of October natural gas severance tax collections were down about 50 percent from last year.

Energy producers are hoping for a cold winter to increase the demand and drain off stockpiles.  Still, the U.S. Energy Information Administration says natural gas storage inventories are at record levels and a warmer-than-normal winter “could limit withdrawals in the coming months.”

Still, DeMarco believes the industry is poised for another growth spurt because of major interstate pipelines that are under construction or on the drawing board and the new liquid natural gas (LNG) export terminal at Cove Point, Maryland which will go on line in 2017.

“While there is a bit of a pause in bringing new wells into production, the industry is focused on developing infrastructure that will ultimately allow for more wells to be drilled,” DeMarco said.

The country’s energy economy is still adjusting to a paradigm shift from a net importer to an energy exporter. When it does, however, the state will be well-positioned because of the massive natural gas reserves underneath the West Virginia hills to ride the next wave of the game changer.

 

 





More Hoppy's Commentary

Commentary
Some notes on Easter and religion as we begin the holiday
March 29, 2024 - 12:48 am
Commentary
Third party and independent presidential candidates rarely get traction in West Virginia
March 28, 2024 - 12:10 am
Commentary
Let's talk about the officiating in the WVU-Iowa game
March 27, 2024 - 12:47 am
Commentary
WVU basketball looks to the future
March 26, 2024 - 12:15 am


Your Comments