Appalachian shale drillers are getting squeezed by low prices, and a supply glut may mean that there is little prospect of a pricing rebound anytime soon.
Earlier this month, IHS Markit put out a press release entitled, “U.S. Natural Gas Price Will Fall to Levels Not Seen Since 1970s.” The firm said that persistent oversupply from the Marcellus would be “reinforced” by a surge in associated gas production from the Permian basin. That could keep average natural gas prices below $2/MMBtu next year, which would nominally be the lowest since 1995, but in real terms it would be the lowest since the 1970s.
The market is set to see falling prices despite structural increases in demand from new gas-fired power plants and LNG export facilities. IHS noted that U.S. demand has climbed by 14 billion cubic feet per day (Bcf/d) in annual consumption since 2017, but supply has expanded by even more than that amount since the start of 2018.
“It is simply too much too fast,” Sam Andrus, executive director of IHS Markit, said in a statement. “Drillers are now able to increase supply faster than domestic or global markets can consume it. Before market forces can correct the imbalance, here comes a fresh surge of supply from somewhere else.”
The bust in gas prices create significant dangers for gas-focused shale companies. “With the news from IHS Markit that natural gas prices in the United States will drop below $2 MMBtu in 2020 and remain low through at least 2024, if not longer, heads must be exploding in the board rooms of oil and gas producers throughout the U.S. and Canada,” Tom Sanzillo and Kathy Kipple wrote in a commentary for the Institute for Energy Economics and Financial Analysis (IEEFA).
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