In 2011, Pennsylvania produces 1.042 trillion cubic feet of gas, making the Commonwealth one of the nation's biggest and most important gas producing states. Pennsylvania gas production has increased more than five-fold since 2006.
In the last 6 months of 2011, Pennsylvania produced 607 billion cubic feet of gas, a significant increase over the 435 billion cubic feet of gas produced in the first 6 months of 2011.
Production in 2012 will likely increase again, despite a slow down in drilling of new wells in dry gas areas, because more wells already drilled will be connected to pipelines and more gas will flow to market. But the reduction of gas rigs in Pennsylvania by companies like Chesapeake Energy and Talisman will have an impact this year. The 2012 production will be lower than it would have been had gas prices remained at $4 or higher for a thousand cubic feet.
How long can gas prices remain below $4? Since few people even 12 months ago forecast gas prices falling to $2.50, answering that question requires humility and heads into the unknown. External factors like weather and possible shocks to the US economy from a war with Iran or a deep European recession impact gas prices. I would only say prices are going to rise and not in the distant future.
More clear is that Pennsylvania production gains are a major reason that gas prices have crashed, and why gas and electricity consumers around the country have seen substantial savings in the last 24 months.
John, glad to see you blogging again. Sorry to read about your incredible loss; we folks out on net appreciate your diligence in resuming posts in the midst of hardship.
ReplyDeleteYour post on coal to gas ratio in power generation as well as this highlight a key issue: the (EIA's) models do not predict volatility and fast changes very well. While you suggest that prices will start to rise, I would have to ask, "Why do you think that?"
Some operators are/will cut production, but to what extent? How much flexibility is there? Production cut is also revenue lost in the short term. There is no collusion allowed. Future prices will only go lower the longer prices are down. The field now involves everyone from the majors to smaller independents, so that many players have complex business models that will not respond as simply as we might expect. Gas storage is at a record high. Historically, what has happened when there is a huge supply glut? That's what I would like to know.
The combination of less rigs drilling for gas and other means of reducing production plus increased demand for gas will move the market from the current "glut" status at some point. Gas is displacing coal in power production. Gas is displacing oil in homes, businesses, and a bit of power production. Some analysts think daily gas demand is already above daily gas production based on the changes in the last 60 to 90 days. But even if it has, you are right that there is a lot of gas in storage. Not sure when the price moves back toward $4 but probably in next 12 to 24 months. $4 gas is still low. Now is a great time to buy long term gas and electricity contracts.
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