News / Business
Energy Solutions, Inc., Reports – Issues That Could Impact Shale Production and Prices
Natural gas production continues at a record pace, but that could change in the future
Low natural gas prices will eventually trigger a reduction in drilling, but that isn’t likely to occur until producer economics change. The inability to complete forward hedges to insulate the sale price of natural gas from a weak price environment is probably one of the largest reasons for a producer to curtail natural gas drilling activities. However, at this time, it appears that most producers have sufficient production hedged in the forward market to provide some insulation from a weak price environment for 2012.
Even so, according to Valerie Wood, president of Energy Solutions, Inc., there are several factors that could impact shale production and, as a result, natural gas prices:
Lack of Public Support: Unless there is some sort of mandated disclosure and implemented regulation, the public is likely to remain skeptical and suspicious of fracking, particularly given ongoing investigations into groundwater contamination and an increase in seismic activity.
Added Regulations and Safeguards: To date, fracking of shale gas plays is mostly regulated by the individual states, but in the future there is likely to be some sort of legislation that would bring some fracking activities under the regulation of the federal government.
Potential for Increased Well Freeze-offs: A well freeze-off occurs when cold temperatures lead to an inability to produce the gas because of equipment failures, well failures, or pipeline failures. Well freeze-offs may become more prevalent in the future and should be a consideration in contract negotiations.
Insufficient Natural Gas Liquid (NGL) Infrastructure: NGLs require processing facilities and separate pipelines to reach markets. Investments in NGL infrastructure are needed; otherwise, natural gas shale production may be forced to slow down simply because of an inability to process wet gas withdrawals.
NGL Price Disconnects from Oil: If a growing NGL market ultimately disconnects from the price of crude oil, or if crude oil prices begin to fall, the economic benefits of NGLs in the natural gas production process would be reduced, meaning that the current low natural gas break-even price points would rise.
Rapid Decline Rates: Many natural gas shale plays have a very high first-year production rate, referred to as the initial productivity (IP) rate, but then experience rapid declines in year two and beyond.
Public Opinion: Any sort of tragedy involving shale gas would dramatically alter the supply/demand outlook and likely result in rapidly rising natural gas prices, due to the forward natural gas price curve being heavily based on the perception of the future.
Producer Profits: To date, company valuations remain too high to discourage production, and companies are again caught up in creating the appearance of an aggressive wealth strategy to attract investors.
Natural Gas Price Outlook provides you with the tools needed to implement a cost-effective natural gas strategy for 2012 and beyond. This 59-page, comprehensive analysis evaluates numerous price drivers and is a must-read for those who want answers to what the future holds for natural gas prices. To learn more and to secure your copy of Natural Gas Price Outlook for just $179, visit http://www.NaturalGasOutlook.com.
# # #
About Energy Solutions, Inc.
Formed in 1996, Energy Solutions, Inc. is independently owned. With more than 50 years of experience in the natural gas industry, our team focuses on natural gas prices and in helping businesses improve their internal processes for the purchase of natural gas.
