A new report from Moody’s suggests that producers that got in on the Marcellus shale early, and weathered several years of low prices, are now very well positioned in today’s market. The Marcellus was one of the earliest sites for the shale gas revolution and a drilling frenzy helped contribute to a major decline in prices as the nation became awash in natural gas. A long stretch of low prices put some companies out of business, and hurt the bottom lines of many more. Yet, the formation is proving to be one of the best plays in the country, and operators with experience there have been able to bring down costs.
“The Marcellus has emerged as one of the most profitable regions in the US for producing natural gas, so even if prices return to the weak levels of 2012, producers there will be rewarded,” said the report’s author Michael Sabella. The Marcellus stretches across several Appalachian states including West Virginia, Ohio, Pennsylvania, and New York. It is therefore close to the huge demand centers on the East Coast, unlike some other prolific shale formations. Meanwhile, environmental regulations and low natural gas prices killed off a slew of coal-fired power plants, with many more set to close in the coming year. This has the East Coast in the midst of a huge switchover to natural gas for power generation – a boon for producers in the Marcellus. The cold winter earlier this year demonstrated the huge demand for natural gas, and infrastructure constraints led to short-term shortages. Eastern states will undoubtedly try to build more connections to the gas fields in western Pennsylvania, Ohio, and West Virginia.
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This has producers in the Marcellus that survived a period of low prices in a good position. The report says companies like Southwestern Energy, Chesapeake Energy, and Anadarko Petroleum will profit from their early entries. Prices have stabilized at a higher level, demand is up, and the gas is still flowing. Over the longer-term, an LNG export terminal on the Chesapeake Bay will need to be fed by gas nearby, connecting Marcellus drillers to new, hungry markets in Asia.
By Charles Kennedy of Oilprice.com