Wednesday, October 09, 2013

Understanding economics of shale in Pennsylvania

This is actually at the core of Marcellus Shale economics.  A lot of early visions of what profit (and for individuals the potential royalties) the Marcellus Shale could bring presumed far more than they should have that new Pennsylvania supplies would continue to sell at a higher price than other supplies out west. The price differential caused in large part by the proximity to New England demand or the city-gate price for the New York region.

well.......  That economics 101 hits you and that question on what happens when you push the supply curve out.  But we are not talking widgets here.

So don't ask me why the Department of Energy is able to put out new data when most other Fed agencies can't, but today they have one of those Rosetta Stone graphics and analysis if you want to read more.

Channeling my inner energy trader, this is saying that where there used to be a premium for Pennsylvania produced natural gas... now the futures market is projecting that Pennsylvania supplies will be worth less than the spot price at the reference Henry Hub... which is in Louisiana.  Rational expectations anyone?

So this is all really important to the future of shale development in Pennsylvania.  When you factor in that the Henry Hub prices are sustaining very low $$ already, the lower price available to Pennsylvania suppliers is really depressing realized prices.


Blogger Jim Russell said...


Wednesday, October 09, 2013 2:35:00 PM  
Anonymous The Wiz said...

Nat gas in north central Pa has been below the Henry Hub for over a year, maybe two years. In fact, in much of that area, nat gas is below $2. Its what they called "stranded".
That explains why so many companies are heading for areas of wet gas like the Ohio Utica or other shales out west. Trouble is that they are now producing so much wet gas that its value is also dropping.
Prices will remain depressed until new pipelines are in place and there is increased demand. Gas use in electrical generation and as a transportation fuel will accelerate and prices will stabilize in a few years.

Thursday, October 10, 2013 4:28:00 PM  

Post a Comment

Links to this post:

Create a Link

<< Home