State of the Industry
April – May 2021
What does Spring Bring for the Appalachian Natural Gas Industry?
Spring has Sprung. The days are getting longer, our home and business furnaces are running far less than even a few weeks ago, and the power plants are not yet having to keep up with summer air conditioning. This is all part of the regular cycle of natural gas use, with large peaks in winter and smaller peaks in summer, much more pronounced cycles than any other energy source.
Storage of natural gas, in large underground facilities across the nation, plays an important role in the reliability of natural gas supply. During high demand periods, gas is pulled from storage to supplement the supply through pipelines from wells. During low demand periods, natural gas flowing from operating wells can be put back into storage. When that storage gets too full, natural gas prices typically sink. And when storage is depleted beyond normal levels for that season, natural gas prices typically rise.
Companies that produce natural gas take a much longer view than seasonal price changes for their capital and operating plans. They look to the forward curve for natural gas prices at least several years into the future, using that information to determine how many wells they plan to drill in the coming year. If prices are higher into the future, they can hedge to protect against drops in prices.
Right now, most companies are in maintenance mode; maintaining a steady deployment of planned capital with a relatively flat number of rigs in operation.
As an indicator of future activity, permit applications for new wells across Pennsylvania, Ohio and West Virginia continue to be made by a wide range of companies to their respective state regulatory agency.
As suppliers to the energy industry plan for the future, all of these metrics are important indicators of future activity. The good news is that activity in the Appalachian basin is stable, even with relatively low natural gas prices for the foreseeable future. Areas of concern lie primarily with the ability to get new pipelines built to move product within and beyond the basin, which will have a dramatic impact on how much growth will be possible in our region. Any announcements of new petrochemical plants, akin to the Shell Polymer plant in Monaca, Pennsylvania, will be very good news for all of us in the long term.
By Katie Klaber
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