Decoupling of Oil and Natural Gas Prices Continues-- Shale Gas Prices Keep Activity Level Up

For some time now, there has been a decoupling of oil and natural gas prices.  The usual pattern of the past was that as oil prices went up so did natural gas prices.   This pattern has given way to falling oil prices and accompanying rising natural gas prices.

A look at Nasdaq.com clearly shows this pattern.  Since early October, crude oil prices have experienced a steady decline from $75 per barrel in early October to $45 a barrel in mid December.  At the same time, natural gas prices have risen from $3.50 per MCF, spiking at $5.00 per MCF in mid November and settling at $3.80 MCF in mid December while oil prices appear to be on a continuing downward trend.

What does this likely mean for shale gas development in Ohio?  Though shale wells begin steep productivity declines in years two to four with steady declines after that, the current price rise over the last couple months presages a more ambitious shale phase in the spring and summer of 2019.  The recent price rises are likely to support capital investment in shale for the foreseeable future.  Though only about twenty percent of shale wells drilled are economically viable, the stabilizing prices we are seeing now are enough to keep the “shell game” rolling on for investors.  Although we may see continued corporate consolidation in the industry, drilling activity level is likely to continue to expand.

A big focus now seems to be on natural gas liquids (NGLs), especially ethane.  As reported in previous blogs, this is because Ohio, West Virginia, and Pennsylvania are slated for the development of a vastly expanded petrochemical industry focused on plastics manufacturing with all the attendant environmental and health challenges.  So hold on to your hats.  It’s likely to be a wild and dangerous ride ahead for those of us who breathe, drink water, and depend on a healthy environment.