The Economic Impact Of Shale Gas
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Glenn Pisani
Energy Analyst Great Eastern Energy Brooklyn, NY |
The Marcellus shale plate runs through northern Appalachia, primarily in Pennsylvania, West Virginia, New York and Ohio. It is part of a Devonian black shale crust layer and the thickness of the gas-producing rock is as much as 900 feet. The formation runs an estimated 600 miles north to south, and is estimated to hold as much as 500 trillion cubic feet of natural gas, about 50 tcf of which is recoverable using current technology. It is one of the richest gas fields in North America. Its proximity to customers in Eastern urban centers is what makes the Marcellus plate so valuable.
The Utica shale plate is a located a few thousand feet below the Marcellus shale plate. It also has the potential to become an enormous natural gas resource. The Utica shale formagtion is thicker than the Marcellus plate, it is more geographically extensive and it has already proven its ability to support commercial production. Results of early testing indicate that Utica shale will be a very significant resource. In the United States, it lies beneath portions of Kentucky, Maryland, New York, Ohio, Pennsylvania, Tennessee, West Virginia and Virginia. Based on all initial data, it seems possible that the Utica shale is geographically larger than any natural gas field known today.
Another potential oil and gas field that you don’t hear too much about is the Bakken plate in North Dakota, South Dakota and eastern Montana. This field is believed to hold more oil than all of the oil in Saudi Arabia. Scientists and drilling experts still haven’t determined the most efficient way to get this oil and shale gas to market, yet!
U.S. gas supplies have been growing since producers learned how to use hydraulic fracturing and horizontal drilling to tap deposits locked in dense shale rock formations. Gas prices have been falling since mid-2008, when a global recession decreased demand just as drilling accelerated in the gas-rich Marcellus area in the eastern U.S. Gas prices collapsed further in late 2011 on concerns mild winter weather in the U.S. will curb demand for the heating fuel. Gas is expected to stay below 2011’s average price of $4.026 for the next two years, priced at around $3.10 per million BTUs for 2012 and $4 for 2013.
The excess supply of shale-derived natural gas has cut electricity prices for the U.S. power industry by 50% and reduced investment in costlier sources of energy. Mirroring the gas market, wholesale electricity prices have dropped more than 50% on average since 2008, and about 10% during the fourth quarter of 2011. The amount of U.S. working natural gas in underground storage at the end of March 2012 is expected to be the highest since 1983 for the close of the month, the traditional end of the winter heating season. A combination of warmer-than-normal temperatures this winter that reduced gas heating demand and rising domestic gas production has contributed to high inventories.
As profit margins shrink due to falling prices, more generators are expected to postpone or abandon coal, nuclear and wind projects. Cheap gas makes it difficult for alternative forms of fuel to compete. Declining power prices may also make it unprofitable for utilities to install pollution controls on older coal-fired plants, adding to the wave of plant closures that are expected to result from new EPA rules over the next two to three years.
Commercial natural gas and electricity customers should be very careful when implementing an energy management plan for their facilities. It is important to digest current market information before proceeding with renewals and/or new pricing scenarios.
