Crude oil prices have fallen by more than half since their 2008 peak, but oil isn’t the only fossil fuel hitting a new low this year. Natural gas prices are also falling sharply, and as with crude oil, oversupply is the driving factor. That’s why news of an imminent shale gas boom in the U.S. Northeast has many investors pessimistic about the state of natural gas, too.
There was a time when striking oil meant certain wealth, but now oil producers are drastically scaling back their exploration and production activities. Even as some natural gas producers do the same, energy experts still expect shale gas production to increase in 2015.
At the end of October, natural gas prices plunged even further to their lowest level since 2012, briefly falling below $2 per million Btu. When Appalachian energy company EQT Corporation announced that it had drilled new shale gas wells with extremely high production rates, the company’s shares actually dropped by more than 7% in a day.
Natural gas is quickly replacing coal in U.S. energy production, with most natural gas drilling occurring in the Marcellus Shale (located under Pennsylvania and West Virginia). Now, natural gas companies are tapping into the Utica Shale underneath Ohio, which experts say could hold even more gas than initially expected.
This year U.S. energy companies passed a significant milestone — natural gas outpaced coal to become the largest source of electrical generation for two months. Thanks to the Marcellus Shale, increased gas reserves, and widespread fracking, the U.S. is already experiencing a natural gas glut in 2015. To make matters worse, warmer than average winters are driving up reserve supplies even more.
According to the U.S. Energy Information Administration, natural gas output rose to a record 74.9 billion cubic feet per day this September. The EIA also projects that by 2035, total shale gas production will reach 13.6 trillion cubic feet, which would account for 50% of all U.S. natural gas production. And with the Utica Shale expected to yield another gas boom sooner than later, investors are anticipating a bearish natural gas market for the foreseeable future. Also this October, Deutsche Bank predicted that natural gas production in the U.S. Northeast would exceed expectations for the third consecutive quarter; however, other analysts project that natural gas production will decline in the wake of those gloomy predictions.
Most analysts expect crude oil prices to stay low through at least 2017, and news of an impending shale gas boom could cause natural gas prices to follow suit. Even so, virtually everyone agrees on one thing — although prices will remain low for now, what comes down must eventually go up.
As the saying goes, fossil fuels are some of the only things they aren’t making more of.