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The Ramifications of Low Oil and Natural Gas Prices

Posted By Lyndsey Kleven, Communications Coordinator, Tuesday, December 08, 2015

Throughout 2015 we’ve seen a lot occur within Ohio’s oil and natural gas industry. The most radical change, noticeable to those working in the industry and any regular person, would be the staggering drop in commodity price—with multiple factors playing into what we’re currently seeing.

OPEC, making an effort to control market share, has contributed to the price rut created all across the United States on our domestic oil and natural gas industry. Decisions being made across the globe are having real life pricing implications right here in Ohio.

The effectiveness of our oil and gas producers is another piece of this. Looking at the industry as a whole, it has done such a good job at more effectively producing oil and natural gas in recent years that it has created an oversupply. Robust natural gas production has helped inventories soar to record highs we haven’t seen before.

New production is stalling as producers are responding to the current market conditions. Although overall production levels in the Utica Shale continue to rise (the latest ODNR Utica production report shows a Q3 2% increase in oil production and a 10% increase in natural gas production), the production is a result of wells that have been drilled and are now being completed or that now have access to pipelines that can finally move the commodity to market.

Simultaneously, there is still inadequate infrastructure to move the natural gas from our Appalachian Basin. Access is vital to oil and natural gas producers, as it is a key economic factor in a company’s decision to drill a well in certain areas. Without this access, the natural gas is either not produced (the well is not economic to drill) or produced and is consumed within the basin (which further depresses the commodity price the company receives).  

Finally, let’s look at where the domestic oil and natural gas industry was approximately ten years ago. In short, the opposite factors were in play. After Hurricanes Katrina and Rita struck in late 2005, natural gas was not as readily available and prices in this basin hovered around $12.00 per mcf. The price eventually receeded, in part, due to company’s expanding their drilling plans to increase the supply. Higher prices and lower supplies led to companies expanding their drilling plans. Conversely, lower prices and higher supplies lead to company’s contracting their drilling plans – which is what is generally happening for the Ohio producer.    

To recap, it’s a challenging time to be oil and gas producer in the midst of all these circumstances. It is a great time for Ohio consumers who are benefitting greatly with serious energy savings from the higher supplies and lower energy costs.

And the savings continue on products associated with this production. For example, gasoline prices have fallen to six year lows in Ohio. At Thanksgiving, some Ohio pumps were dipping under $1.50 a gallon. Consumers are expected to save a reported $7 billion at the pump during this holiday season, which translates out to about $40 per driver.

I’ve seen it myself in my monthly bills. My household’s monthly electric, natural gas, and gasoline expenses are at lows I haven’t seen in years. And for that I have to thank Ohio’s oil and gas producers. 

Tags:  drilling  natural gas  ohio oil and gas association  oil  shale 

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