The calm before the storm
February 23, 2012 —
As domestic natural gas prices trend downward to new lows, and companies like Chesapeake Appalachia announce cutbacks in production, an increasingly common refrain with regard to natural gas drilling in our area is “what’s the hurry?” There’s obviously such a national glut of natural gas at existing production and consumption levels that it will be some time before new wells are needed—or indeed, become economic, with current gas prices well below the costs of production. Companies that drill now are not only losing money for themselves, but minimizing the royalties of the people from whom they have leased, whose mineral assets are being sold at rock-bottom prices.
We certainly agree that the “what’s the hurry?” argument holds, especially for organizations like the Delaware River Basin Commission and New York State Department of Environmental Conservation, which need to take the time to be sure that the environmental risks of horizontal hydrofracking are adequately studied, and accurate assessments are made of the activity’s economic benefits and the balance between those and its economic, social, environmental and health costs.
But there’s another conclusion that is sometimes drawn from the current price environment that we would caution against: the idea that we can relax for a while because nobody is going to even bother to try drilling here anytime soon. Any such complacency ignores, among other things, the international aspects of the gas drilling picture: specifically, the fact that prices abroad are stupendously higher than here; that as domestic drilling companies languish, international companies have been aggressive bidders to buy or merge with them, or obtain rights to their leases; and that permitting for liquefied natural gas (LNG) export terminals began last year and can be expected to continue at an accelerating pace.