Shale gas executives writing budget plans might wish they could just skip 2016.
Few analysts predict any rebound before 2017 in the low prices that dogged producers this year and prompted a 40 percent cut in Marcellus drilling in Pennsylvania. Then a warmer-than-normal start to winter sent prices to low points not seen in 15 years, dipping below 75 cents per thousand cubic feet in Appalachia.
With storage at historic highs and little boost to demand expected for six to 12 months, companies that relied on 30 percent and 40 percent annual production increases in the past few years will face market pressure to dial that back yet maintain cash flow.
“We have an alarming accumulation of spare production capacity. To ensure that product does not come to market … we have to make it painful,” Teri Viswanath, a natural gas analyst at BNP Paribas in New York, said about the low prices she expects will endure until supply finds a balance with demand.
That means further cuts to spending plans at shale gas producers that must look for ways to keep the money and gas flowing until new pipelines and increased exports boost demand.
“We’re expecting no less than a 20 percent reduction from 2015, which was already 40 percent down from the year before,” said Mark Marmo, president of Zelienople-based Deep Well Services, discussing the contracting work his company does to complete wells for producers. “It’s going to be a battle.”
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By: David Conti