Marcellus Shale drillers who have had to cut costs and disassemble rigs because of recent record-low natural gas prices should expect a reprieve over the next two years, according to the latest projections from the U.S. Energy Information Administration.
The average price of natural gas is expected to increase by almost a dollar in 2013, hitting $3.74 per million British thermal units.
That's a significant jump from the $2.75 average seen last year, when accelerated drilling created a glut in supply that caused prices to drop and made drilling in many places unprofitable. Increases are expected to continue into 2014, when prices are predicted to hit $3.90.
The EIA report released Tuesday is the first look into 2014 for the domestic and international energy scene, and it includes projections that could affect gas and coal activity in Pennsylvania and surrounding states.
Higher gas prices would send reverberations across multiple sectors, helping coal become competitive with natural gas again as an electricity source and allowing drillers to broaden their focus beyond shale formations that are rich in oil. In addition, the federal energy agency projects increased domestic oil production will break new records over the next couple of years and eventually lead to lower prices at the gasoline station.
The report is the latest set of tea leaves for an industry that's been in flux: Enthusiasm for drilling was tempered in recent years by economic realities that made it risky for every rig to turn a profit. The low prices made natural gas an easy sell to large, industrial customers who consume a lot of energy, but slowed lease activity as companies waited for prices to rebound.
If natural gas prices continue an upward trend toward $4 per mcf, companies that had drilled wells but weren't bringing the gas to market could decide it is worth hooking those wells up to pipelines and selling the gas, said Adam Sieminski, the EIA administrator.
Natural gas consumption, meanwhile, is expected to be relatively flat in 2013, though the EIA forecasts an increase in its use to heat homes and offices over the next two years. Consumption in 2012 was low due to an unnaturally warm winter.
Over the next several years, the EIA's projections call for a steady rise in natural gas prices, said Mr. Sieminski, "continuing to go up to $5 or $6 in the longer term."
That would be welcome news to drillers who found the bargain-basement prices unsustainable for rapid-fire drilling in the Marcellus region, which includes much of Pennsylvania, and in other shale formations around the country. Companies in recent years have concentrated on shale regions where more lucrative oil and natural gas liquids are housed, and a rise in regular natural gas prices "might turn the drift from natural gas to oil around," said Mr. Sieminski.
Pennsylvania gets one shout-out in the administration's Short-Term Energy Outlook, with researchers saying Marcellus production "continues at a strong pace as producers target oil-and-gas wells."
Nationwide, the natural gas rig count was at 431 at the end of 2012 -- almost half of the 811 rigs seen in the beginning of the year. But domestic gas production is expected to remain relatively steady despite the drop in rig count, which the EIA said suggests greater rig efficiency in extracting more gas from a single location.
Coal producers may welcome an increase in natural gas prices, as well. Low gas prices had helped erode coal's place as the top source in the electricity generation market. Coal consumption in the electric power sector last year was at its lowest level since 1992.
With the difference in costs between the two fuels shrinking, coal's share of the electricity generation market should rise from 37.6 percent in 2012 to 39 percent in 2013, and then to 39.6 percent in 2014, the report said. The rise of natural gas as an alternative to coal was starkly seen in April 2012, when coal and natural gas each provided 32 percent of the nation's total generation -- the first time the two power sources were tied since the EIA began collecting data.
The rapid changes in gas prices and production are largely a result of hydraulic fracturing technology that has unlocked reserves across the country. That same technology has helped fuel a rise in domestic crude oil production, which is expected to increase from 6.4 million barrels per day in 2012 to 7.3 million barrels in 2013 and then 7.9 million barrels in 2014.
The 2014 projection would mark the highest annual production average since 1988.
Record-setting production should trickle down into good news for consumers: The drop in crude prices is expected to cause gasoline prices to drop almost 20 cents from last year to an average of $3.44 per gallon in 2013 and then to $3.34 per gallon in 2014.
Of course, trying to lend psychic powers to gas prices can be a lost cause. A report also released Tuesday by GasBuddy.com showed median 2013 forecasts oscillating on a month-to-month basis between an expected January low of $3.29 and April high of $3.95.
Meanwhile, wind-powered generation grew by 17 percent in 2012, the EIA report said. The agency said it expects wind-powered generation to stay flat through 2014, but added that Tuesday's report does not account for any business generated by the federal tax credit for wind projects extended earlier this month.
Solar energy grew 32 percent in 2012, and is expected to grow by 31 percent and 28 percent in 2013 and 2014, respectively.nation - businessnews
Erich Schwartzel: email@example.com or 412-263-1455. First Published January 9, 2013 5:00 AM