The supply curve is once again hurting natural gas drillers.
The increase in domestic gas production brought on by shale drilling has led to the lowest natural gas prices in a decade. Drillers combated that trend by focusing on “wet gas” – pockets that contain byproducts like ethane, which can be sold to boost revenue. In Pennsylvania, that has meant more drilling in the southwest and less in the northeast.
But so many drillers are focusing on wet gas that its price is dropping too. The Wall Street Journal has more:
Prices for ethane have collapsed in many parts of the country as supply far outstrips demand from chemical plants that use it as a feedstock for plastics.
Ethane at the Mont Belvieu, Texas trading hub, a traditional pricing benchmark, sold for 28.4 cents per gallon Tuesday, down from a peak average of 89 cents in October, according to Platts research. Propane at Mont Belvieu sold for 79.65 cents per gallon, down from $1.47 a gallon in October.
The weak prices, which may last for several years due to a mismatch between supply and demand according to many market observers, could provide an unexpected hit to earnings and cash flow for many exploration and production companies.
The news comes at a time when Governor Corbett is pushing to give Shell a $66 million annual tax break on ethane purchases, as the company considers building an ethane “cracker” in Beaver County.