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Gas drillers expect decline to continue in 2016

WHEELING, W.Va. — As 2014 closed, Ohio and West Virginia featured 77 active rigs drilling into the Marcellus and Utica shales. One year later, there are only 30 working rigs between the two states, while natural gas prices are about $1 less per 1,000 cubic feet than last December.

And industry leaders believe drillers will continue struggling amid low prices in 2016. They said that even though the New York Mercantile Exchange price for natural gas is now about $2 per 1,000 cubic feet, those working in Ohio and West Virginia are only getting about 75 cents.

“The story of 2015 is the crash in oil and natural gas prices. We do not have the pipeline infrastructure to get this gas to markets like New York and Chicago. That puts us at a disadvantage, price-wise,” said Shawn Bennett, executive vice president of the Ohio Oil and Gas Association. “The prices are down across the U.S., but are even lower here because of our glut of gas.”

Corky DeMarco, executive director of the West Virginia Oil and Natural Gas Association, echoed Bennett’s assessment of the situation.

“If you look at the NYMEX, the price has steadily declined throughout the year. We just can’t put any more gas into the market because there is nowhere to put it,” DeMarco said. “We have to focus on the infrastructure. We have to get this gas out of here.”

Bennett said even now, Ohio is producing about 3 billion cubic feet of gas per day. According to Cabot Oil & Gas, that is enough natural gas to run 72,945 homes for an entire year.

“It is going to be a slow 2016 because of the prices. They are down across the U.S., but even more in Marcellus and Utica Shale because of that glut of gas,” Bennett said. “At 75 cents per Mcf, you just can’t make it work.”

According to oilfield services giant Baker Hughes, Ohio now features 16 active drilling rigs, which is down from 46 at this point last year. West Virginia saw its number of running rigs fall from 31 in December 2014 to 14 now.

Throughout the U.S., the active rig number collapsed from 1,882 last year to 718. Both DeMarco and Bennett said there are many wells in their states which have been drilled, but have not yet been fracked.

However, DeMarco also noted EQT Corp. officials plan to drill 72 more Marcellus wells next year as part of a projected $1 billion capital expenditure budget.

“Every company has its own economics. But, I think we need to focus on takeaway infrastructure next year,” DeMarco said. “There are some interstate pipeline pipelines under construction that will eventually help us.”

Pipeliners continue installing billions of dollars worth of projects to ship Marcellus and Utica material to larger markets. These pipelines include the Atlantic Coast Pipeline, Leach XPress, Nexus Pipeline, Rover Pipeline and the Mountain Valley Pipeline.

“I would expect it to be 2017 or early 2018 when we see these additional pipelines come on,” Bennett said. “Until then, companies are faced with survival mode.”

Despite the near-term struggles, DeMarco and Bennett see a bright future ahead. In West Virginia, U.S. Energy Information Administration data show the Mountain State’s amount of proved natural gas reserves jumped by 7.94 trillion cubic feet from 2013 to 2014. Proved reserves indicate how much natural gas can be retrieved using current methods of drilling and fracking.

“We’ve got plenty of supply. Now, we are hearing that New England, which uses a lot of home heating oil, could become a market for natural gas,” DeMarco said.

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