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Oil, gas income expected to decrease for quarter
YOUNGSTOWN
Income at oil and gas producers is expected to decrease in the third quarter while production, specifically fracking activity, could slow in some parts of the country as natural-gas supplies remain high and prices sag.
But a drop in dry natural- gas prices finds some producers increasingly targeting liquid-rich deposits such as the Utica shale formation in Ohio. Production and exploration efforts in the state will be largely unaffected by any temporary lull, sources say.
The Utica holds rich, wet gas packed with a higher BTU content and elements such as propane, butane and ethane that can be extracted during processing. The wet gas is fetching a higher price at the moment.
In any event, many companies will continue generating favorable earnings and growth with any slight drop in profits and production expected to break in early 2013.
One analysis, conducted for Bloomberg News by 1,200 market analysts, estimates profits will fall by 24 percent in the third quarter. Natural- gas production has flat-lined since late 2011, mainly in response to lower prices, but volume still stands at historically high levels, according to the U.S. Energy Information Administration.
Natural-gas futures on the New York Mercantile Exchange have declined by 8 percent in the last 12 months, and they fell to a 10-year low in 2012.
But a flurry of activity in Northeast Ohio, ranging from the recent announcement of two significant infrastructure projects with price tags in the billions, a sharp spike in permitting over the summer and capital investments from a swath of leading energy companies in exploration and at well sites, demonstrates that shifts in energy markets will do little to slow Utica activity for now.
“I see the prices every morning, and the futures market fluctuates wildly,” said Terry Fleming, executive director of the Ohio Petroleum Council, the industry’s chief lobbying association in Columbus. “The markets and futures trading are reacting to this unprecedented level of exports and the glut of supplies.”
The EIA reported that from January through July this year, U.S.-marketed natural-gas production still set a record high for the first seven months of any year in history, averaging 68.9 billion cubic feet per day.
The effect, when combined with international producers, has roiled the global energy market and kept prices down. An unusually mild winter forecast for much of the American Northeast and Midwest, where temperatures are expected to be comparatively high with seasons past, will help curb demand and stay low prices.
But Fleming argues that the industry knows better. As more coal-fired power plants are replaced by those using natural gas, and as more manufacturers and other mass energy consumers switch to the resource for their power or transportation needs, Fleming says more inroads will open for the product at home and abroad.
“As you create more and more of a market, prices will increase,” he said. “Infrastructure has also not caught up to production.”
Indeed, a number of pipelines are expected to come online by year’s end. As much as 2 billion cubic feet of gas per day will be delivered from the Marcellus Shale Deposit alone, where production in Pennsylvania is ratcheting up.
Arkansas and Oklahoma are expected to see somewhat of a slowdown, but operations will be prioritized and rigs simply moved elsewhere in those states or beyond.
“A slowdown might occur with dry gas,” said Dan Alfaro, spokesman for Energy In Depth. “But the Utica has more potential, and there’s too much money tied up in some of these wells to just shut them down — it doesn’t work like that.”