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Oil prices tip favorable for consumers, hurt producers
YOUNGSTOWN
While consumers are enjoying low prices at the pump, producers are struggling with the low prices of oil and natural gas.
As of Friday, the average for gas prices in the Youngstown-Warren area was $2.90 per gallon, 7 cents cheaper than the national average, according to AAA Daily Fuel Gauge Report.
According to a report from ICF International, hydraulic fracturing and horizontal drilling practices have been credited with keeping U.S. petroleum products down between 29 and 94 cents per gallon for U.S. consumers.
Crude oil prices, however, have declined from $105 at the beginning of September to $85 at the end of October, causing some speculation over its impact on the production in the shale plays.
That’s because it’s expensive to not only produce the oil in those regions but also replace it because it’s a depleting resource, said Tom Stewart, executive vice president of the Ohio Oil and Gas Association. The finding costs for a barrel of oil is between $75 and $80, he said.
“We’re sort of on the edge right now,” he said. If the price of oil continues to decline, there may be some ramifications to the shale oil boom for regions such as the shale play in North Dakota.
“The industry did its job too well,” Stewart said.
That’s the case for the Utica shale, which saw an oversupply of natural gas but a lack of infrastructure, he added.
The price for natural gas on the New York Mercantile Exchange as of Friday was $4.46 per million BTUs, or British thermal units. That’s half the price at some Appalachian trading hubs, according to the U.S. Energy Information Administration. Stewart said some producers in the Mahoning Valley also are trading at that price as well.
There’s still little production activity in the Valley since much of it headed south to what is considered the Utica’s core, said Gabriele Sorbara, an energy analyst at Topeka Capital Markets.
Additionally, prices would have to be closer to $5 or more per thousand cubic feet of natural gas for the Valley to be economically attractive, Sorbara said.
Pricing and technology are the key factors for the Valley to see activity come back, he added.
Jeffrey Dick, professor and chairman of geological and environmental sciences at Youngstown State University, said activity will come back to the area, but when it happens is unclear at the moment.
For the U.S. energy market, Stewart said the markets eventually will re-adjust and re-balance.