Natural gas industry is cooling off, analyst says

These are not the best of times for the natural gas industry. Low demand, low prices and the coronavirus have forced companies to close down, cut staff and curtail operations.
And the immediate future is not glowing in Pennsylvania, Jesse Bushman said.
Bushman, a revenue analyst at the state Independent Fiscal Office, studies natural gas production trends statewide and projects how they may affect Act 13 impact fee revenues, which in turn affect local government revenues. And the effect, he added, could be profound.
“We’re projecting a pretty significant decrease in impact fees for 2020,” he said Tuesday morning, during the third and final session of Washington & Jefferson’s energy webinar series. W&J’s Center for Energy Policy and Management organized the free summer series, through its Shale Gas Knowledge Hub.
The virtual webinars, titled “Effects of COVID-19 and the Economic Downturn on Western Pennsylvania Shale Gas Development,” closed with Bushman projecting that impact fees will total $146.9 million this year. If that happens, it would be a 27% drop-off – or $53.4 million – from $200.3 million in 2019.
And last year’s figure was a 20% plummet from $251.8 million in 2018.
Fees are collected from drillers and largely disbursed to counties and municipalities statewide to reimburse them for road wear caused by drilling rigs and to be used for expenses, such as infrastructure and social services. Money also goes to a Marcellus Legacy Fund.
Low natural gas prices have been a major culprit, Bushman explained. The national price, indeed, is at its lowest in decades. The average in 2019 was $2.63 per British thermal unit, a 15% decrease from the previous year.
The Natural Gas Spot and Futures Prices (NYMEX) index projects the end of July price at $1.79. Bushman said that price is likely to end the year no higher than $2.25.
“COVID-19 is making it worse. It’s making demand fall,” he said.
New wells are a key financial element in this equation. Producers pay higher fees for newer wells, but for the fourth year in a row, the number of new ones is expected to decline. Through June, Bushman said, there were 270 new wells in Pennsylvania, a 26% decrease.
Production growth, he added, has been decelerating over the past five quarters. That hasn’t been the case in Greene County, which, Bushman said, has been responsible for more than one-third of the state’s production growth in 2020.
For more information, visit ifo.state.pa.us.