Natural gas prices and shale estimates plummet

While many in the power industry and certainly consumers are grateful for the plummeting prices of natural gas, the news has proven far worse for gas exploration and production companies.

The drop has been attributed to the massive surge in natural gas production from the proliferation of hydraulic fracturing and the recent lull in demand created by an unusually mild winter.

Natural gas prices have slumped from above $4 per million British thermal (Btu) units to below $3 per million Btu; a game changing drop that has prompted many of the nation’s gas producers to begin scaling back operations to focus on higher value resources. All told, the country has 780 natural gas rigs in operation, a 14 percent decline from the same time last year.

Now in an interesting turn of events, the latest estimates of shale natural gas reserves in the U.S. have taken a shocking step backward.Projections released by the U.S. Department of Energy estimate that the country holds around 482 trillion cubic feet of recoverable natural gas from shale basins. That represents a 42 percent decline from the year before when estimates of shale gas reserves were placed at around 827 trillion cubic feet.

Probably the most substantial impact of the updated estimates, however, was the 66 percent reduction in recoverable reserves in the Marcellus shale formation in Pennsylvania, New York, Ohio and West Virginia.

Ironically, it’s the surge in natural gas exploration in shale deposits over the last year that has provided these revised estimates. Last year that basin was estimated to hold 410 trillion cubic feet of gas, enough to fill U.S. gas demand for 17 years at 2010 level. Now, that number has been reduced to 141 trillion cubic feet, or around 6 years.

Nevertheless, the DOE estimates natural gas production will rise even higher than previously predicted despite the smaller resource base.