After years of avid promotion of natural-gas development by the Marcellus Shale Coalition, the industry's chief lobby, it's hard to imagine a slowdown in drilling. As part of its campaign to win public approval, the coalition funded a series of economic impact studies by Penn State researchers. The three studies, released in 2009, 2010, and 2011, forecast increasingly larger jumps in employment, incomes, and tax revenues as a result of shale exploitation. In the most recent study, released last summer, the authors concluded that "the outlook for Marcellus production is remarkable."
While the Penn State researchers were preparing their reports, however, evidence was mounting that the industry was in trouble. From an average of $8.85 per million British thermal units in 2008, natural-gas prices fell sharply to $4.39 in 2010, and $3.94 in 2011. Last month, prices dropped below $2.50, and they are expected to stay under $5 for another decade.
Signs of a slump
Lower gas prices mean smaller profit margins. So it's no surprise that gas producers are scaling back their Marcellus Shale drilling, putting growth on hold, or moving resources to states with lower costs and more deposits rich in oil and other liquid fuels. The companies doing so include Talisman Energy, EQT Corp., Consol Energy, and Occidental Petroleum Corp. Chesapeake Energy, which has the largest Marcellus Shale holdings in the state, has announced the most drastic cutbacks in Pennsylvania and elsewhere.
