Is Shale Drilling in Trouble at Current Market Prices?

As part of an opinion article published on OilOnline, several data points of interest are quoted about how much it costs to produce natural gas from shale plays like the Marcellus. The article paints a rather grim picture in the near future for shale drilling if prices for natural gas do not climb again. Among the comments made:

Wells in the Barnett Shale, Haynesville Shale, Marcellus Shale, and Fayetteville Shale well may not be able to sustain production at prices below breakeven for long. Community tax bases will suffer. Resources and personnel could be forced to move on to other locations, domestic and international. Royalty owners will lose income. Exploration, drilling and production will quickly dry up. Production costs in most of these plays exceed the current $4/MMBtu market price. Most operators require at least $5-$6/MMBtu as a minimum to maintain profitable production.

OilOnline’s proposed solution to this crisis? The government:

A $7-$10/MMBtu price should be a policy objective that keeps the domestic industry healthy and contributes to further exploration and US energy independence. The US economy and security may depend on bringing these clean burning gas discoveries in the Barnett Shale, Haynesville Shale, Marcellus Shale, and Fayetteville Shale to market profitably. With price a function of supply and demand, we are seeing a greater supply than demand. That has to change.

Excuse me, but this is AMERICA. We are capitalists. We value freedom as our most prized and cherished possession, handed down to us by the Founders of our country. Freedom includes a free marketplace with prices set by competition and supply and demand. Every time the government interferes in the free markets (as can be seen in the current financial markets crisis), government makes matters worse. Natural gas, and indeed all forms of energy supply, must openly compete on the free market. If it costs too much to drill for natural gas, then the drilling should stop until such time it becomes profitable. That is the American way.

In fairness to OilOnline, they do make a strong case in the article for developing local markets for natural gas–a good idea. But inviting the government to micromanage the energy market is a prescription for disaster. Let natural gas stand on its own merits!

Read the full article: Natural gas needs to build local markets

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