Falling Associated Gas Volumes Means NatGas Price on the Rise

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A number of factors affect the price of natural gas in general–and the price of natgas is always important, no matter which geography it is produced in. One of the things that affects the price of natural gas is “associated gas” production. What the heck is that? When you drill a hole in the ground to extract hydrocarbons–like oil–other hydrocarbons come out of the ground along with that oil. Those other hydrocarbons are, first and foremost, methane–or natural gas. Propane, butane, ethane, and other hydrocarbons are also in the mix. But the fact remains, when you drill for oil, you also (almost always) get at least some natgas along with it. That natgas, the stuff you weren’t necessarily drilling for but get anyway, is associated gas. It’s usually extracted in conventional oil drilling–found in deposits close to oil deposits (see the graphic on the left). Perhaps you now begin to see how oil and gas–and their prices–are closely aligned. When the price of oil goes down and drillers quit drilling, the amount of associated gas being produced and brought to market also goes down–affecting the overall quantity of gas available for sale. The less gas for sale, with demand remaining constant, prices go up. Got it? Good! Fitch Ratings recently published a short article on how associated gas from oily shale plays is on the decrease, and that means prices for natural gas everywhere is on the increase…

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