Here’s a theme we have been writing about more and more–because it’s important. That theme is this: Oil drillers in Texas (and New Mexico), in the Permian Basin, are drilling so fast and so furious to get oil out of the ground, that they are creating an overabundance of natural gas that increasingly competes with Marcellus/Utica gas. How? Every time you drill for one hydrocarbon, like oil, other hydrocarbons often come of the ground with it. In this case, natural gas. The unintended but significant quantities of natgas coming out of the ground along with Permian oil is referred to in the biz as “associated gas.” As we wrote in March, natural gas prices in Texas did something that hasn’t happened in years–they became cheaper than the price of natural gas selling in the saturated Marcellus/Utica (see Natural Gas Prices in Texas Permian Drop Below Marcellus/Utica). Analysts have cautioned that in some cases the price of natural gas in Texas (in some locations) may actually go to zero! Giving it away!! So drillers can keep pumping oil. The natural gas produced by oil drillers is viewed as a “waste” product. Mind boggling. So how does that relate to Trump’s recent (very wise) action to pull out of the handshake Iran nuclear deal? Because we’re now out of that deal and sanctions are back on, Iran will have trouble selling its oil supplies. Meaning as the price of oil continues to rise due to lack of supplies coming from Iran, U.S. drillers will set up more rigs and drill more wells to produce more high-priced oil in the Permian. And as they do, more natural gas will come out of the ground, contributing to the existing “glut.” And drillers in the Permian will continue to aggressively look for new markets, like the Midwest and southeastern U.S., to try and sell (or give away) their extremely cheap gas. That Permian gas will increasingly compete with gas coming from the Marcellus/Utica. That’s how Trump pulling out of the Iran nuclear deal may impact M-U gas…
