As Natural Gas Prices Hit 14-Year High, Shale Waits | Arkansas Business News


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Arkansas Public Service Commission Chairman Ted Thomas had heard about the problem from lawmakers, their constituents and fellow regulators.

Then the recent spike in natural gas prices really hit home.

“Even my wife asked me what was going on with our natural gas bill,” the utility regulator told state lawmakers last month, describing a “triple whammy” of brutality on the market.

Natural gas on the Henry Hub market last week was selling for almost $7 per million British thermal units, its highest price in 14 years, after Russia cut off Poland and Bulgaria to punish their resistance to his invasion of Ukraine.

This price is still about half the peak of 2008, when prices approached $14 per million BTUs, but a shock to the system in a post-fracking world.

Hydraulic fracturing – by drilling, then horizontally, and using pressurized water and chemicals to pulverize bedrock and release oil and gas – revolutionized production after being applied to shale formations, including including the Fayetteville shales in Arkansas.

Booming by the time gas prices hit $14, fracking unleashed a torrent of natural gas for more than a decade, clogging the market and sending prices below $2 on several occasions between 2012 and 2020. As reserves rose and prices crashed, fracking plummeted across most of the United States. shale pieces. Producers stopped drilling in the Fayetteville shales in 2015-2016, and the industry’s workforce was decimated. Likewise, landowner royalty payments and state severance tax collections have crashed to a fraction of their peak numbers. Arkansas jobs in logging and mining, which includes fracking jobs, plunged from nearly 12,000 in November 2011 to 5,300 in February 2022, according to federal statistics.

Thomas’ “triple whammy” began with an extreme cold disaster in February 2021, when the Texas grid suffered a fatal failure. The crisis meant some utilities spent “four or five times the dollar cost of gas in 10 days compared to the entire previous calendar year,” Thomas said. “We’ve had five years of low and stable natural gas prices. In fact, some natural gas producers have gone bankrupt.

The supply and demand effects on natural gas are also distorted, as 70% of the gas is used from November to March. “Imagine being in the Christmas tree business,” Thomas said. “The price that really matters is in December.”

The third problem, of course, is the war in Ukraine. “Europe depends on Russian natural gas”, and despite US efforts to increase exports of liquefied natural gas, “this is only part of what is driving up prices for US consumers”.

In hindsight, Thomas said, fossil fuel advocates may have picked the wrong carbon to protect, as decarbonization became a political force on the left. “Fracking has saved consumers billions and billions of dollars,” the PSC chairman continued. “Hydraulic fracturing is what led to the coal bankruptcies because gas and coal compete [as a fuel for generating electricity]. And you’ve never heard that. … We should have defended fracking jobs instead of coal jobs. If we had, customers might be in a better position.

Sustained prices above $4 per million BTU will eventually boost gas drilling, said Hugh Daigle, a drilling expert and associate professor at the University of Texas. Daigle said drilling is already in place, but primarily in fracking zones that produce both gas and oil, such as the Permian in Texas. Oil prices have been high for months, with gas prices lagging behind.

“Fayetteville is a dry gas, non-oil producing area,” said Daigle, who cited studies suggesting $4 gas is the break-even point in Arkansas gas fields. Some fracking companies are hiring, including Calfrac Well Services, which has 10 open jobs in Beebe and Searcy.

But Daigle said those openings could reflect a shortage of post-COVID workers, “the kind of weakness in the overall labor market that we have seen. Even if there isn’t a lot of drilling, operators can hire for day-to-day operations on wells that are still producing. All over the oil business now, they’re hiring and offering crazy signing bonuses, up to $1,000.

With natural gas at current prices, Daigle said, new production seems viable. “But it’s not just about getting to that price level, it’s more about maintaining that price level, it’s going to sink those initial investments.”

Lawrence Bengal, director of the Arkansas Oil & Gas Commission since 2005, told Arkansas Business that no drilling permits have been issued in the Fayetteville shales this year and no further fracking is planned, although that it can be carried out on existing wells. “We do not anticipate any activity in the near term,” Bengal said, “and until new drilling permits are issued, no new hydraulic fracturing operations will take place.”


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