COLUMBUS — The Ohio Department of Natural Resources reported no applications for new drilling permits in the Utica Shale the first week of April — the first week ever that not a single permit application was received.
Ohio Oil and Gas Association Executive Vice President Shawn Bennett said this week that the situation is not as serious as it may appear, but simply “the industry reacting to the falling commodity prices.”
On average, Bennett said, applications for new permits number “from eight to double-digits” per week.
Given the overall economic outlook, Bennett said, fewer applications for new drilling are not unexpected.
“You are just not going to drill as many wells when the price is low,” he said. “You have to ride the wave.”
“But we will continue to take out permits and develop wells. Some companies will find areas where they can make a return on their investment.”
Reasons to drill
Even during an economic downturn, Bennett said there are two primary reasons a gas company continues to develop wells.
“They drill to hold onto acreage, or if they are in a long-term lease and they have to drill to pay for the rig,” he said.
Why prices dropped
Bennett said a number of factors have fed into the drop in natural gas prices, including the connection between natural gas liquids in the Utica shale and global oil prices.
“What a lot of people don’t realize, is that there has been a significant drop in natural gas prices — about an 80-percent reduction over the past 10 years,” he said.
Ironically, the Ohio shale industry’s largest customer base — manufacturers — left town shortly before the boom. Manufacturing had begun to leave the state in the early 2000s.
“But at the end of the day, large scale manufacturing is always looking at energy costs,” Bennett said, which means there should be an increased focus on using declining natural gas prices to entice large scale manufacturing back to the Appalachian basin.
“It’s about supply and volatility — if we can provide a low rate and a constant supply (of energy), that is attractive. But our job is to develop oil and gas, so we are relying on others for that.”
He also noted that natural gas is poised to fill the void left as more and more coal-fired plants come offline.
The Cleveland Plain Dealer reported April 9 that Swiss-owned Advanced Power plans to construct a 750-MW facility in Carroll County, which is expected to come online by 2017. More than 4,000 MW of gas-fired facilities are expected online in the next four years, the PD reported.
Surplus
Bennett said the recent slowdown in shale drilling permit applications is not a signal that the resource is in short supply.
“What makes this different is that we are not running out of a resource. We don’t have enough customers for operators to operate at the same level.
“We have been too successful.”
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