A recent article in Charleston’s Gazette-Mail newspaper summarizes natural gas and liquids production in West Virginia for 2014 (the most recent year of complete data). The numbers are astounding. Over one trillion cubic feet of gas were produced in the state, enough to supply electricity to over 24 million homes for a year, if I correctly extrapolated the numbers mentioned in the article. That translates to about 20% of all U.S. households for that year. Think of that—one in five homes in the entire country could be provided with a year’s worth of electric power from West Virginia wells. And these numbers do not include gas production currently stored or shut-in, nor do they include eventual additional production from Marcellus Shale wells yet to be permitted and Utica Shale production that is virtually untapped.
So why is production stored or shut-in, and why are producers not drilling the Utica? There are undoubtedly myriad reasons for delayed production, but two come immediately to mind: (1) lack of pipeline infrastructure and, (2) depressed natural gas prices. Pipeline construction is underway throughout the producing region, and several major pipeline projects are currently working their way through the bureaucracy of the Federal Energy Regulatory Commission (FERC). Natural gas prices, on the other hand, are subject to the laws of supply and demand. History informs us that the prices necessary to spur drilling and production are cyclical, with the primary variables being sale price and cost to produce. Production levels will recover, either as a result of an increase in demand that spends existing glut in supply which will increase the sale price, or as a result of technological improvements that reduce the cost of production.
In the meantime, mineral owners should be knowledgeable about the terms of their existing leases and any proposed new leases or lease modifications. Moreover, surface owners should be vigilant concerning new pipeline routes and their environmental impacts on property.
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