The report explores issues related to the so-called “Pennsylvania gas discount.” The first exploratory Marcellus Shale well was completed in Pennsylvania in 2004. Prior to that time, the region had not produced much natural gas and certainly not enough for any significant exports. It is shocking to look at a chart on Pennsylvania’s natural gas production over time. In 2004, the year that first shale well was drilled, Pennsylvania marketed 197,217 million cubic feet of gas. In 2016, that number was 5,313,252!
The challenge for Pennsylvania is that gas is hard to transport affordably without pipelines, and because Pennsylvania had not historically exported much gas it did not have a lot of pipeline infrastructure. As a result, the shale boom left a lot of gas trapped in the region and that surplus has lowered natural gas prices in Pennsylvania more than nationally. From 2007 to 2016, gas prices paid by utilities declined 65% nationally and 79% in Pennsylvania. This has kept electricity prices in the region lower than the rest of the country. Gas prices paid by large industrial users also dropped 44% nationally and 65.8% in Pennsylvania. And gas purchased by residential customers dropped 34% nationally and 40% in Pennsylvania.
Not surprisingly, the lower gas prices in Pennsylvania has led to an increase in demand relative to the rest of the country. Electricity generation is rapidly shifting from coal to gas, while industrial users are consuming more gas. Pennsylvania also went from an importer of natural gas to now exporting 75% of the gas it produces. Since this gas can be purchased at prices lower than the national average, there is a huge desire to build new pipelines to increase exports from the Marcellus
The real question in the report is just how long the Pennsylvania “gas discount” will last. With more pipelines being built, the Marcellus region’s gas prices should move closer to the national average. That may reduce some of the regional demand, though. Either way, there is every reason to think that the amount of natural gas produced in Pennsylvania is going to continue to grow. If you want in on the action and would like to acquire rights for exploration and production in Ohio, Pennsylvania, or West Virginia, contact the experts at Cimmaron Land.