Shale Drilling Highly Sensitive to Price, Meaning Job Gains May Not Be Lasting

Chris Lilienthal |

Natural gas drilling in the six states spanning the Marcellus Shale is highly sensitive to price fluctuations. High prices fueled shale development from 2000 to 2008. As prices have declined, gas drilling activity has slowed while development of higher-priced oil has accelerated.
Drilling for Natural Gas Fluctuates with Natural Gas Price
This is another key finding in a report released last week by the Multi-State Shale Research Collaborative—a group of research organizations, including the Keystone Research Center and Pennsylvania Budget and Policy Center, tracking the impacts of shale drilling. On Friday, I blogged about another finding of the report—that industry supporters have exaggerated the jobs impact of shale drilling.

When it comes to price, an oversupply of natural gas and falling demand due to the Great Recession contributed to a swift decline in the wellhead price of gas, falling from a high of $10.79 per thousand cubic feet (MCF) in July 2008 to below $3 MCF in September 2009. From 2010 to 2012, the wellhead price averaged $3.70 per MCF, and the U.S. Energy Information Administration (EIA) estimates that gas prices will remain below $5 per MCF through 2025.

In some counties, employment gains from natural gas drilling have been reversed as drilling activity shifted to more lucrative oil shale fields in Ohio and North Dakota. As the report shows, direct shale-related employment across the six-state Marcellus/Utica region fell over the last 12 months for which there are data—the first quarter 2012 to the first quarter 2013.

With the report documenting the beginning of a pullback of the industry, questions naturally arise about the stability and permanence of even the small number of jobs that have been created. For this reason, the Multi-State Shale Research Collaborative has recommended the formation of a six-state “Multi-State Shale Commission” to establish a consensus method to track jobs. It is critical that the six states work together to enact policies that serve the public interest.

You can check out the full report and press release here.