This article originally appeared on StateImpact Pennsylvania.
Saudi Arabia and Russia are in the midst of a price war against one another that is also meant to hurt American oil companies, and analysts say it could hurt American shale companies that produce oil.
But it might not actually hurt the shale gas industry in Pennsylvania, according to one analyst. That’s because the companies that drill for oil in places like Texas and North Dakota also extract natural gas — mostly as a byproduct — and if they stop drilling for oil, their natural gas output will fall, too.
“The ramifications of that is … oil production will start to decline. The associated gas that comes with it will start to decline” too, said Sam Andrus, executive director of North American natural gas, for the IHS Markit.
That could increase demand from the gas-rich Utica and Marcellus shale region in Pennsylvania, said Anne Robba, head of Americas gas & power for S&P Global Platts.
“If we do lose that kind of (natural gas) volume from crude producers, (the market) is going to turn to Marcellus producers in Pennsylvania to make up” for the loss in production, Robba said. “Because they’re able to ramp up volumes fairly quickly to meet demand.”
Prices for natural gas, at some of their lowest levels since the 1970s, have actually increased this week, by about 10 percent since Monday, Robba said.
“What we’re actually seeing is a strengthening of natural gas prices,” she said.
At the same time, oil prices have crashed around 20 percent to $33 a barrel. And the trend may not end soon.
Saudi Arabia said it would increase output even further to 13 million barrels a day, from 12 million barrels a day.
Robba said it might take several months for companies to change their drilling plans to adapt to the new price environment.
“It wouldn’t happen right away. It would be more late 2020, early 2021,” Robba said.
Andrus said companies in the Marcellus basin in the last year have had to cut back because there is an oversupply of natural gas in the U.S. and prices are low.
The natural gas drilling rig count in Pennsylvania is at 24, down from 47 rigs a year ago, according to the oilfield services company Baker-Hughes. Pennsylvania is the No. 2 natural gas-producing state, behind Texas.
Andrus said those companies might have to ramp up production in early 2020 to meet demand.
“Producers that were putting the brakes on in 2020 to try and stop their gas production will actually reduce gas production. All of sudden (they) need to jump back on on the drilling activity train and try and start going full speed,” Andrus said.
But he also said there are no guarantees that these companies will see a rebound in activity — if the economy takes a big hit from a prolonged coronavirus-related recession, there might not be that big of a market for Pennsylvania’s shale gas.
“You just don’t know how prolonged this is going to be. You don’t know if it’s going to throw the U.S. into a recession,” Andrus said. “We’ve already seen it’s been very disruptive to economies. But is it a disruption and economic disruption that lasts until September and then we start to recover? Or is it a disruption that lasts even longer than that?”