It was a shock but not a surprise Monday when Chesapeake Energy announced that it will slash its Barnett Shale natural gas drilling in half, won't complete some already drilled wells, won't connect some completed wells to pipelines and will sharply curtail production from completed and connected wells.
CEO Aubrey McClendon has been saying for months that the seemingly unstoppable drop in gas prices would force the company to focus its drilling elsewhere. He wasn't kidding.Prices simply kept falling in recent months, and there is still no relief in sight for a company that drilled more gas wells in the U.S. than anyone else last year. In futures trading, the contract for February delivery hit a 10-year low last week.So, what comes next? The bad news is that some industry analysts are saying it's going to take more than just frugality on Chesapeake's part to curtail the gas glut that has resulted from a boom in shale drilling. That boom began with the horizontal drilling techniques pioneered in the Barnett Shale about a decade ago.Not only has horizontal drilling allowed gas to flow from an ever-expanding number of fields across the U.S., but drillers have also sharpened their skills to get more gas from each well and drill more wells from each pad site.The result, according to a report released Monday by the U.S. Energy Information Administration, has been a supply of gas that's growing sharply faster than demand. Abnormally warm weather this winter has meant even lower demand for gas to heat homes and workplaces, resulting in a buildup of gas in underground storage.At this rate, supply will eclipse demand completely by early in the next decade, the EIA reported.What that means is that other producers are likely to trim their drilling pace in the Barnett Shale in coming months. The industry has been responsible for 38.5 percent of the economic growth in North Texas since 2001 and now makes up about 8.5 percent of the local economy, according to a September study by economist Ray Perryman sponsored by the Fort Worth Chamber of Commerce.While it will take some time for a cutback to be felt, it will be felt.Still, there is a bright side. Warm weather has meant that local residents have spent less on their heating bills this winter, and over time the gas glut should reduce costs.Perhaps even brighter -- although not yet clear -- is that lower prices for gas have already led to lower costs for wholesale electricity suppliers. Over time, that should mean lower retail prices. It also should lead more suppliers to switch their generating plants away from coal and other energy sources to cleaner-burning natural gas.What clouds that picture a bit in the short run is that coal-fired plants don't become gas-fired plants overnight. Meanwhile, operators of those plants might be less likely to spend money on badly needed pollution controls.Power companies and some other manufacturers have been wary of spending too much on gas-fired plants because the price has been so volatile. While gas at around $2.50 per million British thermal units today looks very attractive to them, the comparable price just a little more than three years ago was more than $13.For Tarrant County and other parts of the Barnett Shale, Chesapeake's announcement is only confirmation that the local drilling boom is over. Some rigs will still be working, but most will move to fields where they can make more money. The local economy will have to look elsewhere for stability.Have more to add? News tip? Tell us
