Will low oil prices revive the Haynesville play?

Gas rig against blue sky
Source: DollarPhotoClub

Back in 2012, when natural gas prices fell from $13 down to around $1.80, companies moved to extracting more valuable shale oil and natural gas liquids; fast forward to 2015 and natural gas fields, like the partly forgotten Haynesville shale, are looking more and more attractive.

Once the most productive field in America, the Haynesville Shale of Northwest Louisiana has experienced a considerable decline in recent years. In 2010 there were 139 rigs operating in an area which now has only 20. But, the forgotten play might just yet rebound. According to Argus Media, a decrease in oil drilling due to low prices might actually work in favour of the natural gas play.

Prices for natural gas out of Haynesville have begun to stabilize, especially compared to the plummeting oil prices.

Argus Media reports: “Spot prices at the Carthage hub in east Texas this year have traded at an average discount to the Henry Hub in Louisiana of 9¢/mmBtu, widening from a 6¢/mmBtu discount in 2013, amid milder weather and rising production. But gas at the Carthage hub still traded at a premium to many markets in the northeastern US during the non-winter months, meaning that Haynesville production can often fetch a higher price.”

In the face of plummeting oil prices, which went down by $60 a barrel over the last six months, companies might decide that exploring gas is more profitable than $45 oil. Comstock Resources was the first company to announce that it will move rigs from other oil formations back to the Haynesville. The reasons for the resurge in interest in Haynesville are three-fold:

The first U.S.-based liquefied natural gas export facility, Sabine Pass Liquefaction in Cameron Parish built by Cheniere is scheduled to come on line in the last quarter of 2015. Several other LNG terminals will follow in 2016. This will create a new market for shale gas pushing the prices upwards.

The abundance of natural gas at low prices spurred the growth of manufacturing with many new plants located in Louisiana. The state is set for an investment of $100 billion over the next three years that will result in new manufacturing facilities and, in the words of Don Briggs, the President of Louisiana Oil and Gas Association “As flour is to a baker, so natural gas is the feedstock to this petro-chemical and manufacturing sector.”

Thirdly, several coal-fired power plants are converting to natural gas. The conversions take about a year to complete and cost around $1 billion. With these three factors driving demand for natural gas, Don Briggs believes that drills will be turning in the Haynesville for many years to come.

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