Dark Cloud, Silver Lining (Opinion)

The announcement last week by Chesapeake Energy Corp. that it planned to reduce drilling and production of natural gas because prices are so low was a good news/bad news report.

It was good news for consumers, both individuals and manufacturers, but bad news for mineral rights owners, companies that serve Chesapeake and state governments that depend on severance tax receipts to offset related costs like crumbling roadways and environmental protections.

Prices are low because of a glut of available natural gas — the result of high-tech exploration in shale plays around the country — combined with mild winter weather that has depressed demand. Deliberate reductions in production may increase prices, but those increased prices will then encourage additional production. It’s the supply-and-demand dance, but it appears that natural gas really has become the cheap, abundant American energy source it was cracked up to be.

The impact on Arkansas may be muted, however, because Chesapeake sold its Fayetteville Shale Play assets to the Australian conglomerate BHP Billiton last year for $4.75 billion. BHP has countered the trend of Chesapeake and other energy companies involved in shale development, saying it plans to increase spending on shale drilling and development.

And, as Arkansas Business reported back in November, production from an individual shale gas well peaks quickly and then declines rapidly, meaning continued production will require continued capital investments.

So the Fayetteville Shale Play has been a boom, although not perhaps as thunderous an economic boom as predicted. The economy of north-central Arkansas has benefited greatly from development of the play and at a particularly economically stressful time, and significant continued investment in our state can be expected.

Going forward, we should also be able to see just how beneficial cheap, domestic gas can be for the nation’s economy as well as our state’s.