With the cold weather continuing in the Northeast and natural gas inventory continuing to decline, natural gas prices have been pushing upwards and recently reached a 5 year high. When natural gas prices reach a 5 year high, this is excellent news for Marcellus Shale mineral owners as higher gas price and continued high oil prices will lead to sustained or increasing oil and gas activity in the area. With oil and gas prices increasing, drilling becomes more profitable and oil and gas companies can pay higher prices for lease bonuses which increases the value of leasing mineral rights in the Marcellus.
5 Year High
2014 has seen natural gas prices booming with a 45% year-to-date increase in prices. Primarily due to cold weather and reduced storage, the increase has been welcome in the Marcellus Shale since it promotes more activity. Seasonally natural gas will be consumed in the winter months in greater amounts than during the summer so the decrease in supply is not uncommon. However, the extreme cold and storms in the Northeast have pushed supply levels below normal which is causing the increase in prices. The recent prices represent the highest amount seen since 2009 with March delivery jumping to $6.22/mmbtu at the peak. Further cold weather could have constrained supply further but the cold weather is predicted to be over and price have started to fall once again.
Natural Gas Prices Drop
Following the huge gain in natural gas prices, the forecast for mild temperatures in the future has pushed natural gas prices in the opposite direction. On Monday, February 24th natural gas prices saw their biggest decline in more than 5 years. Prices fell 15% to $5.47/mmbtu which is the biggest drop in a single day since August 20th 2007. Following the huge drop on Monday, Tuesday February 25th 2014 saw another huge decline with prices falling near 7% to less than $5/mmbtu. The mild forecast is continuing to have an affect on gas prices by pushing it lower even as supply constraints remain.
Affect for Mineral Owners
Even though prices have significantly declined the last couple days, higher natural gas prices and continuing higher oil prices will push oil and gas activity. As prices stay at levels near or above $5 in natural gas and over $100 in oil, oil and gas activity is expected to remain constant or improve in the Marcellus Shale. Mineral owners are advised to keep an eye on oil and gas prices and take those into consideration when deciding to lease their mineral rights. In addition, royalty owners should expect to see a bump in the amount they receive due to increasing prices if supplies remain constrained for a period of time.
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