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Ohio Utica Shale

Shale will keep natural gas prices low for 10 years, Moody's says

By Bob Downing Published: May 16, 2013

From Moody's Investors Services earlier this week:

North America's shale drilling revolution is now permanent and will keep natural gas selling at historically low prices for at least the next decade, Moody's Investors Service says in a new report. And while low natural gas prices will have long-term benefits for some sectors and companies, they will hurt other types of businesses, the agency says.

"A surplus of natural gas production will give North American refiners and chemical producers a long-term competitive advantage over their peers worldwide, while the shale boom also improves the credit profiles of US electric and gas utilities," says Managing Director Steven Wood, lead author of the new report, in "Chemicals, Refining and Utilities Among Sectors Seeing Biggest Benefit from Shale."

Natural gas currently sees little trade in the international marketplace, Wood says, with various difficulties in developing shale resources elsewhere keeping North America ahead of the game.

Among the many refiners set to benefit are Phillips 66, Marathon Petroleum and Valero. With lower natural gas costs, they should enjoy strong cash flows in the intermediate term from North American crude oil selling below international benchmark prices.

Makers of commodity chemicals will also enjoy lower input costs and therefore a significant cost advantage for the foreseeable future - especially companies that produce ammonia and methanol, including CF Industries, Agrium, Methanex and Rentech Nitrogen Partners.

For regulated utilities in the US, the shale revolution reduces the cost of fuel and purchased power, which represent their single largest expense. And since the utilities usually pass their fuel costs on to rate payers, lower input costs reduce customers' bills and improve their relations with regulators. Indeed, the currently more amicable environment has helped the utilities improve their cost recovery through base-rate increases, with little impact on overall customer bills.

The shale boom has also been good business for US and Canadian Class I railroads, as new pipelines struggle to keep up with oil production in new locations. The western railroads Burlington Northern and Union Pacific Railroad will see the most advantage, since they are close to the Bakken and Eagle Ford shale regions.

"Conversely, the natural gas glut from shale production poses formidable competition for the US coal industry, as power producers switch from coal to natural gas and increasingly strict environmental regulations discourage coal consumption," Wood says.

Low input costs will mean lower power prices, a significant drawback for merchant power producers, or those exposed to wholesale power prices. Only Calpine will be less affected, since it specializes in gas-fired generation.



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Utica and Marcellus shale web sites

Ohio Department of Natural Resources' Division of Oil and Gas Resources Management State agency Web site.

ODNR Division of Oil and Gas Resources Management. State drilling permits. List is updated weekly.

ODNR Division of Geological Survey.

Ohio Environmental Protection Agency.

Ohio State University Extension.

Ohio Farm Bureau.

Ohio Oil and Gas Association, a Granville-based group that represents 1,500 Ohio energy-related companies.

Ohio Oil & Gas Energy Education Program.

Energy In Depth, a trade group.

Marcellus and Utica Shale Resource Center by Ohio law firm Bricker & Eckler.

Utica Shale, a compilation of Utica shale activities.

Landman Report Card, a site that looks at companies involved in gas and oil leases.FracFocus, a compilation of chemicals used in fracking individual wells as reported voluntarily by some drillers.

Chesapeake Energy Corp,the Oklahoma-based firm is the No. 1 driller in Ohio.

Rig Count Interactive Map by Baker Hughes, an energy services company.

Shale Sheet Fracking, a Youngstown Vindicator blog.

National Geographic's The Great Shale Rush.

The Ohio Environmental Council, a statewide eco-group based in Columbus.

Buckeye Forest Council.

Earthjustice, a national eco-group.

Stop Fracking Ohio.

People's Oil and Gas Collaborative-Ohio, a grass-roots group in Northeast Ohio.

Concerned Citizens of Medina County, a grass-roots group.

No Frack Ohio, a Columbus-based grass-roots group.

Fracking: Gas Drilling's Environmental Threat by ProPublica, an online journalism site.

Penn State Marcellus Center.

Pipeline, blog from Pittsburgh Post-Gazette on Marcellus shale drilling.

Allegheny Front, environmental public radio for Western Pennsylvania.