Burgh Energy Report

The low price of natural gas somewhat clouds its future economic impact on the Pittsburgh region. I've struggled to reconcile all the boom talk with the stubborn supply glut. The key is understanding production costs. The Marcellus Shale might be the cheapest play in the United States with a break even price of just $3.74. The futures market portends profitable drilling in the pipeline. When and if demand increases, the Marcellus will be first in line for exploitation.

The extraction technology is driving the natural gas industry and Pittsburgh is at the center of this new energy landscape. We're going through a global restructuring, as this New York Times article details:

Italian and Norwegian oil engineers and geologists have arrived in Texas, Oklahoma and Pennsylvania to learn how to extract gas from layers of a black rock called shale. Companies are leasing huge tracts of land across Europe for exploration. And oil executives are gathering rocks and scrutinizing Asian and North African geological maps in search of other fields.

The global drilling rush is still in its early stages. But energy analysts are already predicting that shale could reduce Europe’s dependence on Russian natural gas. They said they believed that gas reserves in many countries could increase over the next two decades, comparable with the 40 percent increase in the United States in recent years.

“It’s a breakout play that is going to identify gigantic resources around the world,” said Amy Myers Jaffe, an energy expert at Rice University. “That will change the geopolitics of natural gas.”

There's plenty of room for natural gas to take up a greater proportion of the global energy portfolio. The smart money is on a shift in infrastructure with more activity and people dependent upon this resource. But even with an increase in demand, it looks like supply will be able to stay a step or two ahead.

What an exciting time for energy analysts. What an exciting time for Pittsburgh.