The dark side of falling energy prices

As natural gas prices drop and funding gets scarce, there is not enough cash to finance current drilling levels. Then, when the economy — and demand for gas — picks up, supplies are short. So look for prices to spike then.

Brrrr. Winter came early to the Twin Cities, with a boatload of snow and temperatures well below normal. Fortunately, the dramatic decline in energy prices beginning in late summer will spell relief for home heating bills this winter. And it’s hard not to notice that gasoline prices are well less than $2 per gallon. Lower energy prices have the effect of an economic stimulus for consumers, putting money in their pockets for other things.

But there is a dark side to all this that we’ll be paying for in the not-so-distant future.


Like almost all commodities, natural gas prices have experienced a precipitous drop during the past three months, falling more than 50 percent since the summer to less than $6 per thousand cubic feet.

For natural gas exploration and production companies, this decline cuts profits deeply and reduces company cash, which funds the development of new gas wells.

A typical natural gas well will experience a 30 percent drop in production rates during its first year. Some unconventional wells, such as the Bakken shale formation in North Dakota, may experience declines upward of 70 percent.

Star Tribune