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Appalachia’s Natural Gas Companies Could Benefit from Oil Slump

Fallout of a failed international trade deal has caused shockwaves in the global oil markets. What has amounted to turmoil for some oil companies in the United States, especially in the Permian and Eagle Ford basins, could also lead to a much needed boost for Marcellus gas.

Trade deals are rarely easy. Russia and Saudi Arabia have provided the latest example of a failure to negotiate after talks between the two oil giants to coordinate production and pricing dissolved. Saudi Arabia responded to the failed effort by flooding the global oil market with a surplus of cheap oil. While the shock in supply and price was felt by the world’s oil companies, shale oil drillers in the United States have taken a large hit by the developments. Shale oil drilling in the States has virtually halted, and the decline in stock prices have left several domestic companies in serious risk of bankruptcy and closure.

However, what is bad for the Permian and Eagle Ford is proving to be a boon for Marcellus drillers. The Marcellus shale basin is the US’s second largest producer of natural gas, just shy of the Southwest’s Permian. Unlike in the Marcellus basin, basins in the southwest are fracked for not only gas, but oil as well, with gas from oil fracking being a less valuable secondary product. This excess of gas is then put into the market, driving down prices. As Permian and Eagle Ford shale operations have slowed significantly, the Marcellus basin has evolved to become the nation’s major gas producer.

Gas companies in Southwestern Pennsylvania have already seen much welcomed improvements in their stock values. Pennsylvania-based companies such as EQT, Range Resources, and CNX Resources have all seen bumps in their stock values since the Russia-Saudi incident. While this uptick in value surely helps these companies battle the recently-volatile gas market’s plummeting gas prices and existential political threats, it is unlikely to indicate a total rebound for the industry. Unexpected and inorganic shocks, like Saudi’s cheap oil flood, do have demonstrable effects on economies and markets across the globe, but can be remedied much more quickly than organic shocks such as natural disasters. Southwestern Pennsylvania’s gas industry will enjoy these benefits for now, but greater concerns loom for the natural gas industry in the state.

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