Texas Drilling Projects Begin Amid Volatile Natural Gas Prices

Natural gas prices fell Friday, April 4, after four consecutive days of gains. They had risen to a high of $4.47 per million BTUs on Thursday only to fall 0.1 percent to $4.465 per million BTUs on Friday.

Amid all the market volatility, several drilling projects started in locations across Texas. Breitling Energy began drilling in the Permian Basin in Sterling County, while Chevron begin drilling for petrochemicals in Baytown. GeoPetro also began to test drilling sites in Madison County.

Volatility in natural gas leads to lower prices following gains

Four days before their stock market tumble, natural gas prices began an ascent from $4.33 per million BTUs to $4.47 per million BTUs. Observers believe that prices rose due to worries that producers wouldn’t be able to refill stockpiles that had been used up over the winter.

Over the preceding six weeks, prices had remained in the range of $4.26 to $4.38 per million BTUs. U.S. natural gas inventories were reduced to their lowest level in 11 years, according to data from the government. This supply deficit was unusual for early spring because the warmer weather usually leads to a decline in demand for heating fuel.

When markets closed Friday, weather forecasts predicted warmer weather than usual. This is believed to have caused Thursday’s gains to retreat. Short-term weather outlooks predicted fluctuating temperatures, but an overall trend of warmer weather made investors cautious.

Other factors that may have contributed to price volatility included:

  • Supplies that fell below expected levels to 6,148 billion gallons, a difference of 553 billion gallons

  • Industrial demand for natural gas to produce electricity for power plants is expected to remain relatively low for several months until the summer weather spurs demand for air conditioning

  • Winter supplies are expected to fall below the necessary levels when October weather increases demand later this year

Frank Clements, a representative of Meridian Energy, predicted natural gas prices will reach a high of $5.50 to $6 per million BTUs this winter if supplies aren’t replenished in time.

Texas drilling projects prepare to lay fracking pipeline

Natural gas exploration company Breitling Energy, based in Dallas, said it had successfully drilled its first natural gas well on its Sterling County drilling farm in the Permian Basin. Late last month, the well had reached 9,215 feet in depth as Breitling Energy began to lay pipeline to use for fracking and natural gas recovery by May.

In Baytown, Texas, Chevron Phillips began construction of a new petrochemical drilling operation that includes an ethane cracker capable of generating 1.5 million tonnes of gas per year. Two polyethylene facilities, each with a capacity of 500,000 tonnes per year, are being built in nearby Old Ocean.

The ethane cracker is a joint project between JGC and Fluor Enterprises. It supports the first of three phases of the project, while Technip and Zachary Industrial will support the final two stages, and focus on the polyethylene facilities. Chevron Phillips contracted with each company to carry out individual project phases.

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