The estimates of the quantity of natural gas existing in the Marcellus Shale and other domestic shale formations reach levels in the hundreds of trillions of cubic feet. Yet, basic economic principles of supply and demand dictate that without adequate demand for all of this supply, prices for natural gas in the marketplace will remain comparatively low — good for consumers, but maybe not so attractive for those looking to make investments and capital expenditures in the area.
So, the recent announcement by Pennsylvania’s Secretary of Conservation and Natural Resources that his department was preparing a plan to replace its aging fleet of trucks with a fleet powered by natural gas, coupled with a series of bills introduced by Pennsylvania legislators aimed at promoting the conversion of large parts of the transportation sector to natural gas, are positive signs that the demand side of the equation is being appropriately considered and acted upon.
At the same time, transactions like the recent sale by Kohlberg Kravis Roberts & Company and Hilcorp Energy of their jointly owned oil and natural gas assets in the south Texas Eagle Ford shale formation to Marathon Oil for $3.5 billion confirms that interest in unconventional gas plays remains strong. The market’s ability to continue to develop these resources while creating demand for the resulting commodities, all while addressing the regulatory and environmental issues which have taken center stage of late, will ultimately shape the long term prospects of this unique opportunity.
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