Drilling Down

As Natural Gas, Oil Production Rises, Coal Falls

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CLEVELAND — With the huge increase in the supply of natural gas since drilling began in the Utica and Marcellus shale plays, the demand for, and price of, coal has fallen.

A research analyst and research economist at the Federal Reserve Bank of Cleveland, Christopher Vecchio and Stephan Whitaker respectively, have charted the extent within the district the bank serves.

In a paper the Cleveland Fed released Tuesday, “Trends in Energy Production and Prices,” Vecchio and Whitaker show how the trends “have the potential to benefit various sectors of the Fourth District economy.” The Fourth District encompasses Ohio, western Pennsylvania, the northern panhandle of West Virginia and northern Kentucky.

Between 2009 and 2014, the authors write, the production of natural gas in the United States rose 21%. In Pennsylvania, the output increased to 3.259 trillion cubic feet in 2013 from 274 billion cubic feet in 2009. Ohio and West Virginia more than doubled their output.

Ohio produced 88.8 billion cubic feet in 2009 and 186.2 billion in 2013; West Virginia went to 717.9 billion cubic feet in 2013 from 264.4 billion in 2009. Only Kentucky saw a drop: 113.3 billion cubic feet in 2009 to 94.7 billion in 2013.

The production of oil rose in all four states nearly tripling in Ohio (4.9 million barrels in 2009 to 14.0 billion in 2014), more than doubling in Pennsylvania (3.0 million barrels to 6.2 million) quintupling in West Virginia (1.5 million barrels to 7.5 million) and Kentucky went to 3.3 million barrels in 2009 to 3.3 million in 2013.

Oil production in the Fourth District jumped 158%, Vecchio and Whitaker write, but its production constitutes only 1% of the national output. U.S. output in those five years rose 59%.

Coal production declined. In 2009, Ohio produced 27.7 million tons; in 2013, 23.7 million tons. In Kentucky, the figures are 107.8 million tons and 79.0 million; in West Virginia, 137.2 million tons and 112.2 million tons. Only Pennsylvania saw a slight increase, 59.1 million tons and 59.9 million tons.

The price of energy fell over the six years. Wholesale natural gas prices declined in 2011, rose in 2012 and 2013, and fell last year. Coal prices have fallen since 2010. “Oil prices held steady after climbing out of their [Great Recession] lows,” Vecchio and Whitaker write. The prices of all three sources of energy dropped in the last half of last year.

“The decline has been most pronounced in the price of oil,” the analyst and economist write, “at 54% between June and January. Natural gas prices have fallen 34% and coal prices 24%.”

The prices consumers pay to heat their houses and put gasoline in their vehicles have not tracked wholesale prices of these natural gas, oil and coal. Vecchio and Whitaker’s paper finds:

“Rather households have experienced price declines over the course of the 2009-2104 period. Nationally, residential heating prices during the heating season dropped to $8.93 per thousand cubic feet from $11.02. In Ohio, the decrease was 35% over the four years while in Pennsylvania it was 25%. However, in every month of 2014, average residential prices were slightly above those in 2013 for customers in Ohio, Pennsylvania and the nation.”

In the decade since 2004, industrial companies in Ohio have seen their natural gas prices fall while those in Pennsylvania saw them increase, Vecchio and Whitaker write. In the Keystone State, companies paid 2% more last year than they did in 2009.

Power plants that serve residences still burn coal. “Despite falling prices for coal since 2009,” Vecchio and Whitaker write, “electricity rates have changed only slightly since 2009. Residential electricity rates were up 2% to 6% year-over-year every month in 2014.

Published by The Business Journal, Youngstown, Ohio.