NEW YORK (TheStreet) -- The deterioration in crude prices can also impact natural gas, but that won't stop gas producer Range Resources (RRC) from growing its output at an annual rate of more than 20% over the next few years, thanks to its low-cost asset base.
The prices of benchmark WTI and Brent crudes have cratered over the last three months, falling by nearly 34% in that period. And this can also have a negative impact on natural gas prices.
Why? Gas is often shipped as liquefied natural gas, or LNG, particularly during exports. Those LNG contracts around the world are benchmarked to oil prices, explained Raymond James' analyst Pavel Molchanov, in an email last month.
The persistent weakness in oil prices, however, will not be enough to halt the growing production from Appalachia, home of Pennsylvania and West Virginia's Marcellus Shale formation, the largest shale gas-producing region of the United States, according to a recent report by Goldman Sachs's analyst Brian Singer. The region offers the best economics as compared to other large oil and gas producing regions in the U.S.
The production from this area could climb by 3.5 billion to 4 billion cubic feet a day, each year through 2018, Singer estimates. This positive trend will also work out well for MarkWest Energy Partners (MWE) and Kinder Morgan (KMI) , which will be transporting this gas within Marcellus as well as to other parts of the country.
With one million net acres in and around Marcellus, Range Resources has the "leading position in the largest and lowest-cost shale gas play in the U.S.," wrote UBS' William Featherston in his most recent report. This will play a crucial role in driving the region's production growth. It has also allowed the company to capture a trailing 12-month gross profit margin of 84%, 2.3 times greater than the industry's average, according to data compiled by Thomson Reuters.