By Jeanine Prezioso
NEW YORK (Reuters) - Drought conditions in Pennsylvania have forced at least one natural gas driller to scale back production as companies were told to temporarily suspend withdrawing water needed for drilling in certain dry areas.
Talisman Energy,, one of 10 companies operating in a drought-affected area in five northeastern counties, said it had scaled back drilling but did not say by how much, while others were minimally or not impacted at all.
"We scaled back operations until the rains start. We do that every year depending on conditions. It's expected," said Diane Gross, a company spokeswoman in Pittsburgh, Pa.
Water is an integral part of the drilling process known as hydraulic fracturing or "fracking".
The number of affected water withdrawal areas had risen to 19 on Thursday from 17 the day before, said Susan Obleski, director of communications for the Susquehanna River Basin Commission (SRBC), and that number is expected to rise.
The scale back in drilling comes as record high production has weighed prices down to 10-year lows, below $2 per million British thermal units.
Natural gas futures prices averaged $4.03 in 2011.
Part of the reason for the drought, a warm winter with little snow, is also a factor why prices are so low. Inventories have ballooned to near 60 percent above the five-year average with slack demand for the heating fuel this winter.
XTO Energy, owned by Exxon Mobil, and one of the companies operating in the affected area, told Reuters its production had been minimally affected, if at all.
Likewise, Carrizo Oil & Gas and Chesapeake Energy, said their company's operations were not affected by the drought.
Carrizo was tapping water from its own reservoirs, a spokesman said.
A spokesman for Chesapeake, the nation's second largest gas producer said, "... these seasonal changes in water availability are extensively planned for and are not expected to have a significant effect on our operations."
EXCO Resources also operates in the affected areas, but did not immediately return a call seeking comment.
PRICE IMPACT NOT LIKELY
The price of natural gas is not likely to rise on supply fears as flows of natural gas at wells that are already producing will continue, said Bob Brackett, an analyst with Bernstein & Co in New York.
"I need water to drill new wells so I just won't get new wells to offset any decline," he said.
If all else fails, gas producers could always truck in water, he added.
Officials at SRBC also said little rain in the early part of spring has also played a role.
The drought has affected 10 companies, most natural gas producers, in five counties -- Bradford, Luzerne, Lycoming, Susquehanna and Tioga.
Obleski with the SRBC said the lack of water should not have too much of an impact on production as long as the drought does not persist.
"Overall, the companies have known to diversify and get water from various sources," she said.
That doesn't mean it won't affect production long term if conditions don't improve, she added.
Companies may have to travel further from their drilling operations to retrieve water.
In fracking, water is mixed with chemicals and flushed down and through a horizontal well at a high pressure to hold open cracks created in rocks, allowing gas particles to rise to the surface.
Pennsylvania has been a focal point for natural gas drilling in the United States. The state sits atop the Marcellus Shale, a large natural gas basin, and heavy production from that basin has aided in pushing prices lower.
(Additional reporting by Edward McAllister; Editing by Bernard Orr)