... Marcellus, Utica Shale Plays See Unprecedented Growth

Marcellus, Utica Shale Plays See Unprecedented Growth in Development, Production

Marcellus, Utica Shale Plays See Unprecedented  Growth in Development, Production. Reaching New Heights

By NAOGP staff

It’s no secret that oil and gas production from shale plays is a booming trend in the North American energy industry. The Marcellus and Utica plays in particular are experiencing rapid growth in the U.S. Northeast and are beginning to outpace pipeline capacity and surpass local demand.

Recent reports by the U.S. Energy Information Administration (EIA) and Ohio Department of Natural Resources (ODNR) show that natural gas production in the Marcellus and Utica region is growing at exponential rates. The EIA reported that the Marcellus topped 15 billion cubic feet per day (Bcf/d) through July — a new record high — and the ODNR reported that Ohio’s natural gas production nearly doubled from 2012 to 2013 because of increasing activity in the Utica shale and development of midstream infrastructure.

The Marcellus region, mostly located in West Virginia and Pennsylvania, is the largest producing shale gas basin in the United States, accounting for almost 40 percent of U.S. shale gas production, the EIA reports. The region’s production has increased dramatically over the past four years, increasing from 2 Bcf/d in 2010 to its current level.

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The rig count in the Marcellus has remained steady at around 100 rigs over the past 10 months. Given the continued improvement in drilling productivity, which EIA measures as new well production per rig, EIA expects natural gas production in the area to continue to grow. With 100 rigs in operation and with each rig supporting more than 6 million cubic feet per day (MMcf/d) in new well production each month, new Marcellus region wells that came online in August are expected to deliver more than 600 MMcf/d of additional production. This production from new wells is more than enough to offset the anticipated drop in production that results from existing well decline rates, increasing the production rate by 247 MMcf/d.

Increases in Marcellus production have wide-ranging effects, including contributing to record natural gas storage injections. Also, rising production in the region has outpaced related pipeline capacity growth, which has resulted in multiple pipeline expansion projects focused on removing bottlenecks. As pipeline capacity increases, markets in the Northeast gain greater access to Marcellus gas, which could result in stabilized or decreased prices. Natural gas prices in the Northeast have been below the national average. Production in the region surpassed winter demand for natural gas in Pennsylvania and West Virginia several years ago and is now on track to be enough to equal the demand in those states plus New York, New Jersey, Delaware, Maryland and Virginia combined.

In July, the ODNR released data for 352 horizontal shale wells that reported production in 2013. The wells drilled in the Utica and Marcellus shale produced 3.6 million barrels of oil and 100 Bcf of gas. On average, Ohio’s oil and gas production increased approximately 65 percent quarter to quarter from first quarter 2013 to first quarter 2014.

“Ohio’s oil and gas industry is growing and moving our state toward energy independence,” said ODNR director James Zehringer. “At the same time, we have updated our laws and increased our staff to provide Ohioans the proper protections as the industry continues to grow.”

ODNR projects all oil and gas wells in Ohio produced 8 million barrels of oil and 171 Bcf of gas in 2013. Compared to 2012, Ohio’s total oil production increased by 62 percent and natural gas production increased by 97 percent. The percentage increase in natural gas production is the largest in Ohio history, and the total production is the fourth highest annual total in state history. ODNR also released production data for the first quarter of 2014. A total of 418 wells reported production of 1.9 million barrels of oil and 67 Bcf of gas.

Creating Jobs
The production growth depends heavily on the development of the midstream infrastructure needed to transfer the resources to market, according to the ODNR. In a little more than 24 months, a new industry developed, including 11 processing facilities and miles of new pipelines. Companies have spent or have committed more than $6 billion on midstream infrastructure.

“Companies are investing billions of dollars and creating jobs for Ohioans, proving the value and importance of the Utica shale play,” said David Mustine, senior managing director at JobsOhio.

Ohio’s regulatory agencies, including the Ohio Environmental Protection Agency, Ohio Department of Commerce and ODNR have taken steps to improve their permitting and inspection processes. The agencies have made concerted efforts to implement regulations and rules that are clear, concise and protect Ohioans and the environment.

Likewise, development in the Marcellus share is leading to Pennsylvania’s lowest unemployment rate since 2008, according to the Marcellus Shale Coalition’s annual workforce survey. The survey findings are based on 2013 data and were provided by a large majority of the coalition’s member companies, which represents nearly 95 percent of Pennsylvania’s shale production.
“Shale development represents a generational opportunity for [Pennsylvania],” said coalition president Dave Spigelmyer. “Since day one, our industry has focused on fostering the growth of a skilled and well-trained local workforce to ensure that lifelong opportunities are being fully realized.”

Spigelmyer said the Marcellus Shale Coalition works collaboratively with industry groups, member companies and other key stakeholders, as well as educational institutions and trade schools, to deliver new jobs for the region’s workforce, which he said is “reflected again in this survey data.”

The survey breaks down the job categories where new hires are working, showing:
• 26.5 percent of new hires work
in engineering  and construction,
• 23 percent in equipment operations,
• 15.2 percent in operations
and maintenance,
• 8 percent in administration,
• 7 percent in land, and
• 5 percent in environmental,
health & safety

The survey reported that 83 percent of new hires came from Marcellus shale states, including Pennsylvania, Ohio, West Virginia, New York and Maryland. The survey also includes data on the positions most difficult to fill, workforce diversity and recruitment methods and challenges, including educational and professional training needs.

According to the survey data, Marcellus Shale Coalition member companies expect to hire more than 2,000 new employees in 2014. The survey also indicates that the majority of new hires are in three sub-sectors and are weighted more so in southwestern Pennsylvania: engineering and construction; midstream and pipeline; and operations and maintenance.

“Attracting and retaining a high-quality, local workforce is a key tenet of our guiding principles,” Spigelmyer said. “By nearly all metrics, and with Pennsylvania’s unemployment at its lowest level since September 2008 and well below the national average, we continue to make positive progress on this important commitment.”

Industry Investment Continues
Companies continue to invest heavily in the Marcellus and Utica shale plays, either announcing new pipeline projects or buying up more acreage for development.

Shell announced Aug. 14 that it will acquire additional acreage in the region. Through two separate transactions, Shell will exit its Pinedale and Haynesville onshore gas assets in Wyoming and Louisiana in exchange for approximately $2.1 billion and additional acreage in Pennsylvania.

In an agreement with Ultra Petroleum, Shell will acquire 155,000 net acres in the Marcellus and Utica areas and receive a cash payment of $925 million in exchange for 100 percent of its Pinedale asset in Wyoming, including associated gathering and processing contracts. In another agreement with Vine Oil & Gas LP and its partner Blackstone, Shell agreed to sell 100 percent of its Haynesville asset in Louisiana, including associated field facilities and infrastructure for $1.2 billion.
“We continue to restructure and focus our North America shale oil and gas portfolio to deliver the most value in the longer term,” said Marvin Odum, Shell’s Upstream Americas director. “With this announcement we are adding highly attractive exploration acreage, where we have impressive well results in the Utica, and divesting our more mature Pinedale and Haynesville dry gas positions.”

During the first half of 2014, Ultra’s net production from the Marcellus and Utica assets Shell is acquiring in Pennsylvania averaged 109 MMcf/d.

Pipelines Coming Soon
Two recent announcements show that pipelines are in demand in the region.

Columbia Pipeline Group, a unit of NiSource Inc., plans to invest $1.75 billion in new infrastructure that will enable the company to transport up to 1.5 Bcf/d of natural gas from Marcellus and Utica production areas to markets served by its Columbia Gas Transmission (Columbia Transmission) and Columbia Gulf Transmission (Columbia Gulf) pipeline systems. The new investment includes the construction of a new 160-mile natural gas pipeline — Leach Xpress — in Ohio and West Virginia.

“We have been a part of Ohio and West Virginia for more than 100 years and have an unparalleled footprint in the Marcellus and Utica production areas,” said CEO Glen Kettering. “These newly announced investments reaffirm our commitment to this important region and will increase the capacity and flexibility of the Columbia Transmission and Columbia Gulf systems to further enhance transportation options for producers in Appalachia.”

A second project included in Columbia Pipeline Group’s overall investment announced Aug. 12 will provide additional capability for shippers to efficiently transport Appalachian production to markets via Columbia Gulf, which spans a corridor stretching from the U.S. Gulf Coast to Appalachia. Columbia Gulf’s Rayne XPress project primarily involves the addition of compression to Columbia Gulf’s existing pipeline facilities to provide transportation of more than 1 Bcf/d for the project shippers.

Also announced Aug. 12 was the PennEast Pipeline, a proposed project to supply homes and businesses in Pennsylvania and New Jersey with lower cost natural gas from the Marcellus shale.

PennEast Pipeline Co. LLC plans to construct the 100-mile pipeline, which is a joint project of AGL Resources, NJR Pipeline Co. (a subsidiary of New Jersey Resources), South Jersey Industries and UGI Energy Services (UGIES), a subsidiary of UGI Corp.
The PennEast Pipeline is designed to provide up to 1 Bcf/d of natural gas capacity. The pipeline will begin in Luzerne County in northeastern Pennsylvania and end at Transco’s Trenton-Woodbury interconnection in New Jersey. PennEast is investing nearly $1 billion to build the pipeline with the costs split among the four entities. UGIES is the project manager for the development of the project and will operate the pipeline.

“In response to the abundant supplies and low price of natural gas, customer demand has increased significantly,” said John Walsh, president and CEO of UGI Corp. “This project serves to meet that growing demand in the mid-Atlantic marketplace, while providing greater system resiliency and reliability for local utilities.”

This past winter, natural gas prices in New Jersey traded as high as $100 per dekatherm. Natural gas in the area that PennEast will access traded in the range of $3 to $4 per dekatherm. The proposed pipeline will help reduce this price volatility to the benefit of New Jersey’s nearly 3 million natural gas consumers. During the seven-month construction phase, the PennEast project is estimated to create in excess of 2,000 new jobs, as well as many other ancillary jobs.

PennEast will begin preliminary engineering studies in the coming months, along with a formal application before the Federal Energy Regulatory Commission (FERC). Pending all local, state and federal approvals, construction of the pipeline could begin in 2017.

As product continues to grow in the Marcellus and Utica shale plays, similar investment appears likely to continue.