What’s driving the “Beast of the East” to roar again?
Rig counts have doubled in Pennsylvania — up from about 30 at the beginning of the year to 61 in June. Gas production in the basin has jumped from hundreds of millions of units per well a few years ago to billions of units of gas per well this year. With gas production rising to over 18 Bcf/d, Pennsylvania now produces over 20% of the natural gas in the U.S., second only to Texas, which tops out at 22 Bcf/d. In the 10 years since a shale boom skyrocketed in the Marcellus shale play, Pennsylvania’s natural gas production has increased by a monstrous 32-fold.
Part of the “uproar” in gas production can be attributed to cost-saving innovations and greater efficiencies in drilling and in the technology being deployed down hole, which helps operators improve their margins and pull a lot more gas out of the well bores with each individual rig. Some of these advancements include: more wells per pad; drilling longer laterals — up to three miles long; sensors that determine how far hydrofracturing is penetrating the shale for more accurate well spacing; sensors that track temperatures, pressure and vibration on equipment down hole; and advanced software that can predict when equipment needs servicing before it breaks down.
Another important factor driving the production of natural gas is its increasing use for power generation — the chief use of natural gas in the U.S. In 2018, natural gas-fired power plants surpassed coal-fired plants across the country. The Energy Information Administration forecast the share of U.S. total utility-scale electricity generation from natural gas-fired power plants to rise from 35% in 2018 to 38% in 2020. Nearly 30 new power plants, each with a capacity of 475-megawatts or more, are now in operation, under construction or in the permitting process in Ohio, Pennsylvania and West Virginia.
Gas goes to market
The latest and perhaps greatest driver of natural gas production in the Appalachian Basin has been the completion of long-awaited gas transmission lines, which are taking gas to market. The most recent interstate pipelines to go online have been:
-The Columbia Pipeline Group, which includes Columbia Gas and Columbia Gulf Transmission. They have added 3 Bcf/d of capacity from Pennsylvania and West Virginia.
-Energy Transfer’s Rover Pipeline — a 713-mile pipeline that can transport up to 3.25 Bcf/d of natural gas from the Marcellus and Utica shale plays to markets across the U.S. and to the Union Gas Dawn Storage Hub in Ontario, Canada, for redistribution back into the U.S. or into the Canadian market.
-DTE Energy and Enbridge, Inc.’s NEXUS Pipeline — a 256-mile, 36-inch interstate natural gas transmission pipeline designed to transport up to 1.5 Bcf/d of natural gas from receipt points in eastern Ohio to existing pipeline system interconnects in southeastern Michigan.
-Williams’ Atlantic Sunrise Pipeline, which added 1.7 Bcf/d to Transco’s capacity and began filling up almost immediately when put into service in October 2018.
Mike Atchie
Transco is the nation’s largest-volume interstate natural gas pipeline system. It delivers natural gas to customers through its approximately 10,000-mile pipeline network. Transco’s mainline extends nearly 1,800 miles between south Texas and New York City and reaches markets in a dozen Southeast and Atlantic Seaboard states, including major metropolitan areas in New York, New Jersey and Pennsylvania.
“Buildout continues in the Appalachian Basin, and Williams is working on facility expansions and adding additional midstream gathering capacity in the Bradford County and Susquehanna County supply basins in northeast Pennsylvania,” said Mike Atchie, Williams’ manager of public outreach.
“Williams’ transmission growth includes the newly proposed Leidy South Project, an expansion of Williams’ existing Pennsylvania energy infrastructure to further connect supplies of natural gas in northern and western Pennsylvania with growing demand along the Atlantic Seaboard in time for the 2021–22 winter heating season.”
But why are there bottlenecks in the Northern Tier?
Two of Williams’ Northeast pipeline projects could be “game changers” for gas producers in Pennsylvania’s Northern Tier — the $800 million Constitution Pipeline, which will provide enough gas to serve three million homes in New York and New England, and the $926 million Northeast Supply Enhancement project, which will bring gas to heavily populated areas in New York City and Long Island. Both projects have been put on hold, pending water permit approvals by the New York State Department of Environmental Conservation.
The Constitution pipeline was approved by the U.S. Federal Energy Regulatory Commission (FERC) in December 2014, pending state and local regulatory approvals, including water quality certification from the NYSDEC, which rejected Williams’ applications for water permits and has delayed the project for five years. In January, the U.S. Court of Appeals for the D.C. Circuit ruled that states have maximum of only one year to decide on water quality certification applications.
“Williams recently filed comments with the FERC explaining why the D.C. Circuit’s decision in the Hoopa Valley Tribe vs. FERC case supports a finding that a waiver of the Clean Water Act Section 401 water quality certification requirement occurred with respect to the New York portion of the Constitution pipeline project,” said Atchie.
“The NYSDEC raised discrete technical issues with our Clean Water Act Section 401 Water Quality Certification application for our Northeast Supply Enhancement project and issued a denial without prejudice of our permit application.
“Our team quickly evaluated the issues and filed a new application, and we strongly believe the technical issues raised were addressed in our previous application and, in the new application, we provided additional information showing that these issues have been addressed.”
Cooking with Gas
Tom Murphy
Another driver of Marcellus gas production is increasing demand from consumers — families who are converting their residential use from fuel oil to natural gas in locations where new natural gas distribution infrastructure is being built. Columbia Gas, which recently enlarged the diameter of its gas pipelines in State College, Pennsylvania, claims that switching to natural gas can lower residential energy costs by as much as 65%.
“Those conversions could also be done for business and industrial use, but a lot of that expansion is from residential conversions, and it’s actually a very significant amount,” said Tom Murphy, co-director of the Marcellus Center for Outreach and Research at Penn State.
“However, residential gas distribution is a segment in the gas market where you see constraints, particularly in and around New York City where gas providers are limiting or eliminating new connections until the Williams’ pipeline projects are built and there’s more supply.”
Going Down(stream)?
Other drivers of gas production are the downstream markets where gas is liquified and shipped offshore and natural gas liquids are separated into individual components — ethane, propane, butanes and natural “gasoline” — and sold to various markets.
MarkWest Sherwood in Doddridge County, W.Va. is one of the largest NGL processing facilities in the Northeast.
“Mark West has facilities that can take NGLs from upstream producers in the southwestern corner of Pennsylvania and in northern West Virginia and eastern Ohio,” said Murphy.
“The company’s cryogenic plants freeze the wet gas to separate the methane from the NGLs and then further separate the NGLs into individual components.
“The ethane will go into the Shell cracker plant after it’s completed, which is going to be a big boost to producers because there’s not a big opportunity to market ethane or other NGLs in this part of the country, so that typically means railing them somewhere else.
“Propane is sometimes piped, sometimes railed or trucked, but for the most part all those NGLs are going out of the region; however, if you create a more regional demand as the crackers will, and if you open offshore markets by shipping liquid natural gas, the price of both wet gas and dry gas is going to increase accordingly.”
Black gold is back!
“Right now, operators in Ohio are moving their rigs to the oil regions, because oil pricing has rebounded, so it’s become more profitable to drill oil than gas,” said Murphy.
The Brent crude oil price is currently at $62.43 per barrel. Texas and Oklahoma hold crude oil reserves, and shale oil is found in the Bakken formation in North Dakota and Montana and in the Green River Formation in Colorado, Utah and Wyoming.
The hidden catch-22?
The EIA has projected a slowdown in oil and gas demand growth, which means if drilling continues at a frenzied pace the domestic market would not be able to take all the additional oil and gas coming in from the shale plays that are driving the overall growth in oil and gas production. Ultimately, all the drivers of hydrocarbon production are subservient to pricing, because no matter how many pipelines are built or how many domestic markets are served by gas, if the price of natural gas remains low because supplies outpace demand, the oil and gas industry could end up back where it was in 2014 where storage facilities were maxed out and the prices of hydrocarbons plummeted to historic lows.
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