In less than four years of development, the Marcellus Shale has emerged as the largest single source of natural gas in North America. Lying under parts of Pennsylvania, Ohio, West Virginia, Maryland and New York, the field has been adding more than 2 billion cubic feet per day (Bcf/d) of production each year and should post yet another production record in 2013.
Yet, the Marcellus is still in the early stages of development. So far, two “sweet spots” - the dry gas area in Northeast Pennsylvania and the wet gas and dry gas area in Southeast Pennsylvania - have proven to be highly productive and solidly economic even in a depressed natural gas price environment. These areas are transitioning into the full development mode, and they will likely continue to be the Marcellus’ key productive regions in the immediate term. However, given the quality of the shale and the continued development effort in the region, new economically attractive areas will surely emerge in the next few years.
According to U.S. Energy Information Administration (EIA) data, Marcellus wells in Pennsylvania and West Virginia now produce 7 Bcf/d. That’s more than 10% of all natural gas production and 25% of all shale gas production nationwide; and it’s nearly double the Marcellus production of the previous year. A recent report from Standard & Poor’s said that the Marcellus could contain almost half of the current proven natural gas reserves in the U.S, while other experts noted that the powerful combination of resource, cost and location is altering natural gas prices and market trends across the nation. In other words, natural gas that used to come all the way from the Gulf Coast or Canada to feed the energy-hungry Northeast is now coming from Marcellus producers.
The number of Marcellus wells drilled surged in 2012. With new pad drilling techniques – drilling multiple wells about 15 ft. apart – more wells are drilled per rig and fewer drilling sites are required. Due to a shortage of fracking crews and gas pipelines, nearly 1200 wells have been drilled, but are not yet producing. It is estimated that it may take five years for this backlog to clear.
According to the EIA data the Marcellus contributed virtually nothing to U.S. production as recently as 2007. Significant Marcellus production emerged in 2008 and reached 0.7% of all U.S. production in 2009. It surged to 5.1% in 2011 and to over 10.0% in 2012. Also in 2012, a small amount of Ohio’s Utica Shale gas added to the Appalachian production figures.
While current production figures are amazing, most industry analysts expect Appalachian natural gas production to grow to between 11 and 13 bcf/d by 2015. At that point, it will make up 16 to 17% of the nation’s total production. Although most of the Appalachian gas production will continue to come from Marcellus, the Utica Shale will also add significant volumes as gas processing and pipeline infrastructure is built.
The Northeast is the largest natural gas consuming region of the U.S. Traditionally, the region’s gas demands have been met by a number of long-haul underground pipelines that move gas from the Southwestern and Gulf Coast regions of the U.S., as well as from Western Canada, to this major market. The effects of rapidly developing Appalachian gas production are rippling through the energy market. Most forecasts predict that supply will have increased enough to cover all Northeast demand by 2017, making the region self-sufficient. The onslaught of Marcellus and Utica production will curtail or even reverse the flow of the pipelines that have traditionally supplied the region. Natural gas prices will decline in the Northeast as supply exceeds demand, particularly in the summer. Prices in the Southeast and some other parts of the country will increase, providing an export incentive for the huge Appalachian supply.
Shale gas development and the growing production are contributing mightily to the U.S. economy. Lower natural gas prices have already contributed to a large growth in use of the environmentally preferred fuel for electric power generation. Use of the fuel for natural gas vehicles is rapidly growing, and U.S. and Canadian chemical plants are benefitting from the low cost resource. Last November significant U.S. gas exports began to flow into Canada at Niagara, and the U.S. government recently approved the construction of two LNG export terminals for exporting U.S. gas to other parts of the world.