The Marcellus shale isn’t the nation’s only shale gas in play, but it’s now the most productive, according to a recent report by IHS, a Colorado-based global business analysis and information company.
Production across the entire formation is topping 7 billion cubic feet a day, IHS said.
Low gas prices in 2012 — averaging $2.75 per mcf (thousand cubic feet) — reduced the working rig count by about a third, to 80 rigs, and wells drilled by the same proportion, to 1,365, IHS said.
But optimistic producers kept applying for permits. Permitting fell by only 5 percent, “which suggests a robust inventory of future locations remain,” IHS said. And the Marcellus has more rigs running than any other shale play in the country.
The immediate future of the industry isn’t 100 percent clear. Here’s a look at it from a few perspectives — industry and environmental.
A separate 2012 IHS study, co-sponsored by U.S. Chamber of Commerce Institute for 21st Century Energy, painted a rosy picture for shale gas across the country.
In West Virginia, it says the oil and gas industries will grow from 11,884 jobs in 2012 to 29,656 in 2020 and 58,244 by 2035. The study takes into account actual industry jobs, support industry and jobs in the broader economy spurred by industry activity.
“These jobs would employ 6.8 percent of the state’s labor force by 2035, helping to reduce unemployment and creating a steady source of payroll growth for the next two decades,” IHS said.
Total wages would grow, in those years, from $794 million to $2.08 billion and then $4.3 billion. Tax revenue would grow from $483 million to $1.44 billion and $3.08 billion. The state’s total annual budget (minus federal dollars) right now is just above $4 billion.
Another 2012 study, by Susan Christopherson, a Cornell University professor, and Ned Rightor, president of research firm New Economic Dynamics, criticizes the methods of those optimistic studies. In “Lessons for Regional and City Policy Makers,” they say the other studies fail to look at the whole picture.
“While shale gas development may increase jobs and tax revenues in the predominantly rural regions where drilling occurs,” they write, “it can also impose significant short- and long-term costs. … Policy makers need to understand the boom-bust cycle that characterizes natural gas development.”
Drilling rigs move, they say. Producers leave when the gas is gone. Public service costs rise, while other industries get crowded out.
“Boom towns also frequently experience social problems brought about by the influx of a transient population. … After the boom ends … the region may have a smaller population and a poorer economy than before the extraction industry moved in. If the boom-bust cycle is combined with environmental damage, the long-term costs to regions … may be considerable.”
West Virginia Oil and Natural Gas Association Executive Director Corky DeMarco recently told The Dominion Post that low prices have slowed progress, but prices will rebound. “The amount of resources in the ground here is second to nowhere in the world. We’ve barely begun to scratch the surface.”
Old formations will be redrilled horizontally, he said. “We ’re going to need more energy, not less energy.”
The low gas prices have led most operators to turn their attention to wet gas, which contains additional marketable hydrocarbons. Asked what it will take for activity to rebound in the dry gas regions — including Monongalia, Marion and Preston counties — DeMarco said he thinks prices will have to reach $4 per mcf before some of those other wells are drilled.
Operators need a return on investment. That $4 mark is more or less the tipping point, he said.
A few situations on the horizon give DeMarco some optimism.
One is a trending fuel switch from petroleum to natural gas for private and government vehicle fleets in West Virginia and nationwide. Another is the potential export market to strategic trading partners. The U.S. supply exceeds demand.
IOGA West Virginia (Independent Oil and Gas Association) President Dennis Xander is largely on the same page with De-Marco. He also sees $4 as the tipping point to renewed production.
The up-and-down gas prices, with their effects on employment, consumer prices and state tax revenue, are a reason exporting is necessary, he said. “We need to export natural gas so we eliminate these peaks and troughs of activity. … If we had a global market for natural gas, we would normalize that.”
Northeast Natural Energy operates two wells in the Morgantown Industrial Park and two just outside Blacksville, and has begun preparations for a third well on the Blacksville pad.
Northeast President Mike John recently said they are preparing to be paying attention to the pricing environment to decide when to pull the trigger on the new Blacksville well.
“Planning is a big part of what we do,” he said. While he didn’t have a particular price in mind as a tipping point, he said, the availability of drilling equipment, costs of drilling and services all play a role.
Northeast has properties in northeast and southwest Pennsylvania and northern West Virginia. It isn’t interested in looking elsewhere.
“We are looking for opportunities to broaden our exposure to reserves here in Appalachia. We’re an Appalachian company” and don’t want to drill in Louisiana or North Dakota. They are open to looking at opportunities in the wet side of the Marcellus play.
While a new Blacksville well is inching ahead, John said they don’t expect new work on the Morgantown pad this year. He’d hesitate to speculate ahead to 2014, though if prices remain where they are, it’s unlikely then, too.
“We ’re evaluating a lot of opportunities and we’re prepared to move forward with the development of our asset when the commodity price is supportive of that investment,” he said.
Chesapeake Energy, the parent of Chesapeake Appalachia, ranks No. 2 on the Natural Gas Supply Association’s list U.S. Top 40 Producers.
In a recent report, Chesapeake said, “We are the … most active driller of wells in the U.S. We own interests in approximately 45,400 producing natural gas and oil wells that are currently producing approximately 3.9 bcf (billion cubic feet) per day. … Our core natural gas resource plays are the Haynesville/ Bossier shales in northwestern Louisiana and East Texas; the Marcellus shale in the northern Appalachian Basin of West Virginia and Pennsylvania; and the Barnett shale in the Fort Worth Basin of north-central Texas.
“We are active in most of the nation’s major unconventional plays, where we drill more horizontal wells than any other company in the industry. For 2013 and beyond, we anticipate spending significantly less than in previous years on undeveloped leasehold, oilfield service assets and other fixed assets, and at the same time benefiting from our past investment in non-drilling assets that facilitate our ability to drill the best wells in the most efficient manner.
“In recognition of the value gap between liquids and natural gas prices that has widened to historic levels in the last five years, we have directed a significant portion of our technological and leasehold acquisition expertise to identify, secure and commercialize new unconventional liquids-rich plays. This planned transition will result in a more balanced and likely more profitable portfolio between natural gas and liquids.
“In 2012, approximately 85 percent of our drilling and completion expenditures were allocated to liquids-rich plays, compared to 50 percent in 2011 and 30 percent in 2010. We are projecting that 85 percent of our operated drilling and completion expenditures will be allocated to liquids development in 2013 as well, and we expect to increase our liquids production through our drilling activities by approximately 27 percent in 2013 compared to 2012.
ExxonMobil, XTO Energy’s parent company, ranks No. 1 on the NGSA list. In its annual energy outlook, ExxonMobil says electricity and natural gas will account for more than 60 percent of the world’s energy demand by 2040.
“Although natural gas will play a greater role as a transportation fuel by 2040, it remains only a small share of the global transportation fuel mix, at 4 percent by 2040, up from today’s 1 percent,” the outlook says. “The two greatest transportation markets for natural gas are heavy duty and marine. …
“In particular, favorable opportunities may exist for the use of liquefied natural gas (LNG) for heavy duty trucks, particularly along high-traffic corridors and including both long-haul and specific services (e.g., buses, waste management and utility vehicles). This trend is particularly true in Asia Pacific and North America, where we see the largest energy demand in the heavy duty sector. Our Outlook sees natural gas for heavy duty vehicles increasing by 8 billion cubic feet per day (bcfd) by 2040.
“The greatest growth in natural gas as a transportation fuel is in Asia Pacific and North America. By 2040, Asia Pacific will account for 50 percent of the demand for natural gas in transportation.”
“As the industrial sector expands, electricity demand grows close to 80 percent and gas demand rises almost 55 percent. Growth in gas demand, which is driven by abundant supplies and a transition away from coal, is boosted after 2030 as carbon dioxide (CO2) costs spread beyond the OECD [organization for Economic Cooperation and Development, including the U.S.] countries.
“The fuels used to meet the world’s growing demand for electricity are changing. Gas … which emits up to 60 percent less CO2 than coal … will see strong growth, increasing 85 percent and approaching one-third of fuel inputs for electricity generation by 2040.
“Natural gas plays an increasingly significant role in the energy fuel mix over the next 30 years as technological advancements help develop this abundant, clean energy resource. By 2025, natural gas will have overtaken coal as the second most consumed fuel, after oil. In North America, unconventional gas production is expected to grow substantially to satisfy around 80 percent of gas demand by 2040. For the next two decades, over half the growth in unconventional gas supply will be in North America, moving the U.S. energy mix toward a lower-carbon resource.
“This competitive energy supply provides a strong foundation for increasing economic output in the United States, opening up new and valuable opportunities in many regions and sectors of the U.S. economy, including the energy sector and other industrial sectors such as chemicals, steel and auto manufacturing. The shift toward natural gas will carry tremendous benefits for consumers and the environment. Natural gas is affordable, reliable, efficient and available. It is also the least carbon-intensive of the major energy sources, emitting up to 60 percent less CO2 emissions than coal when used for electricity generation.”
Bob Gay/The Dominion Post file photo One of the four drill rigs that surround their property towers above Diane, John and Josh Pitcock as they walk in the front yard of their Doddridge County home.
BeardDavid Beard, The Dominion Post, Morgantown, W.Va. (MCT) McClatchy/Tribune – MCT Information Services