Marcellus, Utica Take Center Stage As World Eyes Future Gas Needs

PITTSBURGH—With Marcellus and Utica dry gas production at a combined 17.5 billion cubic feet per day (Bcf/d), the Appalachian Basin’s plays are stepping into the global spotlight.

The attention comes as the world’s energy players gear up for an anticipated surge in gas demand, which could rise by 1.9% annually reaching 497 Bcf/d by 2035, according to BP’s Energy Outlook 2015. While forecasters believe most of the demand growth will come from outside of the continent, the supply of shale gas will be dominated by North America—led by the Marcellus.

“The speed and the magnitude of the growth of the Marcellus gas production have caught everyone’s attention. The size of the resource is clearly large and that attracts market,” said John Staub, E&P team leader for the U.S. Energy Information Administration’s (EIA) Office of Natural Gas and Biofuels.

But the cost of producing these resources is already impacting how the energy industry and energy marketplace works, he said during Hart Energy’s DUG East conference June 24.

Shale gas production has grown from being 5% of total U.S. dry gas production to 56% in 2015. The Marcellus gas portion is the largest, he said, adding it drives home the importance of the Marcellus and Utica.

Data from the EIA’s latest drilling production report projected about 16 Bcf/d will be produced in the Marcellus alone in July, up from about 15 Bcf/d in July 2014. The amount is more than twice that produced in the Eagle Ford or the Haynesville shale plays.

In addition, the estimated ultimate recoveries (EUR) of wells in recent years have been improving. About 1,200 Marcellus wells had a mean EUR of 0.39 Bcf/well in 2008. Five years later, the EIA found that the mean EUR jumped to 6.37 Bcf/well while the number of wells fell to 302.

Shale resources are expected to continue dominating U.S. gas production growth, based on the EIA’s Annual Energy Outlook (AEO) 2015.

Through 2014, about 64 Tcf of gas was produced from U.S. shale plays and in the AEO reference case growth continues through 2040, reaching a total production of about 459 Tcf, Staub said.

“In the high resource case, where we assume you can drill twice as many wells and the wells are 50% better than the average today, we end up producing 200 Tcf of additional gas from shale and tight oil plays,” he said. “Low oil prices don’t dent the gas production very significantly.”

By 2040, the EIA outlook shows Marcellus dry gas production at 147 Tcf, followed by Haynesville/Bossier with 70 Tcf and the Eagle Ford at 52 Tcf. The Utica is forecasted to have a cumulative production of about 27 Tcf.

Gas prices are not expected to deter growth. The EIA forecasts the Henry Hub gas price could double to about $8/Mcf, which allows for further long-term development by 2040.

“All of that matters for exports,” Staub added. “Natural gas exports are one opportunity for finding value for the resource that we have. We have exports growing to a little under 8 Tcf per year.”

These include exports from Alaska’s North Slope and pipeline exports to Mexico and Canada. In the case of high oil and gas production, exports could reach nearly 16 Tcf by 2040, adding to opportunities to export more gas. Already, companies across the U.S. are lining up to gain federal approval to export LNG.

But the challenge for gas is competition from oil, which is easier to move, he said. However, the drop in oil prices over the last six to eight months has impacted the marketplace and uncertainty remains.

What is also uncertain is where hydrocarbon supplies will end up. Currently, supply is outpacing demand.

“This is an oversupplied oil market which in turn reduces the interest and opportunities to build export facilities or start planning to develop export facilities for natural gas,” Staub said.

Contact the author, Velda Addison, at vaddison@hartenergy.com.