PITTSBURGH—When it comes to meeting the world’s energy demand, natural gas is playing a pivotal role in the global portfolio of Royal Dutch Shell, and its U.S. Appalachian assets are part of the mix.
The supermajor holds about 544,000 acres in north-central Pennsylvania in an area once thought to be an overly mature part of the basin. But Shell discovered a dry gas sweet spot located primarily in Tioga County that it is using to its advantage, Tonya Williams, general manager for Shell Oil’s Appalachia region, told a crowd gathered for Hart Energy’s DUG East Conference and Exhibition. With 80 trillion cubic feet of net resources in Pennsylvania, Shell produces about 440 million standard cubic feet per day with a breakeven of about $2 per MMbtu.
“So natural gas in the Appalachia Basin is going to be quite affordable for us in particular with strong Henry Hub,” Williams said, calling the play an “excellent fit” to the company’s portfolio mix of 75% natural gas and 25% oil.
As Shell works to improve its carbon footprint and reduce emissions, natural gas—the cleanest of the fossil fuels—is taking on a more prominent role in its portfolio in partnership with renewables. The company has said it will produce and sell more natural gas for power, transportation and industry uses as it aims to slash the net carbon footprint of its energy products in half by 2050.
This comes as the world’s appetite for natural gas gets bigger. The International Energy Agency (IEA) reported June 26 that natural gas demand saw its highest increase since 2010, rising by 3%. The global natural gas market is forecast to surpass the 4 trillion cubic meters by 2022, according to the IEA. Most of the production growth will come from the U.S., which the agency said will account for nearly 45% of the world’s increased gas production and about three-quarters of the LNG growth in the next five years.
“Shale gas from the Appalachian (dry gas) and Permian (mainly associated gas) basins are the main pillars of U.S. gas production growth and continue to grow, with Permian taking the lead as recovering oil prices favor investment in U.S. light tight oil production, increasing associated natural gas output,” the IEA said. “Additional U.S. production accounts for almost 45% of the global growth and two-thirds of that is exported via pipeline to Mexico or as LNG globally.”
The Appalachian region provides “an opportunity to manage an asset from an end-to-end prospective—all the way from exploration to our midstream assets,” Williams said, describing resources in Pennsylvania as world-class. However, “there are some serious challenges that we all face in particular. How do we manage to keep our costs low in the current gas environment while we still continuously improve?”
In the three years that Shell has been operating in Appalachia, Williams said the company has improved its end-to-end cycle time by 33% and reduced well delivery unit costs by 40% by increasing lateral lengths and frac intensity. Nearly 90% of Shell’s wells now rank in the top 5% for best in basin, compared to none in 2015, she added.
The company is also conducting plunger lift optimization pilots in Appalachia. So far, Shell has seen production gains based on learnings from advanced analytics, she said.
“This is all great. … [But] It doesn’t matter if we can’t get our product to market. We are committed to continuously invest in Pennsylvania and support the local infrastructure,” Williams said. “While we have a number of evacuation options we still need more, especially if we are going to ease the Henry Hub differential pressures in the region. But we need to work together to find solutions on how to do that. That means industry, the regulators and stakeholders must all come to the table and find solutions that work for each of us. It has start with a solid infrastructure plan.”
As gas production has grown in the Appalachia’s Marcellus and Utica regions, insufficient pipeline infrastructure and takeaway capacity have plagued the region. The U.S. Energy Information Administration’s latest Drilling Productivity Report shows gas production in Appalachia was expected to hit about 28.5 Bcf/d in June and rise to 28.9 Bcf/d in July.
Some long-awaited pipeline projects such as Energy Transfer’s 713-mile Rover Pipeline have come online. Williams’ Atlantic Sunrise will add 1.7 million dekatherms per day of pipeline capacity to the Transco system when it becomes fully operational in mid-2018. Also underway is the 120-mile PennEast Pipeline, which is designed to deliver about 1 Bcf/d.
Further complicating matters is opposition to some pipeline projects. Williams said pipeline conversations have dominated the landscape. She suggested looking at long-term approaches and avoiding polarization in conversations.
“As industry I think we need to do a better job of educating our stakeholders on the benefits to the community, benefits to the economy and what developing these resources can mean for Pennsylvania,” Williams said. “It’s our job to do that.” She added safety is foremost.
Earlier she described natural gas as abundant, affordable and attractive.
Shell has paid more than $18 million in taxes and fees to the state of Pennsylvania and has donated more than $4 million to social projects, Williams said. The company’s new PennChem facility will employ over 6,000 contract workers and 600 full-time employees, she said. The ethylene cracker, located on the Ohio River about 30 miles northwest of Pittsburgh, will begin operations in early 2020s.
Velda Addison can be reached at firstname.lastname@example.org.