Shale gas production in retreat amid low prices, shortage of pipelines
Post Date: 08 Sep 2015 Viewed: 434
Pennsylvania shale gas production is starting to show the effects of a partial retreat by drillers struggling with low prices and a shortage of pipelines.
The 2.25 trillion cubic feet of natural gas that companies pulled from the Marcellus and other shale formations beneath Pennsylvania during the first six months of the year was about 5.6 percent higher than the last six months of 2014, the most recent state data show. That compares to double-digit increases for every previous six-month reporting period dating to 2009.
Statewide production posted monthly drops in April, May and June, falling to nearly 360 billion cubic feet from more than 395 billion cubic feet in March. The state only required monthly reports from producers starting this year.
“It's the exact thing we said would happen in a tight capital environment,” said Dave Spigelmyer, president of the North Fayette-based Marcellus Shale Coalition, an industry group.
The record growth that producers generated in the Marcellus and other shale plays during the past seven years fueled a glut of supply that started pushing prices to three-year lows this year. Without enough pipelines to carry the gas to higher-demand markets, prices as low as $1 per thousand cubic feet in Pennsylvania could stick around for a few more years.
“It's forced extraordinary adjustments among producers to match that,” said Teri Viswanath, a natural gas analyst at BNP Paribas in New York.
Producers first cut their capital budgets for the year, dialing back drilling programs. State Department of Environmental Protection records show companies drilled 42 percent fewer shale wells during the first half of the year compared to the same period last year.
During the past few months, companies focused on the northeast corner of the shale — including Cabot Oil & Gas and Seneca Resources — announced they would curtail production, restricting or shutting down wells if local prices or space on pipelines were too low.
“Curtailment may mean an entire section of wells is shut in, meaning no gas is flowing,” said Rob Boulware, a spokesman for Seneca, whose Pennsylvania shale production was down 27 percent compared to the second half of 2014.
The Energy Information Administration predicts production will decline at least through September in all of the major gas plays except the Utica shale, which runs beneath the Marcellus in part of Pennsylvania and Ohio. Drillers only recently starting tapping that layer in Pennsylvania.
“Given the substantial drop in rig counts since the fourth quarter of 2014 ... and growing declines in production from legacy wells, productivity increases are less able to completely offset lower rig counts and legacy-well declines,” the EIA said.
Viswanath is among analysts watching to see whether companies will continue to limit activity and put a lid on production. They usually add supply in the winter to meet heating demand.
“For producers with no ability to take gas out of the region, it's a real problem,” she said. “They've maximized the amount of gas we can burn in power plants in the region.”
Because companies can get more gas from new wells while spending less money as they operate more efficiently, some have said they still plan to increase production while cutting back on drilling. Consol Energy does not plan to drill any wells through next year as it focuses on hydraulic fracturing, or fracking, and connecting unfinished wells. Its production fell by 2 percent compared to the last six months of 2014.
Some companies continued to increase production this year by double digit rates, including Range Resources, EQT Corp. and Rice Energy. All three have heavy operations in Greene and Washington counties — a core area with more established infrastructure and pipelines — and contracts on pipelines leaving the area.
Production increased by 24.7 percent in Greene and 16.2 percent in Washington County compared to the second half of 2014. It fell in Bradford, Lycoming, Wyoming and Westmoreland counties.
Spigelmyer said those areas are in need of more pipelines.
“Until pipeline capacity increases, we said we'd limit activity,” Boulware said.