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Marcellus production doubles in 2012

The Marcellus is poised to become one of the largest producing natural gas fields in the US, with production doubling in the first half of the year

The Marcellus is poised to become one of the largest producing natural gas fields in the US, with production doubling in the first half of the year.

According to state regulator Pennsylvania Department of Environmental Protection (DEP), Marcellus production jumped to 895 billion cubic feet (cf) in the first six months of the year, up from 435 billion cf in the same period of 2011.

Pennsylvania’s share amounts to about 5 billion cf/d. Including West Virginia, total Marcellus output is approaching 7.5 billion cf/d from virtually nil in 2008.

The rapid growth comes even as operators scale back activity due to low natural gas prices. According to Baker Hughes, there were 70 active rigs working in Pennsylvania for the week ended 24 August, down about 39% from the same period last year.

About 98% of those rigs were drilling for gas, despite persistently low Henry Hub futures. With the close of the summer heating season at hand, futures have fallen about 20% since the start of August, after rallying through the summer. On 29 August they finished around $2.63 per million British thermal units (Btu), after hitting highs of $3.25/million Btu in July.

The numbers underscore the volatility of North American natural gas markets but also the longevity of the Marcellus’s resources. As more well data come in, a clearer picture emerges of the field’s potential in the overall US energy mix.

Despite enormous upside, Marcellus gas is still challenged by combination of economic and geological factors.

In January, the Energy Information Administration (EIA) lowered its estimate for recoverable reserves to 141 trillion cf from 410 trillion cf a year ago. The US Geological Survey (USGS) estimates are significantly lower, at about 84 trillion cf of technically recoverable gas.

The revisions reflected longer production data from existing wells and better estimates of expected ultimate recoveries from new ones.

Well performance has a direct impact on prices, and Marcellus wells are proving surprisingly resilient given that production continues to rise despite fewer wells being drilled. Lower rig counts usually translate into lower output, reducing supply and inevitably driving up prices.

It isn’t happening in the Marcellus, which could have broader implications for future North American gas markets.

According to the most recent EIA numbers, gas prices could vary by as much as 50% by 2035 depending on the long-term productivity of individual wells. High well productivity results in a long-term price of about $6/million Btu compared with nearly $8/million Btu in the reference case.

Assuming continued technological advances, a doubling of the US resource base to 1 quadrillion cf would all but keep gas prices below $4 for the next two decades. That in turn will play a role for downstream industries like petrochemicals.

Shell is planning a $2 billion ethane cracker in Beaver County, near Pittsburgh. If approved, addition polyethylene and mono-ethylene glycol units could follow after 2020. However, much will also depend on adding infrastructure needed to support continued growth.

“Because shale-gas production is projected to be a large proportion of US and North American gas production, changes in the cost and productivity of US shale-gas wells have a significant effect on projected natural gas prices”, the EIA said.

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