Marcellus Shale likely to dominate US gas supply

Improvements in drilling efficiency and well performance continue to drive production growth in the Marcellus Shale despite falling rig counts, according to new in-depth analysis by Wood Mackenzie made available on Thursday. 

Growth has been so rapid that an estimated 1.4 bcfed of production is currently being restricted at the wellhead. This highlights both the tremendous potential of the play as well as the continuing infrastructure and gas pricing challenges that operators face
Wood Mackenzie has broken the Marcellus, now the top producing shale gas play in the world, into 12 distinct sub-plays with varying well characteristics and economics. In general, initial production rates and estimated reserves per well have grown over time but results still vary both within and between sub-plays. 

“We estimate that average well breakevens range from $2.68/mcf in the northeast core of the play, to over $8/mcf in some of the less established areas in central and northwest Pennsylvania”, said Matt Woodson, upstream research analyst with Wood Mackenzie. 

“Production is now over 10 billion cubic feet per day (bcf/d) and with more than 80,000 possible remaining well locations in the play, the Marcellus is expected to dominate the US gas supply story for the foreseeable future“, added Woodson.

During the first half of 2013, the majority of new wells were drilled in northeast Pennsylvania, primarily in and around Bradford County.  Although forecasters expect to see steady drilling activity in the north, rigs have increasingly focused on the liquids-rich southwestern portion of the Marcellus since 2012. Operators benefit there from NGL production and less severe gas price differentials.

Of the 12 sub-plays, the Susquehanna Core offers the best returns. In this area, the greater formation thickness and depth corresponds with huge well results. For wells drilled in 2012, Wood Mackenzie estimates that those in the Susquehanna Core had an average 30-day IP rate of 19 mmcfd, compared to an average 8 mmcfd in the Southwest Pennsylvania sub-play. However, this core area covers a relatively small area and offers little running room compared with some of the other sub-plays.

Many operators are curtailing production, while pipeline and processing infrastructure expansions are completed.  Wood Mackenzie estimates that roughly 340 wells are currently awaiting completion across the play. This has resulted in very quick production responses to pipeline additions and large price differentials, especially in the northeast core counties of Susquehanna, Bradford, and Wyoming. The forecasters assume an average $0.80/mcf discount to Henry Hub in 2014. The price differential is still volatile though, and winter premiums are expected to persist.     

For wet gas producers, ethane rejection is the norm as takeaway capacity is insufficient. Most operators are blending ethane with dry Marcellus and legacy CBM or conventional gas production in order to meet pipeline specifications. Range Resources initiated line-fill of ethane on the Mariner West pipeline to Sarnia, Ontario, in July 2013 and has transport contracts on two additional ethane transport projects expected to be completed in the next two years.

Because of low prices, ethane extraction is not expected to boost well economics in the near term, but will allow operators to continue growing their wet gas production.

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