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Marcellus shale gas boom expected to slow in 2013

| Friday, Feb. 15, 2013, 8:52 p.m.
This Marcellus shale drilling site was established some time ago in Cecil Township, Washington County. New development is expected to slow as drillers wait for pipelines to be installed and prices to increase. File photo Sidney Davis | Tribune-Review

Energy experts say the boom in Marcellus shale natural gas production will slow this year but not because there's any lack of supply.

The slowdown is happening because drillers are waiting for pipelines to expand, markets to develop and wholesale prices to rise.

“The hiring has tapered off. What we see is a holding pattern,” said Kathryn Klaber, president of the Marcellus Shale Coalition, an industry group.

That's a big difference from the last four years, when production doubled or tripled every 12 months and companies spent tens of billions of dollars on leases, well drilling and related infrastructure.

Klaber said companies are still confident there's money to be made, since independent analysts say the Marcellus is the most economical place to drill for shale gas in the nation.

The Marcellus shale is a gas-rich formation deep underground that extends across Pennsylvania, West Virginia, New York, Ohio and Maryland, but most of the production is in Pennsylvania and West Virginia.

A rush of drilling that brought more than 100 rigs to Pennsylvania tapered off in 2011 as prices started to drop. Dozens of rigs moved westward to the Pittsburgh area and Ohio where valuable liquid gases like ethane and propane come up with the methane.

Even that interest had waned in the past year as prices for those commodities started to drop. Producers often have been concentrating on oil or just trying to keep production lower until prices rise. Several analysts who came Downtown last month for Hart Energy's conference on Appalachia's pipelines and processing plants said they thought drilling might decline.

“We see 2013 as being a pretty difficult year” for producers looking for natural gas liquids, said David Deckelbaum, an oil and gas analyst at KeyBanc Capital Markets. “We still think we're setting up for a perpetual oversupply issue for the next few years.”

Bentek, a Colorado company that analyzes energy trends, said figures from the pipelines that take gas out of the Marcellus shale show that Pennsylvania production rose to about 2 trillion cubic feet in 2012 — roughly double the prior year's total. Production from West Virginia was about 700 billion cubic feet in 2012, bringing the total Marcellus shale gas output to about 2.8 trillion cubic feet.

That's about 10 percent of the nation's output of natural gas. Bentek estimates that Marcellus shale gas production will grow by about 30 percent this year, though numerous factors could affect the final number. One billion cubic feet of gas is equivalent to about 180,000 barrels of crude oil.

The official 2012 production figures for Pennsylvania and West Virginia have not yet been released by those states, but Bentek figures are considered very reliable by government and industry sources.

Wall Street analyst Manuj Nikhanj, the head of energy research for ITG Investments, agreed with Klaber's assessments.

“I do think we're going to see growth in 2013, but the rate of growth will slow,” Nikhanj said. Drillers are getting “better and better” at improving the output for each well, he added.

In 2011 and 2012, there was a highly publicized debate over the potential of the Marcellus shale, with some claiming the industry had exaggerated the reserves. Actual production figures have mostly put that debate to rest. When serious well drilling started in Pennsylvania in 2008, output barely registered on a national level. Now it's grown to be the nation's most productive gas field.

Now, Klaber and Nikhanj said, the bigger questions are over how fast pipelines and new markets for Marcellus shale gas can expand.

Since the price of natural gas has been relatively low, many companies operating in the Marcellus began to drill wells but have delayed putting them into production for now, Klaber said.

“There's a staggering number of wells waiting to go online,” she said.

Nikhanj estimated that 700 wells have been drilled but not hooked into production and thousands of wells have been issued permits but have not begun drilling.

The Associated Press and Trib Total Media staff writer Tim Puko contributed to this report.

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