A new research report prepared for investors indicates the Marcellus Shale is a huge success story from both a production and profit perspective, leading the way among all shale plays.
Yesterday, Bank of America Merrill Lynch put out their latest version of the Global Energy Weekly (GEW) and it includes some powerful information about what’s happening in the Marcellus Shale play, where production is building while other plays have been battered by low prices. It’s a research report for subscribers and does a thorough analysis of natural gas development and pricing trends. This issue partly focuses on the Marcellus Shale as the star performer among shale plays, and for good reason because the production and economics of this shale gas play are impressive and contradict the doom and gloom of the naysayers both within and outside the industry.
Let’s start with this very revealing chart plotting dry gas production. It is developed from Energy Information Administration (EIA) data and a similar chart is presented in the GEW report:
Notice how production for all the other dry shale gas plays combined (all the cool colors) have stayed essentially flat since late 2011 and even declined slightly in recent months. The only play among that group to show significant growth is Eagle Ford and that’s offset by declines in the Haynesville. The Marcellus Shale play (in red) has continued to swell and rather substantially. It is now the heaviest producing dry gas play by far, with 9.3 billion cubic feet of gas being produced per day (bcf/d) as of June 1, 2013. The closest competitor is the Haynesville, which only produces 5.6 bcf/d. Here are some other key facts:
- The Marcellus Shale play “alone explains why total US natural gas production continues to increase. Since January 2010, dry natural gas production in the play has risen from 0.5 bcf/d to 9.3 bcf/d. As a share of total production, this represents an increase from 4.5% to 13.5% over the same time period. Through the first six months of this year, Marcellus Shale production has grown by 50% year over year or 2.9 bcf/d, according to the EIA.” This is all public information and GEW suggests dry gas production from the Marcellus Shale will continue to expand along these lines through 2014.
- Pennsylvania and West Virginia combined (the producing Marcellus Shale geography) now produce more dry natural gas than Texas.
- Marcellus Shale economics are superior. PennState professor Terry Engelder says “the average Marcellus well will produce three times as much gas as the average Barnett well.” Productivity per well is much higher with Marcellus Shale producers seeing very high initial production rates and Cabot Oil and Gas even having an average estimated ultimately recovery per well of 13.6 bcf. Companies are once again ramping up drilling in the area because of the “far superior economics” observed by GEW. These facts are well known in the industry but it must also be noted drilling and hydraulic fracturing technological improvements continue to shorten the time required for both, allowing more annual production from the same equipment and otherwise equivalent wells. The Marcellus Shale wells, in fact, have, over the past five years, exhibited steady and, in some years, vast increases in productivity per well.
- The GEW report says “Decline rates, reversely correlated with initial production, are particularly steep in the Marcellus, declining by 54% from year 1 to year 2. But higher initial production rates make the Marcellus far more superior to other plays on an ultimate recovery (EUR) basis. This also explains why the Marcellus features so low on the cost curve compared to other shale gas plays.”
The report also notes there are thousands of drilled Marcellus Shale wells not yet producing because they still lack pipeline connections, but the pipelines are coming and ensuring future growth in production for the play as well as the capacity to ship gas to points south and Midwest in a reversal of the normal flow direction.
The Marcellus Shale is, in other words, a star performer, even during times of low gas prices. It isn’t going away; no matter how strenuously antis muster ever smaller crowds of anti-development folks to state capitols or otherwise make noise. It’s all a mere distraction from the much bigger event, which is the total reshaping of the US energy picture in a very positive way.