The growth of the Marcellus Shale likely won't be constrained by market demand, despite a projected seven-fold increase in production from the play over the next 15 years, according to FBR Capital Markets.
The firm expects Marcellus production to increase rapidly as operators make the life of the play more manageable. With 500 Tcfe of recoverable reserves in the Marcellus, according to FBR estimates, it would take 400 years to develop the play at the current rate of 3.5 Bcf/d. Since that timeline is "unacceptable to any industry," FBR expects production to peak at 25 Bcf/d by 2025, bringing the reserve life down to 40 years.
With total dry gas consumption in the United States currently at 65 Bcf/d, though, introducing another 25 Bcf/d over the next decade and a half would have "major disruptive implications for the national gas market," according to FBR, and that's not even considering the impact of other domestic shale gas plays.
That said, FBR believes the Marcellus production growth would "largely be unconstrained" because of the cost and geographic advantage of the play. Marcellus gas could displace up to 23 Bcf/d of Gulf Coast and imported Canadian supplies in the Northeast and Midwest markets, according to FBR. Additionally, converting 135 MW of coal-fired generation near the Marcellus region to natural gas would add another 6.5 Bcf/d of demand, and liquified natural gas exports at some point in the future would add even more.
After a small pullback last fall, drilling activity in the Marcellus Shale continues to reach new record levels, according to NGI's Shale Daily Unconventional Rig Count. For the week ending Sept. 23, there were 167 rigs actively operating in the play, which marks a 23% increase from the 136 rigs that were drilling one year ago.
While proximity to demand allows Marcellus producers to use existing interstate pipelines, FBR notes that "a lot of new on- and off-ramps" are needed to connect wells to that grid and that while it doesn't expect demand to constrain the play, midstream bottlenecks could (see Shale Daily, Sept. 19; May 26).
The report does not forecast how that switch would impact pricing, only to note that once the Marcellus accounts for a large enough percentage of regional and national supplies, it will begin to drive prices.
As operators accelerate recovery, technology will likely increase it in the Marcellus, FBR notes.
The report suggests companies are looking to reduce the distance between well pads in order to contact more of the shale formation. A 25% reduction in well spacing -- to 750 feet from 1,000 feet -- could increase recovery to 50% from 35%, bringing estimated recoverable reserves up to 720 Tcfe, according to FBR.
Companies are also trying to improve recovery from existing well bores, FBR notes, pointing to a strategy pushed by EQT Corp. to double the amount of water and sand injected per foot of shale (see Shale Daily, Aug. 1). While EQT reported a 60% increase in production, FBR said additional information is needed to decide whether that figure is "simply acceleration" or actually signals an increase in ultimate recovery rates.
The size of that resource means natural gas from the Upper Devonian and Utica shales likely won't be a priority unless operators can implement multi-lateral drilling technology in the region, allowing them to develop several formations from a single well bore, but FBR believes that advance is "a few years away" because operators need to first understand how to manage the differing pressures in the different formations.
With those volumes comes an unexpected side effect, though.
FBR believes operators will be environmentally cautious, because "the economic prize is too big and, hence, the incentive is there for the industry and the local community to find acceptable resolutions."
While more than 25 public and 50 private companies are currently operating in the Marcellus, FBR believes that EQT, Range Resources Corp. and Cabot Oil & Gas Corp. have the "highest exposure" in the Marcellus.