Natural gas production in the Marcellus Shale leaped to nearly 4 Bcf/d in just three years, and even though it remains the most economical gas play in Lower 48 states, producers already are moving rigs to more liquids-prone targets, according to Barclays Capital energy analysts.
In an indepth analysis of the massive Appalachian play, Barclays' Shiyang Wang and Michael Zenker relied on county-level production data and county-level maps of the Marcellus region using company reports where the boundaries of the wet gas/dry gas windows were drawn. The duo classified each county as either natural gas liquids (NGL)/dry gas producing based on the boundaries, similar to an approach they used when compiling data for a recent report on the Eagle Ford Shale (see Shale Daily, April 25).
"What we are really after is the amount of gas flowing from wells that were drilled primarily to target liquids. Yet they are not designated as such," said the analysts. "It is easy for a producer to designate a particular drilling program as NGLs-targeted even if it started as a gas-targeted effort, as NGLs production is clearly more in favor. By using the industry's own designation of wet and dry counties, we arguably over-count the amount of associated gas."
By any measure, Marcellus gas output since 2009 "has been indeed stunning, as the shale basin now produces more than 4.5 Bcf/d," which is almost 7% of total Lower 48 output. The gas growth had "an abnormally large growth spurt" last November, when 1.41 Bcf/d of gas pipeline capacity additions came online: Laser Northeast Gathering Co. LLC's Susquehanna Gathering System, 400 MMcf/d; Tennessee Gas Pipeline Co.'s Line 300, 350 MMcf/d; National Fuel Gas Line N Phase I, 160 MMcf/d; Columbia Gas Transmission's Line 1278 Line K, 150 MMcf/d; and Empire Pipeline Inc.'s Tioga County Extension, 350 MMcf/d.
The nameplate capacity was "in line"with the 1.03 Bcf/d production growth sequentially from the third quarter to the fourth quarter of of 2011, noted the Barclays analysts. And even though gas output is decelerating today, in part because there hasn't been another tranche of pipeline additions, production in the first three months of this year rose by 194 MMcf/d from the fourth quarter.
"After looking at the Marcellus as a whole, we now try to answer the question of how much production growth there was due to associated gas, natural gas that is a by-product of wells drilled to target NGLs," said Wang and Zenker. Gas production from liquids-rich counties was mostly flat until late 2010/early 2011, according to company data. Using Barclays methodology, the Marcellus produced on average 175 MMcf/d of associated gas in 2010, which was about one-third (30%) higher than in 2009, even though dry gas output over that period nearly tripled.
In 2011 associated gas production almost doubled to 334 MMcf/d, while dry gas output jumped 150% from 2010. However, in the first three months of this year, a "higher growth intensity" finally was recorded for associated gas, with output up 70% year/year (y/y), while dry gas output grew by half.
"Producers have indeed shifted some of their drilling efforts to the liquids-rich areas of the Marcellus, a trend that has taken place in the Eagle Ford, as well as the rest of the country," said the analysts. "In terms of incremental growth...associated gas grew 40 MMcf/d y/y in 2010, 150 MMcf/d y/y in 2011, and in 1Q2012 accelerated to 230 MMcf/d, on average, above the annual average of 2011."
The Marcellus dry gas output was 88% of total production last year, while in the Eagle Ford it was only 56%, and while associated gas is up in the Marcellus, it's grown at a faster pace in South Texas. In fact, said the Barclays analysts, Marcellus wet gas production as a percent of total production fell from 25% in 2009 to 12% in 2011 as producers proceeded to develop dry gas wells with good economics in the Marcellus with more intensity.
The rig count in the Marcellus dry gas counties has stabilized since late 2011, while the rig count in the wet gas counties continues to grow at a moderate pace, according to Barclays.
"Interestingly, in the Eagle Ford, about 77% of the gas-directed rigs are drilling in the wet-gas producing counties, whereas in the Marcellus, only about 25% of the gas-directed rigs are drilling in the NGL-producing counties. This shows that dry gas production remains a focus for producers in the Marcellus, with a slower shift to liquids drilling. However, as price weakness continues, we expect the Marcellus also to have reductions in gas-directed rigs, especially as equipment is diverted to the nearby liquids-rich and oil-rich Utica."
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