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Expo/Industry events for the next few months

PIOGA Winter Meeting
February 1, 2017
Rivers Casino, Pittsburgh, PA 

Upstream PA 2017
March 21, 2017
Penn Stater Conference Center
State College, PA  

Utica Upstream 
April 5, 2017
Walsh University
Canton, OH  

Appalachian Storage Hub Conference
June 15, 2017
Hilton Garden Inn
Southpointe, PA 

Latest facts and a rumor from the Marcellus, Utica, Permian, Eagle Ford, Bakken and Niobrara Shale Plays 

Marcellus Utica Midstream Conference.  The Marcellus Utica Midstream (MUM) Conference was another success for Hart Energy.  I wonder how much Hart Energy paid President Trump to make the Keystone Pipeline and Dakota Access Pipeline comments on the eve of MUM.

While attendance and exhibitors were less, I heard nothing, but good comments from the exhibitors.  All the exhibitors told me the same comment, “Traffic is less, but the people that came are the decision-makers.”   Exhibitors left MUM with good leads.  Now all they have to do is follow up.


Not Enough Drilling in PA; Too Much Drilling in OH

  • Williams’ made comments that if the rig count doubles in the Appalachian from 2016 to 2017 as projected and pipelines come online as scheduled, there is a concern there is not enough production capacity to fill the pipelines.  Lack of drilling over the last few years will cause capacity problems for the pipelines.
  • Antero made the comment that unless new pipelines are built by 2020, there will be production constraints.  The current ethane production projections will be adequate for the new pipelines, Rover and Nexus.  This applies only to ethane.  There is sufficient takeaway infrastructure for natural gas liquids.
  • Interpreting Trump’s deregulation could mean just one agency could have jurisdiction over each process versus multi regulations for the same process which creates confusion on “how to lay the pipeline” as well as increases costs and delays the entire permitting process.
  • Good times are definitely coming for the industry if the presence of investors is a barometer.  I had not seen as many investors at an industry event since the gangbuster days of 2013 and 2014.  A number stopped by our booth and all expressed an urgency to get deals done.  Obviously, the “money guys” know the industry is positioned for major growth.  They want to get in early which is now.
  • Downstream construction was the buzz throughout the conference.  From Marathon’s $2 billion dollar additive refinery to production capability to support five or six more world class cracker plants.  It’s obvious to all involved in the O&G industry in the Appalachian Basin the next 10-15 years could be very good years.
  • Several companies stated “The Appalachian Basin is the place to be’.

MUM Keynote Speaker’s Comments.  Demand for Appalachian Basin natural gas is growing, but meeting that demand in the future may prove difficult.

That assessment was made by Alan S. Armstrong, president and CEO of The Williams Cos., the Oklahoma-based midstream giant, Kallanish Energy reports.

It is unclear if the Appalachian Basin will be able to meet that growing demand, he said on Wednesday, at the eighth annual Marcellus-Utica Midstream Conference and Exhibition, presented in Pittsburgh by Hart Energy.

That makes him “uncomfortable” and “concerns me a lot,” Armstrong told an audience of roughly 500. He said he fears the Appalachian Basin cannot respond quickly enough to meet growing demand.

Demand growing quickly

It is somewhat surprising how quickly that demand has manifested itself and grown, he said. The demand for natural gas is huge, with long-term commitments and is easy to predict, he added.

Natural gas demand is projected to grow by 18.2 billion cubic feet per day (Bcf/d) from 2016 to 2021, with most of that growth fueled by liquefied natural gas (LNG) exports, he said.

Growth in constructing natural gas-fired power plants is projected by some to be flat, but that, too, should fuel natural gas growth, Armstrong said.

65% growth in Marcellus, Utica

The Marcellus and Utica Shale plays together are expected to see 65% growth in natural gas production from 2016 to 2021: from 23 to 38 Bcf/d, Armstrong said.

Demand is high and the only things that will kill that demand are high natural gas prices and continuing infrastructure delays, he said.

Currently, there are 60 rigs working in the Marcellus and Utica plays in Ohio, western Pennsylvania and West Virginia and “that’s not enough, not nearly enough,” Armstrong said.

There is not enough drilling in the basin to meet flat demand, much less a growing demand, he said.

Some say it will require 100 rigs working in the three states to produce the volume of natural gas needed to meet growing demand.

There are also major transportation bottlenecks because there are not enough pipelines to get natural gas to good-paying markets, he said.

Shift to dry gas from liquids

That has changed drilling in the Appalachian Basin as drillers have shifted from liquids-rich areas to dry gas areas because of the lack of pipelines for liquids, according to Armstrong.

Another big believer in the Appalachian Basin’s potential is Detroit-based DTE Gas Storage and Pipelines, said senior vice president, Commercial Development, Gregg Russell.

The company has invested $4 billion in basin midstream facilities in the last five years and will likely spend an additional $2 billion in the next five years, he said during the Hart conference.

DTE hopes to receive final approval for the 255-mile Nexus natural gas pipeline across northern Ohio from the Federal Energy Regulatory Commission by Feb. 14, he said.

NGLs Looking Better in the Appalachian Basin.  Natural gas liquids, including ethane from the Marcellus and Utica Shale plays, will be increasingly lucrative in coming years, Kallanish Energy reports.

That projection was made by Greg Haas, director of Integrated Oil and Gas Research at Houston-based Stratas Advisors, a Hart Energy company. He spoke this week at the eighth annual Marcellus-Utica Midstream Conference and Exhibition in Pittsburgh.

NGLs will be increasingly desired by American petrochemical companies making olefins like ethylene, propylene and butadiene, Haas told roughly 500 people at the conference.

Ethane production at 1.25 million barrels per day (MMBPD) in 2016 in the U.S. is expected to grow to 1.7 MMBPD in 2018, to 2.4 MMBPD in 2020. That production is centered in the Marcellus and Utica shales in western Pennsylvania, Ohio and West Virginia.

Ethane, one of the NGLs from shale drilling, is being shipped to the Gulf Coast to be processed in ethane crackers. It is also being shipped by pipeline to Marcus Hook near Philadelphia for overseas shipments.

Additional ethane can be recovered from Appalachian Basin natural gas because a significant amount of the natural gas liquid currently is being left in the natural gas stream to be burned.

Ethane will also be desired by Royal Dutch Shell when it builds its planned ethane cracker at Monaca, Pennsylvania. The plant may cost as much as $6 billion. It will convert ethane into ethylene for use in plastics. The facility will consume 100,000 barrels per day (BPD) of ethane.

Other Appalachian Basin crackers have been proposed in Belmont County, Ohio, and near Parkersburg, West Virginia.

Eric Spirtas, who owns a 1,700-acre former aluminum smelter in Ohio’s Monroe County, said he has been approached by a new player interested in developing an additional cracker plant. He offered no details and said he has other offers to develop the site.

Haas pointed out Nova Chemical has switched into Corunna plant in southern Ontario from utilizing more-expensive naphtha to ethane from the Appalachian Basin.

That plant is looking to expand again, although no announcement has been made, he added.

Ethane is a more-desirable and cheaper feedstock for plastics makers in Europe and Asia who now rely heavily on naphtha, he said. The U.S. petrochemical industry will have a five-fold advantage over Europe and Asia.

“That is good for the Marcellus and Utica shales,” according to Haas.

Haas also said that Appalachian Basin producers will also likely see growing demand for condensate in the future. It can be used as a diluent to help move Canadian tar sands through pipelines.

National Fuel Gas Pipeline Delayed by FERC.  New York-based National Fuel Gas has pushed back the completion date on its $500 million Northern Access pipeline project in Pennsylvania and New York from November 2017, to the first quarter of 2018, Kallanish Energy learns.

The delay is due to what the company called “ongoing delays in the regulatory approval process,” including getting final approval from the Federal Energy Regulatory Commission.

Progress in winning FERC approval “is slower than we had originally anticipated,” said CEO Ronald Tanski, in a statement.

Those delays have limited the ability of National Fuel Gas and its Empire Pipeline subsidiary to commence certain development activities along the 99-mile pipeline route in advance of designated environmental protection periods. Those periods begin on April 1, 2017, and extend through July 31, 2017, the companies said.

Such windows are created under federal law to limit tree cutting to help two endangered species of bats.

Because of the delay, the company has extended its requests for needed permits from New York State.

The 24-inch pipeline would run from McKean County, Pennsylvania, in the Marcellus Shale play, to Erie County, New York. Additional compression facilities, pipeline connections and laterals are also planned.

The FERC request was filed in March 2015.

White House Energy Plan.  Soon after he was sworn in Friday as the 45th U.S. President, Donald J. Trump’s White House released his energy plan, which states his administration is committed to energy policies that reduce costs for Americans and maximize the use of U.S. resources, “freeing us from dependence on foreign oil.”

“For too long, we’ve been held back by burdensome regulations on our energy industry. President Trump is committed to eliminating harmful and unnecessary policies such as the Climate Action Plan and the Waters of the U.S. rule. Lifting these restrictions will greatly help American workers, increasing wages by more than $30 billion over the next seven years,” the energy plan states.

The Trump plan says his administration will embrace the shale oil and gas revolution “to bring jobs and prosperity to millions of Americans,” and that the Environmental Protection Agency will be refocused on its essential mission of protecting the country’s air and water.

“We must take advantage of the estimated $50 trillion in untapped shale, oil, and natural gas reserves, especially those on federal lands that the American people own. We will use the revenues from energy production to rebuild our roads, schools, bridges and public infrastructure. Less expensive energy will be a big boost to American agriculture, as well.”

Trump also reiterated he’s committed to clean coal technology, and to reviving America’s coal industry, Kallanish Energy finds.

“In addition to being good for our economy, boosting domestic energy production is in America’s national security interest,” according to the energy plan. “President Trump is committed to achieving energy independence from the OPEC cartel and any nations hostile to our interests. At the same time, we will work with our Gulf allies to develop a positive energy relationship as part of our anti-terrorism strategy.”

Energy development must go hand-in-hand with responsible stewardship of the environment, the energy plan states. Protecting clean air and clean water, conserving our natural habitats, and preserving U.S. natural reserves and resources will remain a high priority.

Marcellus Drilling 2017 Outlook.  When and where will we see the most Northeast drilling activity? Which operators are going to ramp up their activity first? When are these projects in the Northeast actually going to come online? These are just some of the questions that we help our clients answer. In pursuit of those answers we look at a multitude of factors, including breakeven economics, well backlog and potential takeaway projects.  But another potential leading indicator of future activity is Marcellus well permitting. While well permitting isn’t a great indicator of future activity in all regions, in the Northeast, at least, permitting is another constraint that must be considered when forecasting future production growth.

First, for the sake of brevity, our analysis of Northeast permitting trends for this commentary will be restricted to the state of Pennsylvania. The Pennsylvania Department of Environmental Protection (PA DEP) provides timely data on permit (both drilling and wellsite) filings, with current data through December 2016.  Pennsylvania requires multiple permits before a well can be spud, but two that represent significant time commitments are the wellsite permit, known as the Erosion and Sediment Control General Permit (ESCGP), and individual well permits.

The first question to be addressed is how long does the permitting process take? Wellsite and well permits can differ in duration based on where the well is located and which of the three regional offices handles the process, with the southwest region having the longest average duration for a permit resolution. The below graphic shows that the duration of the permitting process has become more time consuming since 2011, being driven mainly by increases in time needed for wellsite permits, while drilling permits have remained relatively steady, bouncing between three to four months.

Not only can this data help inform our overall production forecasts, but plotting permit locations gives us an indication of where wells are more likely to be drilled in the near term. The below map plots permit filings from the second half of 2016 and shows that drilling activity is likely to continue to focus on the most economic areas of Northeast and Southwest Pennsylvania.

What about at the operator level? Some major pipeline projects have announced in-service dates this year (although we have some thoughts on that) including Rover, NEXUS, and Columbia Pipeline Group’s Leach and Rayne Xpress.  Given the lead time required to bring a well to sale, and the exhaustion of backlog, if an operator believes new projects will be coming to market, we should be seeing increased permitting activity to meet upcoming commitments in 2017.

Combining these permitted wells with known locations and representative type curves can give an approximation of production potential that can be brought to market in ten to twelve months.

Permits provide valuable insight as a leading indicator of dynamics we can expect in the future both on a macro, regional level and at a granular, operator level. For more on what these indicators portend for the Marcellus and Utica, as well as the market as a whole, join us at our upcoming conference

FERC Delays PennEast Pipeline. The Federal Energy Regulatory Commission will extend the completion date deadline for the final environmental impact statement for the PennEast Pipeline project, according to a news release dated Jan. 23.

The revised date would change the Feb. 17 final EIS due date to April 7 and give FERC until July 6, 2017, to make a final decision on the planned 120-mile natural gas pipeline.

The PennEast Pipeline will start in Dallas Township and transport up to one billion cubic feet of Marcellus Shale natural gas to a Transco pipeline connection in Mercer County, New Jersey.

“Due to additional environmental information filed by PennEast and certain state agencies since the issuance of November 8, 2016, Scheduling Notice, the Commission staff requires more time to analyze all the environmental data and prepare the final EIS,” FERC’s news release stated.

In a separate news release, the PennEast Pipeline Company said it supports FERC’s final EIS extension.

“After a two-and-a-half year review of PennEast Pipeline Company’s application, including 33 route adjustments announced in September to further reduce environmental impact, the additional 49-day review period FERC announced today will help ensure a complete and thorough review,” Pat Kornick, spokesperson for PennEast Pipeline Company said in the news release. “PennEast looks forward to receiving the final EIS and anticipates the line will be operational in the second half 2018.”

In September 2016, PennEast developed 33 pipeline route deviations to comply with FERC’s recommendations to reduce impacts on endangered species and wetlands and make better usage of existing utility rights of way.

“FERC determined in its initial environmental assessment that the PennEast Pipeline would have minimal environmental impact and could even improve the region’s air quality as natural gas displaces other less clean fuels for electric power generation,” Kornick said in the news release. “PennEast is confident the Project can be built safely and with minimal environmental impact and will continue to provide necessary data as FERC continues its due diligence on the project.”

Constitution Pipeline Could Be Looking Better.  Construction workers believe they have a new ally in their three-year-long quest to build a 124-mile natural gas line between northeastern Pennsylvania and Schoharie County, New York. Backers of the proposed $875 million Constitution Pipeline say a shift in federal environmental policy gives them new support, if not leverage, as they advocate for 1,300 jobs building a pipeline to carry gas from the Marcellus Shale to customers in the Northeast. Trump also sped up approval of the Dakota Access Pipeline, commonly referred to as DAPL, another project that previously was the subject of large protests in the Dakotas.

Why Higher NatGas Are Here to Stay. (Forbes)  Natural gas prices averaged a little more than $2.50 per mmBtu (million British Thermal Units) in 2016. Those days are over. Prices will average at least $3.50 to $4.00 in 2017.

Prices have more than doubled since March 2016 but gas is still under-valued. Supply is tight because demand and exports have grown and shale gas production has declined.

In April of last year, I wrote that natural gas prices should double and they did. Henry Hub spot prices increased 2 1/2 times from $1.49 to $3.70 per mmBtu and NYMEX futures prices doubled from $1.64 to $3.30.

Virtual Pipelines Are Here!  (Marcellus Drilling News)  MDN has had an eye on a trend we find exciting – “virtual pipelines.” We mean facilities that are located along a pipeline that compress the gas (CNG, or compressed natural gas), load it onto tanker trucks and then distribute that gas to businesses that are not fortunate enough to be located near a natural gas pipeline. Irrational opposition to pipelines is seemingly rampant and such virtual pipelines are not only a great alternative but demonstrate natural gas development is unstoppable.

We first became aware of this trend when International Paper’s Ticonderoga mill in northern New York, near the Vermont border, opted for a virtual pipeline from NG Advantage, back in 2015. NG Advantage has established a presence throughout New England, most recently adding Maine to their delivery options. A Camp Hill, Pennsylvania based company, Compass Natural Gas Partners, also recently brought the virtual pipeline business to Lycoming County, Pennsylvania.

Yesterday, Pennsylvania Gov. Tom Wolf issued a press release to say another company is starting up a virtual pipeline; this time in Susquehanna County, the MDN backyard). Xpress Natural Gas (XNG) will spend $18.6 million to build a facility that will employ nearly 90 people and load up to 100 tanker trucks a day for deliveries to customers across the Northeast and Mid-Atlantic states.

Governor Tom Wolf announced today that Xpress Natural Gas, LLC (XNG), a pioneer of the “virtual pipeline” that provides a network of compression stations and lightweight, high-capacity trailers, will construct a commercial compressed natural gas fueling station in Susquehanna County and create 88 new, high-wage jobs.

“Pennsylvania’s abundant natural resources and dedicated workforce have been, and will continue to be, major factors in attracting new business,” said Governor Wolf. “We welcome businesses like Xpress Natural Gas that recognize the advantages that can only be found in Pennsylvania, and we extend our gratitude for the jobs they are creating and the ongoing economic stimulus that this project will provide.”

Designed to daily fuel up to 100 trailers that the company uses to deliver compressed natural gas to customers across the Northeast and Mid-Atlantic states, XNG will construct a 130,000-square-foot fueling station on 20 acres of land in Forest Lake Township, Susquehanna County. The company will invest $18,620,000 in this first phase, which includes the land purchase and construction and infrastructure costs for the station. XNG has committed to the creation of 88 new, full-time jobs over the next three years. Employee hiring has commenced…

“We are very excited and supportive of Xpress Natural Gas’s business development in Susquehanna County. The company represents the vertical integration of the prolific Marcellus Shale natural gas resource in Northeast Pennsylvania,” said Anthony Ventello, executive director of the Central Bradford Progress Authority. “The investment being made by Xpress Natural Gas in a compressed natural gas terminal and the jobs it will create along the Route 81 corridor creates a virtual pipeline to move low-cost, clean burning natural gas throughout the region and beyond. This value-added effort will both stimulate development and lead to economic benefit in our region.”

Xpress Natural Gas, LLC provides rapid and reliable delivery of compressed natural gas and liquid natural gas to customers throughout the United States and eastern Canada through its network of virtual pipelines. XNG provides commercial, industrial, and institutional customers the ability to lower their energy costs and dramatically reduce their environmental impact using natural gas. The company also offers a range of services to gas utilities to improve reliability and expand their franchise area with trucked gas solutions.

We’ve been pretty harsh on Gov. Wolf and justifiably so. He’s a leftist bent on taxing the Marcellus industry into oblivion. A true disaster as a governor. However, if he had some role in attracting this company to the state, we’ll tip our hat and give him kudos for a brief moment of lucidity.

Halliburton Feeling Positive about North America.  Oilfield services firm (OSF) Halliburton on Monday reported a net loss of $149 million, up from a $28 million loss in the year-ago quarter, Kallanish Energy reports.

The most recent quarter included impairment and other charges of $169 million, compared with $282 million last year.

Oil producers have been putting more rigs to work in North American shale plays, encouraged by a rise in crude prices after a slump of more than two years, and by a deal to decrease production agreed to by OPEC and many non-OPEC producers.

“The North America market appears to have rounded the corner, but the international downward cycle is still playing out,” said Dave Lesar, CEO of the world’s No. 2 OSF.

Continental Double CAPEX Budget.  Oklahoma-based Continental Resources is doubling its 2017 capital budget, to $1.95 billion, due in large part to anticipated higher oil prices, Kallanish Energy reports.

That calls for spending $1.72 billion on drilling and well completion activities. The company spent $920,000 in its 2016 capital budget.

Continental says its plan will accelerate production in the second half of 2017, with new pad completions and uncompleted wells drilled over the last two years in the Bakken Shale in North Dakota and Montana, and six new multi-well density projects in the over-pressured oil window in Oklahoma’s STACK play.

At the end of 2017, the company expects to be producing 250,000 to 260,000 barrels of oil-equivalent per day (BOE/d).

CEO Harold Hamm told the media in a statement he expects the plan to produce double-digit growth for the company in coming years.

Crude oil is expected to account for 59% of 2017 production, an increase of 4% from fourth-quarter 2016 production, the firm said.

Fourth-quarter production totaled roughly 210,000 BOE/d and was hurt by what Continental Resources called “persistent severe weather” in North Dakota since last November.

The company said it expects to operate 20 rigs in 2017, up one from 2016. It is planning to complete 280 gross (178 net) wells in 2017.

Continental also plans to complete 131 gross (100 net) operated wells from its Bakken drilled-but-uncompleted (DUC) inventory. It also expects to complete 132 gross (70 net) in Oklahoma’s STACK and SCOOP plays.

It expects to have 140 Bakken wells by the end of 2017, and Bakken production is projected to increase by 26%, according to Continental.

Visit our Blog for daily updates on what’s happening in the oil & gas industry.

Rig Count 

  • Baker Hughes Rig Count the week of January 27, 2017
  • PA     
    • Marcellus 33 unchanged
  • Ohio 
    • Utica 21 unchanged
  • WV 
    • Marcellus 8 unchanged
  • TX
    • Eagle Ford 54 up 5
  • TX & NM
    • Permian Basin – 291 up 10
  • ND
    • Williston – 37 up 2
  • CO
    • Niobrara – 20 up 3
  • TOTAL U.S. Land Rig Count 689 up 19

PA Permits January 19, to January 26 2017

       County              Township     E&P Companies

1.    Washington        Somerset     Rice
2.    Westmoreland    Derry           Campbell

OH Permits for weeks ending January 21, 2017

       County     Township    E&P Companies

1.    Belmont     Wayne        Gulfport
2.    Noble         Wayne        Antero
3.    Noble         Wayne        Antero
4.    Noble         Wayne        Antero
5.    Noble         Wayne        Antero
6.    Noble         Wayne        Antero

Joe Barone 610.764.1232
Vera Anderson 570.337.7149

Northeast Supply Enhancement