American Oil and Gas Reporter - December 2015 - 94

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ConventionCoverage: Pennsylvania Independent Oil & Gas Association

Appalachian Gas Seeks New Markets
MONROEVILLE, PA.-Natural gas
demand across the Northeast, Atlantic
Coast and Midwest regions of the United
States is growing gradually. Nevertheless,
an oil and gas market analyst says many
Marcellus and Utica shale wells and
drilling projects are being backlogged
until demand increases and midstream
infrastructure improves.
Michael Bennett, senior energy analyst
with BTU Analytics, gave an overview
of Northeast natural gas supply and demand during the Pennsylvania Independent
Oil & Gas Association's Eastern Oil &
Gas Conference and Trade Show, Oct.
27-28 at the Monroeville Convention
Center.
Among his key points, Bennett said:
* Infrastructure projects that improve
operators' realized prices and abundant
economic acreage will allow Northeast
production to keep growing.
* As capacity comes into service, access will spread in all directions until
there is ample connectivity between Marcellus and Utica supply and end-use markets.
* By 2018, when more than 22 billion
cubic feet a day of incremental takeaway capacity comes on line, firm capacity
commitments will become a liability because excess capacity will be available
at variable rates.

Michael Bennett, senior energy analyst
with BTU Analytics, presents an overview
of Northeast natural gas fundamentals
during EOGCTS. Bennett detailed how increasing pipeline capacity likely would affect market demand for Appalachian gas.

94 THE AMERICAN OIL & GAS REPORTER

* U.S. demand will grow to absorb
some excess supply while producers look
to liquefied natural gas and intercontinental
exports to account for the remaining oversupply.
According to Bennett, Northeast production outgrowing regional demand has
forced the Appalachian industry to push
gas toward other markets, including to
the Atlantic Coast, Southeast and Midwest.
He estimated Northeastern dry gas production would increase from 19 Bcf/d in
2015 to almost 30 Bcf/d by 2020.
Because of this immense supply and
comparatively slow-growing demand,
Bennett estimated more than 2,000 Appalachian wells had been "backlogged"
because of either cost or constraints in
pipeline infrastructure.
In addition, he said break-even economics varied greatly across the region.
He suggested northeastern Pennsylvania
and western Ohio had the lowest breakeven costs, but clarified that very few of
the region's top-tier producers had been
able to break even below $2.00 an Mcf
since 2013.

Expanding Pipelines
Bennett predicted regional capacity
constraints would vary by season and
when new lines came on line. He estimated
that, with so many additional pipeline
projects coming into the market, the number of pipelines would exceed production
by 2017.
"There is such a bottleneck now, but
it won't be long before we have the opposite problem, and the pipelines won't
be flowing full," he posed. "Some companies have said their transportation capacity commitments will be growing by
100-300 percent before 2018. That is a
red flag because nobody can or should
grow that much that quickly, especially
in this price environment."
There are other hiccups to pipeline
expansion, Bennett suggested. For instance, one of the reasons New England's
market is constrained is because there is
opposition to new lines on both environmental and economic grounds, Bennett
said. "There is a possibility that the two
proposed pipelines to New England aren't
needed," he allowed. "There is some
long-term demand growth, but it won't
be immediate."

Thus, 22 Bcf/d from the Northeast
has to move to markets other than New
England, such as the Atlantic Coast region,
which Bennett said had been experiencing
a push/pull relationship between Northeast
and Southeast gas. Between 2015 and
2018, 28 pipeline projects are coming on
line, he confirmed.
"Pipelines will hurt Henry Hub prices
short term," he opined, "because they
will create a supply chain reaction whirlwind."
Other supply outlets include LNG exports and growing gas demand in Mexico,
Bennett noted. "LNG exports are a proverbial bright spot for demand," he said.
"However, U.S. companies are facing so
many headwinds between regulations and
market competition that I expect much
of the announced capacity won't come
to fruition. It is the same with Mexico.
Capacity far outweighs expected flows,
at least for the next five years. That could
change, though, because Mexico wants
to grow its deregulated power industry,
and it can't do that without additional infrastructure."
Marcellus, Utica Updates
During another EOGCTS session, Tim
Knobloch of James Knobloch Petroleum
Consultants Inc., and Martin Shumway
of Shumway Resources LLC updated attendees on investment, development, and
recent merger and acquisition activity
across the Marcellus and Utica shale
plays.
Knobloch said many companies had
moved into Appalachia since 2010, including foreign-based firms. From 2010
to 2014, there were almost $50 billion in
oil and gas deals in the Appalachian
Basin. Knobloch said more than $33
billion of those deals had been in the
Marcellus play.
Regarding deals in the Utica, he noted
the buyers were mainly Gulfport Energy
Corp., Antero Resources, and American
Energy Partners.
Since 2010, more than $60 billion has
been spent on deals in the Utica/Marcellus
plays, he said. Overall, the region has
seen more than $128 billion of investment
in drilling and M&A.
When broken down by operator,
Knobloch and Shumway showed:
* Chesapeake Energy Corp. was the

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