Daily Energy Blog

The promise of vast quantities of shale gas at low and stable prices is sparking a U.S. industrial revival no one could have envisioned only a few years ago. Most of the big-dollar industrial expansion projects planned for later this decade are chemical facilities and gas-to-liquids (GTL) plants; many of the rest are steel mills and other energy-intensive industrial facilities. If all—or even most—of these projects become a reality over the next five to 10 years, gas producers in the big shale plays would benefit from sharply higher demand and  the likelihood of higher prices as well. But how many industrial projects will actually be built? Will the forecasted industrial boom turn out to be more of a boomlet?  That could happen if several factors converge, like the approval of a few more LNG export terminals, environmental regulations that result in big growth in gas fired generation, and higher natural gas exports to Mexico.  Any combination of these factors could result in significant upward pressure on domestic gas prices. In this two-part series we explore the potential for a shale-driven industrial revival.

Florida Power and Light owner NextEra Energy is currently holding an open season on a new pipeline system to help supply their natural gas fired generating assets in Florida. If built, this system will be the third gas pipeline to supply Florida, which has no onshore production. Unlike the two existing pipelines that receive most of their supplies from conventional Gulf Coast production, the third pipeline would likely be fed by shale production from the Midcontinent and Texas. Those supplies are looking for a home in the Gulf nowadays as surging Marcellus production overtakes their traditional Northeast market. Today we review the project plans.

With natural gas prices for CME NYMEX Henry Hub futures averaging $3.69/MMBtu so far this year, you might think that the internal rate of return (IRR) for dry natural gas wells in the Haynesville would be under water.  But in fact, wells are still being drilled with IRRs in the low teens.  Granted these wells don’t look nearly as good as liquids plays in other shale basins, but the wells are profitable.  How could this be when the cost of a typical deep, multistage horizontal well in the Haynesville can run $9 million? Today we take you through the math in our production economics model and provide a downloadable spreadsheet.

Reversing the Rockies Express pipeline’s direction of flow would provide a huge outlet for natural gas producers in southwestern Pennsylvania, Ohio and West Virginia who are starting to see production constraints due to lack of take-away capacity. But REX’s plan to help move Utica and western Marcellus gas into the Midwest has some hurdles to clear.  And even if the reversal proceeds as planned, will it be enough to address the looming ramp-up in production?  Ironically, Rockies producers eight years ago faced a regional production surplus (and resulting price impact) similar to what their brethren in Utica/Marcellus are struggling with today.