Utica

Shell’s petrochemical complex in Western Pennsylvania has had plenty of challenges on its way to startup and full operation. Announced a dozen years ago, the project was set back by COVID-related construction delays and a rougher-than-expected production ramp-up. But that’s all in the past now (fingers crossed) and the ethane-rich Northeast finally has its first big ethylene plant. In today’s RBN blog, we’ll examine Shell’s return to plastics and what it took to get there. 

In a deal the energy industry had been whispering about for months, Chesapeake Energy and Southwestern Energy will combine to form what will be the largest natural gas producer in the U.S., with 7.3 Bcf/d of production in the Marcellus/Utica and the Haynesville and ready access to the Northeast and the LNG export market — assuming the merger passes muster with federal regulators. In today’s RBN blog, we discuss the merger and why it makes sense for both E&Ps. 

As U.S. E&Ps deal with a slew of shorter-term challenges such as broken supply chains, labor shortages, and infrastructure constraints, they’re also paying increasing attention to a longer-term concern: “inventory exhaustion.” There is a growing chorus of analysts asserting that oil and gas producers’ inventory of top-tier drilling locations has been significantly depleted as the nation’s major unconventional resource plays mature. Many producers have continued to rein in their capital spending and husband their current resources and several have boosted inventories through bolt-on acquisitions. Premier E&P EOG Resources has taken a different approach, emphasizing organic exploration that has led to the discovery of two new significant plays over the past two years, including the recent announcement of a new Utica Shale combo play that it describes as being “almost reminiscent” of the early Delaware Basin. In today’s RBN blog, we discuss EOG’s dramatically different approach to building inventory and dive into the details of its new Utica discovery.

The U.S. Department of Energy has laid out a clear set of criteria for the six to 10 clean hydrogen hubs it will select next year to receive up to $8 billion in federal support. For example, DOE wants at least one hub to use renewable energy to make hydrogen, another to use nuclear power, and another to use fossil fuels with carbon capture and sequestration (CCS). It also wants diversity among hydrogen end-users — geographic diversity too (at least two hubs must be in areas with the greatest natural gas resources) — and the department says it will give extra weight to proposals likely to create the most opportunities for skilled training and long-term employment. Yet another factor that’s sure to boost the prospects for hydrogen hub proposals in the heart of the Marcellus/Utica Shale is the looming presence of West Virginia Senator Joe Manchin, the Energy & Natural Resources Committee chairman who helped make hydrogen hub funding — and the rest of last year’s $1-trillion-plus infrastructure bill (and this year’s Inflation Reduction Act) — a reality. In today’s RBN blog, we discuss the hydrogen hub proposals now under development in northern West Virginia, western Pennsylvania and eastern Ohio.

The U.S. natural gas market is primed for supply growth. The Lower 48 supply-demand balance is the most bullish it has been in years. Exports are at record levels and poised to increase with additional terminal expansions on the horizon, while international prices have recently notched record highs. Henry Hub gas futures prices are at the highest in over a decade. So, producers will unleash a torrent of natural gas, triggering a midstream build-out like we’ve seen in the past, right? Not so fast. The world has changed. For additional capacity to be built, you need producers or utilities to commit to use it. But Wall Street has drawn a hard line when it comes to capital and environmental discipline in the energy industry and regulatory approvals can also be an uphill battle. Therein lies the conundrum. More midstream capacity is needed for production to grow, but it’s harder than ever for that infrastructure to get built, which means constraints for some period of time are all but a certainty. Natural gas may not be as constrained as crude oil, but it is already butting up against capacity in parts of the Permian and Marcellus/Utica. And in the crude-focused Permian, those gas constraints will also cascade to crude production. In today’s RBN blog, we consider the implications of the new world order.

Over the past 10 years, there’s been a 14-fold increase in U.S. LPG exports: from 132 Mb/d, on average, in 2010 to 1.85 MMb/d so far in 2020. That extraordinary growth in export volumes couldn’t have happened without the development of a lot of new, costly infrastructure — everything from gas processing plants, NGL pipelines, and fractionators to LPG storage capacity, marine terminals, and ocean-going gas carriers. And that build-out continues, not only along the Gulf Coast but on the shores of the Delaware River near Philadelphia. Energy Transfer has been working to expand the throughput of its Marcus Hook terminal on the Pennsylvania side of the river, and Delaware River Partners, an affiliate of Fortress Transportation & Infrastructure, will soon be transloading LPG from rail tank cars onto ships across the Delaware in New Jersey. Today, we discuss Delaware River Partners’ Gibbstown Logistics Center.

U.S. natural gas production in recent days has plunged more than 3 Bcf/d. While some Gulf of Mexico offshore and Gulf Coast production is still offline from the recent tropical storms, the bulk of these declines are happening in the Northeast, where gas production has dived 2 Bcf/d in the past week or so to about 30.2 Bcf/d, the lowest level since May 2019, pipeline flow data shows. Appalachia’s gas output was already down earlier in the month, as EQT Corp. shut in some volumes starting September 1. But with storage inventories soaring near five-year highs, a combination of maintenance events and demand constraints are forcing further curtailments of Marcellus/Utica volumes near-term. Today, we provide an update of Appalachia gas supply trends using daily gas pipeline flow data.

Lower crude oil prices whack oil-directed drilling, slashing crude production, which cuts associated gas output, tightening the gas supply-demand balance, and boosting gas prices enough to spur more gas-directed drilling — it’s a classic case of commodity market schadenfreude, where one product benefits at the expense of another. That’s the way it was supposed to work, according to various trading strategies touted a few weeks back. But here we sit, with crude oil prices still around $40/bbl and gas prices languishing at a paltry $1.66/MMBtu. Was there something wrong with the schadenfreude thesis, or do we have to look deeper to understand how prices will behave in this convoluted COVID era? In today’s blog, we’ll explore this question and what it may mean for natural gas prices in the coming months.

U.S. Northeast natural gas production has tumbled nearly 900 MMcf/d in the past month alone since EQT Corp., Cabot Oil & Gas, and others began curtailments in response to low gas prices, and is averaging nearly 2 Bcf/d below last November’s peak of 32.9 Bcf/d. But regional gas demand has lagged this year, storage inventories have surpassed five-year highs and outbound flows to the Gulf Coast are being challenged by reduced takeaway capacity and drastically lower demand from LNG export facilities.  Today, we examine the net impact of these competing fundamental factors on the region’s supply-demand balance and the resulting implications for Appalachian supply prices.

U.S. Northeast natural gas producers may be on the other side of a years-long battle with perpetual pipeline constraints and oversupply conditions. But they’re now facing new challenges to supply growth, at least in the near-term, from low crude oil and gas prices and the decline of a major downstream consumer of Appalachian gas supplies: LNG exports along the Gulf Coast. Most of the U.S. well shut-ins since the recent oil price collapse are concentrated in oil-focused shale plays, and gas volumes associated with those wells will be the hardest hit. However, a number of gas-focused Marcellus/Utica producers also have announced or escalated supply curtailments in recent weeks, as they wait for associated gas declines to buoy prices enough to support drilling. The pullback has had immediate effects on the region’s production volumes and supply-demand balance. Today, we provide an update on the latest Appalachia gas supply trends using daily gas pipeline flow data.