Archive for Marcellus Shale News

2015 Marcellus-Utica Midstream Conference forecasts growth

PITTSBURGH, PA – Hart Energy hosted its largest audience for a midstream conference on Jan. 27-29 when  the 2015 Marcellus-Utica Midstream conference and exhibition (MUM) came to town.

Attendees at the 2015 MUM Conference in Pittsburgh fill the David L. Lawrence Convention Center last month.

Attendees at the 2015 MUM Conference in Pittsburgh fill the David L. Lawrence Convention Center last month. (photo courtesy of Hart Energy)

More than 2,100 individuals — a nearly 20 percent increase from last year – visited the David L. Lawrence Convention Center in Pittsburgh 29 to hear from midstream sector leaders.

“It’s been exciting to see six years of success for this conference focused on the Appalachian region,”

said Barry Haest, Hart Energy’s vice president of events. “Hart Energy will continue to provide value to

industry professionals who need current and accurate data, intelligence, and contacts.”

Spectra Energy Vice President Brian McKerlie told attendees the industry will create supply opportunities and demand will grow on its own.

Other enlightening speakers included EnLink Midstream President and CEO Barry Davis and Kinder Morgan Energy Partners Vice President Karen Kabin.

Davis, CEO of EnLink Midstream Partners LP, was the opening keynote speaker focusing on Appalachia’s Continuing Grown. EdLink Midsteam has an expanding presence in the Utica and Marcellus plays through its Ohio River Valley operations. Davis provided insights on what he sees ahead for the region.

Barry Davis, CEO of EnLink Midstream Partners LP, was the opening keynote speaker focusing on Appalachia's Continuing Grown. Davis provided insights on what he sees ahead for the region.

Barry Davis, CEO of EnLink Midstream Partners LP, was the opening keynote speaker focusing on Appalachia’s Continuing Grown. Davis provided insights on what he sees ahead for the region. (photo courtesy of Hart Energy)

John Kneiss, Director of Governmental Affairs at Stratas Advisors provided a Regulatory & Policy Update. With the congressional elections just completed and a presidential election next year, the industry’s regulatory environment is in flux. Attendees learned how the midstream sector will likely be affected.

Kabin, Vice President of Business Development at Kinder Morgan Energy Partners, L.P., reviewed the market for the region’s growing gas and gas liquids production—and Kinder Morgan’s own organic growth plans to connect producer and consumer.

Prospective attendees can mark their calendars for January 26-28, 2016 when the MUM conference and exhibition returns to the David L. Lawrence Convention Center.

Hart Energy will also offer the DUG East conference and exhibition in the same venue on June 23-25, 2015.

Every DUG event delivers a highly effective mix of data, insight and forecasts about financing, exploration, drilling, production, and delivery; presented by esteemed industry leaders.

The Reshoring Initiative

Manufacturing in Pennsylvania continues to face tough challenges

 

On Jan. 15 and 16, Harry Moser, president of the Reshoring Initiative in Chicago, spoke for four hours at the Holiday Inn Express in State College about bringing back the manufacture of products to the United States. Moser’s visit was organized by Pittsburgh-based Catalyst Connection for the Northeast Pennsylvania Industrial Resource Center (IRC) in Wilkes-Barre.

He said he came to the state to train IRC members and economic developers to demonstrate how to work with area companies on how to identify where they are having problems with offshoring, such as quality and delivery.

Moser

Moser

Offshoring is a company’s relocation of a business process from one country to another—typically an operational process, such as manufacturing, or supporting processes like accounting. Reshoring is the return of those companies to the United States.

“I also came to help them find Pennsylvania suppliers who could provide better service, and in the case of energy intensive industries, to help them realize the cost savings of using natural gas in their manufacturing operations,” Moser said. “The ultimate goal is to get companies who offshore products to recognize that even though the price is higher here, the total cost of production might not be when they figure in all the relevant factors including the cost of energy, transportation, and securing their intellectual property.”

To assist companies with deciding whether or not reshoring is worthwhile or to use as a sales tool to convince customers to buy domestically, the Reshoring Initiative offers a free Total Cost of Ownership (TCO) estimator on its Website. User data suggests 25 percent of what has been offshored should return if companies use TCO instead of price for sourcing decisions.

The Website also has a reshoring library containing more than 1,400 related articles. The library can be used to identify companies and industries that are reshoring and to see which of a company’s competitors are reshoring and why.

A new Ford Fusion on the assembly line in Detroit. These vehicles had previously been manufactured in Mexico.

A new Ford Fusion on the assembly line in Detroit. These vehicles had previously been manufactured in Mexico. (photo provided)

Since January 2010, between 300 and 400 large companies have reshored at least some of their manufacturing operations to the nation, Moser said. Out of the 750,000 jobs gained in manufacturing since 2010, about 140,000 jobs were from reshoring. Sixty percent of those reshored jobs were from manufacturers that had moved to China.

Some of those manufacturers were companies that produce raw materials, OEMs and branded companies such as GM, Ford, Caterpillar, and GE.

For example, GE returned its Chinese-made water heater manufacturing to Kentucky, and Ford moved its Fusion auto manufacturing from Mexico to Detroit – resulting in 1,200 jobs.

Chrysler not only returned vehicles to the United States, but also its current marketing slogan: Imported from Detroit.

“There’s also foreign direct investments in U.S. manufacturers by international conglomerates, and they do it for the same reason as the American companies, because of rising wages overseas and higher transportation costs now make producing consumer goods near the customer and near the supply chain more appealing,” Moser explained. “Today, it gets hard to tell the difference between foreign direct investments and reshoring, they’re just different labels on the company.”

Foreign direct investment (FDI) in U.S. businesses reached $2.7 trillion at the end of 2012, which is equivalent to about 16 percent of U.S. gross domestic product. Last year, Chinese overseas investment in the U.S. and other countries surpassed foreign direct investment into China.

Moser also is willing to bet that thousands of suppliers are also coming back to the U.S.

“When you bring back and automobile or refrigerator, the manufacturer has to buy fabricated metal parts, pumps, wire harnesses and other parts,” said Moser. “Typically, though not always, when the assembly comes back onshore, so does the component sourcing.”

Nationwide, manufacturing added an average of 16,000 jobs per month in 2014, compared with an average gain of 7,000 jobs per month in 2013. Pennsylvania, however, lost 6,600 manufacturing jobs from January to November. According to the U.S. Department of Labor, Pennsylvania manufacturing gained 2,000 jobs in December.

“December’s numbers are hopefully a sign of recovery, and while cheap energy is a big draw to some manufacturers, the most important thing Pennsylvania needs to sustain growth is a better business climate,” said Tom Palisin, executive director of the Manufacturers’ Association of South Central Pennsylvania in York.

“I think the new governor and the state legislators should take a serious look at the tax structure and the regulatory structure in Pennsylvania and figure out how they can make our state more competitive, not only for manufacturers looking to reshore or expand into the state, but also for retaining manufacturing jobs already here that are in danger of being lost.

“Pennsylvania has the second highest corporate net income tax in the nation at 9.9 percent. So when you hear about the commonwealth falling near the bottom of the list of states in job growth, it’s not surprising.”

One challenge that the manufacturing sector faces is the general belief that the jobs are low-paying and menial.

“Skilled manufacturing technologists, especially those that have passed an apprenticeship, are extremely well-trained, work in their area of training and earn an income at least comparable to university graduates,” said Moser.

Another challenge Pennsylvania faces is the workforce for manufacturing is significantly older than the general workforce, with many baby boomers retiring.

“Boomers had delayed retiring because of the recession, but now they’re in a position to start retiring, and they will be difficult to replace because the younger labor force in Pennsylvania lacks higher skilled technical workers such as computer numeric controlled machine operators.

“To get a true picture of job growth in manufacturing, you can’t only look at the new jobs, but the backfilling of experienced workers that’s going to have a really big impact on manufacturing over the next 10 to 15 years as baby boomers retire.”

“Green Corridors” for natural gas vehicles growing

When EQT Corp. opened a public-access compressed natural gas (CNG) fueling station in Pittsburgh in July 2011, it was hoping to spark a revolution that would lead to greater energy independence for Americans.

The goal of the natural gas industry is to create “green corridors” for natural gas vehicles (NGVs), with one station placed about every 50 miles, or within two miles of designated highways.

With the assistance of a $700,000 grant from the state Department of Environmental Protection (DEP), EQT built the $2.3 million CNG station in Pittsburgh’s historic strip district, which is located near a number of fleets that could take advantage of the fuel savings offered by conversion to CNG.

A Giant Eagle truck driver is pictured filling his CNG-fueled tractor-trailer at one of Giant Eagle's CNG Stations in Crafton.

A Giant Eagle truck driver is pictured filling his CNG-fueled tractor-trailer at one of Giant Eagle’s CNG stations in Crafton. (photo provided)

“Building the station was about bringing supply and demand together, the so-called ‘chicken and egg problem’ by providing a test bed for companies looking to try CNG,” said David Ross, VP of Demand Development at EQT.

“It’s tough for most fleet owners to jump in with both feet, buy CNG trucks and install a private CNG station in the yard since it involves a considerable investment,” Ross continued. “We thought having a public-access station would help companies in the region try local compressed natural gas as an alternative to gasoline and diesel, and decide if they wanted to convert their fleet before committing themselves.”

According to a 2014 report published by the National Renewable Energy Laboratory for the U.S. Department of Energy, costs for installing a CNG fueling station can range near $2 million, depending on the size and application.

The first to use CNG at EQT’s station with a converted truck was a trucking company in the strip district. Today, that company is in the process of converting its entire fleet to CNG.

“Having a public-access CNG station, the company was able to try CNG on one of their trucks, figure out how it works in their operation, and then implement CNG into their fleet,” said Ross.

EQT expanded the station by adding two additional dispensers on another island to make it easier for larger vehicles to access the station.

Pictured is EQT's CNG station in Pittsburgh

Pictured is EQT’s CNG station in Pittsburgh. (photo provided)

“We had seen an increase in CNG fueling until more CNG stations opened in the region,” said Ross.

On July 14, 2011, Giant Eagle opened two CNG stations in Crafton, Allegheny County, to fuel 10 new CNG-equipped Giant Eagle delivery trucks.

In May 2013, the former Exxon station in Station Square became Pittsburgh’s second compressed natural gas station with the help of state funding.

On Sept. 9, 2013, Giant Eagle and Peoples Natural Gas partnered to open a CNG station at the GetGo station in Cranberry Township in Butler County on state Route 228.

In August 2013, Cabot Oil & Gas opened a CNG fueling station in Springville, Susquehanna County. Cabot is using the station to fuel its fleet of 60 CNG vehicles and to power equipment on their own development sites.

In October 2013, a CNG station opened a facility in Bentleyville, Washington County. The station was a joint venture between Washington-based Shale Hotels Inc. and Coolspring-based “O” Ring CNG Fuel Systems LP, which builds stations.

EQT is also fueling the revolution from the demand side by promoting the use of natural gas fleet vehicles, including its own, and now operates 15 percent of its light-duty vehicle fleet — about 180 vehicles — on natural gas.

“As our own transition continues, we are also working with other organizations to encourage infrastructure expansion so more new CNG fueling stations become available to fleets and the general public,” Ross said.

The national CNG revolution has just begun. Although 25 percent of America’s overall energy use comes from natural gas, less than 0.1 percent is currently used for transportation.

According to GE, only about 250,000 of the 15.2 million CNG vehicles worldwide are found in the nation, with 1,525 CNG stations nationwide. CNG vehicles and stations are commonplace in Iran, Pakistan and Argentina.

Ethanol: The other alternative fuel

While the natural gas industry has been promoting compressed natural gas (CNG) and liquefied natural gas (LNG) as alternative fuels to gasoline and diesel, ethanol remains the most widely used alternative fuel in the U.S.

Regular gasoline contains as much as 10 percent ethanol. Because the ethanol molecule is bound to oxygen, it allows an automobile engine to combust fuel more efficiently, resulting in fewer emissions and higher octane.

Ethanol - PGP Plant

An aerial view of Pennsylvania Grain Processing’s ethanol plant located along state Route 322 in Clearfield. (photo provided)

“In years past, we had leaded gasoline, because lead was an octane booster, but after the US Environmental Protection Agency (EPA) determined that lead was bad for the environment, the government no longer permitted it, so gasoline blenders had to come up with a lead substitute to boost the octane,” said Kevin Baughman, plant manager at Pennsylvania Grain Processing LLC in Clearfield, which produces 10 million gallons of ethanol per year.

“Blenders tried a number of lead substitutes, one being MTBE or methyl tertiary-butyl ether, which also turned out to be unhealthy, but other substitutes were developed that were safe, the most economical of which was ethanol since it’s made from grains.”

Ethanol is produced from crops such as corn, grain sorghum, wheat, sugar and other agricultural feedstocks. In Brazil, the world’s top producer of ethanol, sugar is the primary feedstock.

Most fuel ethanol produced in the U.S. is derived from corn, which is what Pennsylvania Grain Processing uses to make its ethanol. The company buys corn from farmers in Pennsylvania, Ohio and Indiana. Nearly 40 percent of the U.S. corn crop is dedicated to ethanol production.

Since ethanol is produced from plants that harness the power of the sun, ethanol is considered a renewable energy. It also reduces the cost of gasoline. A recent Louisiana State University study found ethanol lowers gas prices by 78 cents per gallon, a consumer savings of more than $100 billion annually.

Ethanol fuel comes in a variety blends- E85, E30 and E15, but E85 is typically the ethanol content fuel used in flex fuel vehicles. It contains 85 ethanol and 15 gasoline. Although major automakers make flex fuel vehicles, they have never caught fire with buyers.

“Flex fuel vehicles don’t compete against natural gas or propane-powered vehicles, because you can’t run ethanol in a CNG- or LNG-powered engine,” said Baughman.

“The real competition is with gasoline, which is used along with ethanol. However, there’s been a lot of bad publicity about ethanol put out by the oil companies,” Baughman added. “They have released horror stories about how ethanol damaged marine engines or lawn mowers with corrosion, but they don’t talk about how E85 can be safely used in flex fuel vehicles, because they are afraid of the competition.

“The other obstacle is that distributors of E85 have charged consumers too much for the fuel, which could be priced more competitively against gasoline.”

According to Baughman, the biggest challenge in getting more ethanol fuel used in the U.S. is providing accurate information to the public explaining that E85 is available, safe, economical and good for the environment.

According to Energy Growth, an ethanol advocacy organization, the production and use of more than 13 billion gallons of ethanol per year in gasoline reduces greenhouse gas emissions by 38 million metric tons, the equivalent of removing roughly 8 million automobiles from the road. E85 fuel decreases greenhouse gas emissions by up to 57 percent compared to gasoline.

“Although oil prices are low right now, when Europe pulls out of its downturn and China resumes full production of consumer goods, demand for oil will increase again and prices will be back up to where they were, if not higher,” said Baughman.

“Given the highly volatile situation in the Middle East, independence from foreign oil is more important than ever, so the more alternative fuel vehicles operating in the U.S., the better.”

Alternative Fueling Expo & Conference scheduled Feb. 24-26

The 2015 Tri-State Alternative Fuels Expo & Conference will be held at the Monroeville Convention Center Feb. 24-26.

Founder and managing partner of “O” Ring CNG Fuel Systems, L.P., Robert H. Beatty, Jr., said there were more than 100 exhibitors at the 2014 event.Alternative Fuel logo

Beatty is chairman of the Alternative Fueling Expo & Conference advisory board and is also a keynote speaker at this year’s conference. He will be speaking about the development of compressed natural gas (CNG) infrastructure, and how companies can gain a foothold in Pennsylvania.

“O” Ring CNG Fuel Systems, L.P. is one of the event’s many exhibitors.

“We’re anticipating a good crowd,” Beatty said. “Our inaugural show was pretty good, and we have the same type of agenda as last year, but with a little more variety and some changes in vendors.”

Business owners, government officials and citizens are welcome to attend and learn how using cleaner, local fuel sources can save consumers money at the gas pump.

The event begins on Tuesday evening with a job fair starting at 4 p.m. and a Casino Night entertainment beginning at 5:30 p.m.

On Wednesday, a petroleum reduction technology class will be held at 8:30 p.m., followed by a “Building and Expanding the CNG Refueling Infrastructure in the Tri-State Area” at 1 p.m., a presentation about the Marine Inland Waterway & Virtual Pipeline by David Kailbourne at 2:15 p.m. and a seminar about CNG truck choices, challenges and opportunities at 3:30 p.m.

Friday’s events include a Department of Energy “A-Fleet” Program at 8:30 a.m. followed by “A CNG Success Story for Waste Management at 10:45 a.m.

Various speakers are scheduled to deliver keynote addresses during the event as well.

For more information, or to register online, go to www.alternativefuelingexpo.com. Beatty said admission can also be obtained at the conference.

2015 Marcellus-Utica Midstream Conference Extending the Reach: Meeting Global Demand

The features and benefits of the world’s top natural gas-producing region are not going to end anytime soon.

In 2010, natural gas production in the Marcellus shale region was at a low 2 Bcf/d. Predictions for the end of 2014 expected production to surpass 16 Bcf/d.

This is just some of the data pointing toward one fact: there is no shortage of natural resources or drilling activity.

But a lack of infrastructure is preventing the glut of gas from reaching key areas. And this continues to suppress natural gas prices.

The 2015 Marcellus-Utica Midstream Conference (MUM) scheduled later this month in Pittsburgh is designed to answer many top midstream questions:

Which projects will move forward? How can companies capitalize on the need for midstream investment in the Northeast?

With more than 1,800 attendees and over 200 exhibitors and sponsors, including media sponsor Marcellus Business Central, the Marcellus-Utica Midstream conference and exhibition is the region’s premier midstream event.

Each year key decision makers and stakeholders from the financial community, producers, pipeline operators, contractors and service providers gather to review metrics and options at the Marcellus-Utica Midstream event.

Dubbed “the best in the East,” the Marcellus and Utica shale formations are the undisputed drivers of the U.S. shale gas revolution. Now the largest natural gas-producing region in the world, both formations account for almost 40 percent of total U.S. natural gas production.

This year’s MUM conference and exhibition provides access to executive-level briefings from to midstream industry leaders focused on the Appalachian region.

More than 20 executive-level speakers are scheduled, and almost 10 hours of exclusive networking opportunities are available.

“Top operators joining our speaker roster have been a huge attraction,” said Stephanie Palmer, spokeswoman for Houston-based Hart Energy. “This year’s conference is themed, “Extending the Reach: Meeting Global Demand.

“Annually, this news and networking event attracts 1,800 attendees and 200 exhibitors,” Palmer added.

Barry Davis, CEO of EnLink Midstream Partners LP, is the opening keynote speaker focusing on Appalachia’s Continuing Grown. EdLink Midsteam has an expanding presence in the Utica and Marcellus plays through its Ohio River Valley operations. Davis will provide insights on what he sees ahead for the region.

John Kneiss, Director of Governmental Affairs at Stratas Advisors will provide a Regulatory & Policy Update. With the congressional elections just completed and a presidential election next year, the industry’s regulatory environment is in flux. Learn how the midstream sector will likely be affected.

Karen Kabin, Vice President of Business Development at Kinder Morgan Energy Partners, L.P., will review the market for the region’s growing gas and gas liquids production—and Kinder Morgan’s own organic growth plans to connect producer and consumer.

Also speaking is Richard Hoffman, Executive Director of INGAA Foundation. He will deliver the Keynote Address: Meeting The Pipeline Challenge, discussing how the industry faces major challenges as it repurposes existing systems and adds new capacity, thanks to the growing unconventional plays.

The MUM Conference and Exhibition will be held Jan. 27-29 at the David L. Lawrence Convention Center. Attendees can register for the conference online: www.marcellusmidstream.com

 

Williams grows presence in Appalachia with new pipelines and NGL processing plants

Last January, when temperatures in New York City plummeted into the single digits, natural gas delivered to the city from the Gulf Coast spiked to a record $123 per thousand cubic feet (Mcf) on the spot market. Not far away, in Pennsylvania’s Marcellus shale play, the price was 30 times cheaper at $4 per Mcf.

The price difference wasn’t due to a lack of supply, but a lack of adequate interstate pipelines, a problem that will be remedied by 10 new “greenfield” interstate pipelines, which are expected to begin transporting Marcellus and Utica gas to major markets in the Northeast between 2016 and 2018.

Williams, an Oklahoma-based midstream company, is sole sponsor of three of the new pipelines – Atlantic Sunrise (PA), Diamond East (PA, NJ), the Western Marcellus Pipeline Project (OH, WV) – and a co-sponsor of the Constitution Pipeline (PA, NY). Williams is best known for owning and operating the largest volume pipeline system in the nation — the 10,200-mile Transco Pipeline, which moves natural gas from the Gulf of Mexico to the East Coast.

The new midstream projects are designed to bring reliability and price stability to growing markets in the Northeast, Mid-Atlantic, and Eastern seaboard, especially during peak-demand periods in the winter.

“The shale-gas revolution has generated huge infrastructure demands,” said Tom Droege, a spokesman at Williams.

“We’re responding with a multi-billion pipeline expansion program that will add three billion cubic feet of natural gas gathering to the Northeast by 2017.”

Droege

Droege

One of Williams’ major projects, the 124-mile Constitution Pipeline, received FERC (Federal Energy Regulatory Commission) approval about a month ago on  Dec. 2. Assuming timely receipt of all remaining regulatory approvals, the Constitution Pipeline would begin construction as soon as the first quarter of 2015 in order to help meet the growing demand for natural gas in New York and New England by the winter of 2015 or 2016.

“When the Transco pipeline was built, it was designed to move gas from south to north, from the Gulf of Mexico to the East Coast, but since the 1980s, natural gas production in the Gulf of Mexico has been declining,” said Droege.

“Today, we’ve reached a tipping point where more natural gas enters our pipeline system in Pennsylvania than the Gulf.”

Marcellus gas wells produce between 13 and 14 Bcf/d (billion cubic feet per day), accounting for about 20 percent of U.S. supply – up from just 2 percent only a few years ago. By 2020, that number is expected to climb to 64 percent.

“Because natural gas is clean and affordable, we’re seeing increased demand from both local gas distribution companies and power-generators,” said Droege.

“Our plan is to connect the best supplies with the highest-value markets by providing large-scale natural gas and natural gas liquids infrastructure.”

To carry out that plan, Williams has developed partnerships with other midstream companies, like Chevron and Shell.

The Laurel Mountain Midstream joint venture in southwestern Pennsylvania includes nearly 1,400 miles of pipeline, with average throughput of 200 MMcf/d (million cubic feet). Williams Partners operates the joint venture and owns 51 percent of it. Chevron, the other partner, owns 49 percent.

In April 2013, Williams and Shell formed Three Rivers Midstream Joint Venture to develop infrastructure for 248,000 acres of rich-gas land in northwest Pennsylvania and northeast Ohio.

Three Rivers plans to construct a large-scale 200 MMcf/d (million cubic feet per day) cryogenic gas processing complex, which would be expandable as business grows. The initial plant is expected to be in service by second quarter 2015.

In October 2014, Williams Partners L.P. and Access Midstream Partners, L.P. entered into a merger agreement, with Williams retaining controlling interests in the two master limited partnerships.

The addition of Access Midstream more than doubles the volume of natural gas Williams gathers each day to 11 billion cubic feet and makes Williams a natural gas powerhouse with positions in most key North American production basins.

Last year, Williams brought additional fractional and processing facilities online at its Ohio Valley Midstream business in northern West Virginia, southwestern Pennsylvania and eastern Ohio. The Moundsville, Ohio fractionator plant receives raw natural gas liquids (NGLs) from the company’s Fort Beeler and Oak Grove, WV processing plants. The fractionator separates the NGLs into purity products – butane, pentane and propane – so they can be stored, transported and sold separately.

“Williams’ presence in the Northeast has grown dramatically in the past five years,” said Droege.

“We started out in the Marcellus and Utica shale plays with fewer than 200 employees – today we have almost 1,100 people in Pennsylvania, West Virginia, New York and Ohio working to develop the Marcellus and Utica shale plays.”

Reversing the Flow of Energy

Dramatic growth in U.S. oil and gas production creates shockwaves around the world

They say you can’t have too much of a good thing — but that adage doesn’t apply to energy markets.

Reversing the Flow - UPS TruckDemand for oil and natural gas is expected to rise indefinitely in the future, but currently supplies are outpacing demand due to slow economic growth in Europe and Central Asia and abundant energy supplies in the U.S.

On Dec. 16, the price of Brent Crude Oil — a trading classification of sweet light crude oil that serves as a major benchmark price for purchases of oil worldwide — dropped to a five-year low of $60 per barrel. In the U.S., the price for West Texas Intermediate fell to $55.73 per barrel, far less than the $106 per barrel price in late June — a 47 percent price decline in less than six months.

Record oil production in the nation, made possible through the efficient hydrofracturing of oil-rich shale, has produced a worldwide glut that has been driving down oil prices since last summer. In response, oil & gas companies have announced cutbacks to their drilling and development budgets for 2015, with some drillers pulling rigs from the oil-rich Eagle Ford and Bakken shale plays.

In December, drilling rigs targeting oil dropped by 10 to a six-month low of 1,536, according Baker Hughes Inc. (BHI), the Houston-based field services company. Up to 800 additional rigs now drilling for oil could potentially be idled if oil prices remain low, which would slow the boom in domestic production and cause U.S. gasoline and diesel prices to rise.

Reversing the Flow -- graphIn March 2012 when oil prices hit a record $140 per barrel, the industry moved rigs from gas plays to oilfields; however, the migration of rigs back to shale gas is less likely since the price of natural gas liquids, which had been the thrust of the Marcellus and Utica shale gas plays last year, generally follows oil.

With oil prices down more than 40 percent since last summer, some companies, including ConocoPhillips, have cut their drilling and development budgets by about 20 percent. Chevron Corp and Exxon Mobil Corp are expected to follow suit. Oil & gas service companies such as Halliburton and Hercules Offshore have begun laying off employees.

Pennsylvania’s most prolific shale driller, Range Resources, announced an 18 percent cutback in its spending budget for 2015, though the company still plans on investing nearly $1 billion in Marcellus wells and increasing gas production by at least 20 percent.

Unlike Europe and Asian markets, the price of methane (“dry gas”) is decoupled from oil in the U.S., so natural gas can remain competitively priced.

“Where the drop in oil prices is likely to have the greatest impact on natural gas demand is in transportation since over 90 percent of the oil consumed in the U.S. is used for transportation,” said Jim Ladlee, associate director, Penn State Marcellus Center for Outreach & Research (MCOR).

Owners of some of the largest truck fleets in the nation  including United Parcel Service, Lowe’s and Procter & Gamble are shifting their fleets to natural gas. P&G currently has seven percent of its trucks running on natural gas and plans to convert 20 percent of its fleet within two years.

“Natural gas fleet conversions still have appeal because in the long run natural gas is cheaper and gas prices are more stable than oil. However, when you add in the cost of conversion, it’s more challenging now that gasoline and diesel prices are so low,” said Ladlee.

For example, the cost of an liquefied natural gas (LNG) tractor trailer is $50,000 more than a diesel-powered rig.

“The world energy markets are currently experiencing a period of adjustment due to the dramatic increase in North American oil production,” said Ladlee.

“The U.S. alone has produced 3 million more barrels of oil per day during the past five years, with 2.3 million barrels a day coming from the Eagle Ford and the Bakken shale plays.

“When the Eagle Ford started in 2008, it only produced 50 barrels a day, but now it’s up to 1.4 million barrels a day, so there’s been a sharp increase in domestic oil production, and Canada, our biggest energy partner outside of Saudi Arabia, is also producing more oil.”

The increase in domestic oil and gas production has implications for both national security and diplomatic relations. The U.S. stopped buying oil from some foreign countries.

“Even Saudi Arabia, which generally likes us because we’re their biggest customer, has been impacted now that we’re gaining more energy independence, and it’s starting to come out of their market share so they’re seeking a new trading partner in China, and so are the oil producing countries in North Africa,” said Ladlee.

Saudi Arabia’s oil production costs are about $30-$50 per barrel, but no one knows for certain because Saudi Aramco is state-owned. Saudi Arabia has continued to produce oil at pre-glut rates, which has added to the downward spiral in world oil prices and has allowed Saudi oil to remain competitive against U.S. oil.

It would be “difficult, if not impossible” for Saudi Arabia or OPEC to give up market share by curbing production, said Ali Al-Naimi, Saudi Arabia’s oil minister in the Saudi press.

By comparison, the breakeven point for Bakken shale oil is $64.74 a barrel, and $84.45 a barrel for the Barnett Shale-Southern Liquids Rich oil, according to Credit Suisse.

“If the Saudis can produce oil at a cheaper cost than we can, then countries are going to buy from them, but we could still be competitive with LNG exports,” said Ladlee.

“We are marching toward energy security — a term I prefer to energy independence — because Canada and Mexico are our energy trading partners, and since Canada buys natural gas from us, it doesn’t make sense to cut them off.

“While energy abundance is a good thing for the U.S., it’s creating shockwaves in global energy markets and foreign energy producing countries, which will need to make a major adjustment to cope with the new reality of the U.S. as the world’s largest energy producer,” Ladlee said.

Golden Opportunity: Proposed Shell cracker plant grows development in Beaver County

MONACA, PA – Seven years ago, a visitor to the Beaver County region near the Horsehead Corp. zinc smelter site here would have had a difficult time finding a hotel room to spend the night.

That is no longer the case.

Six new hotels have been constructed in the past three years, with more to be built on commercial property that is becoming more and more of a commodity.

Three years ago, Shell leased the former Horsehead Corp. zinc smelter site to explore the feasibility of building an ethane cracker plant, with an estimated cost from $2.5 to $3 billion.Golden Opportunity - cracker plant

One could say that the proposed Shell cracker plant is the proverbial golden goose laying a large basket of golden eggs in Monaca and surrounding Beaver County.

It would be the first cracker plant built in the Northeast. A “cracker” converts ethane, a by-product of natural gas, to ethylene, which is used to make plastics, plastic bags, antifreeze and detergents.

After three lease renewals, Shell exercised its option to buy the property on Nov. 7, 2014. The company said the purchase will help advance the permitting process. Shell has applied for an air-quality permit and has contracted with Consol Energy Inc. to ship ethane to the proposed plant. Consol is drilling 45 wet gas wells on 9,000 acres at the Pittsburgh International Airport.

Shell also recently held a meeting with engineers last month at the state Department of Transportation building to talk about the next phase of the Route 18 realignment.

In additional recent developments, Shell just purchased

According to Beaver County Commissioner Joe Spanik, Route 18 currently runs past the plant itself. Shell is planning to move the highway about 1,000 feet into the hillside, and create a six-lane highway for a certain portion of it.

Spanik said that, even though the plant is still “proposed” and not a sure thing as of yet – the “golden opportunity” awaiting the area is evidenced by the commercial development upswing as of late.

Golden Opportunity - Spanik

Spanik

“Even though Shell is still calling it a proposed cracker plant, I can tell you that here in Beaver County, hotels, housing, retail office space are getting a lot of developers coming in and purchasing property in anticipation of the growth of the area due to the cracker plant,” Spanik said in a telephone interview from the commissioners’ office. “Even though it’s not a 100 percent sure thing, developers don’t want to miss out on a golden opportunity by coming in after Shell finalizes its plans and property values have already gone up.”

Plants like this ­­do tend to bring regional impacts. They can draw manufacturers that work with the chemicals to make plastic products, cleaners, paints and even fabric. State Department of Labor & Industry research has estimated every one permanent worker at this kind of plant would lead to 15 more permanent jobs at other companies, including drillers that would hire more to produce more ethane for the plant.

Spanik said Shell just recently purchased property outside of the plant, including MidWay Bar & Restaurant and a number of residential homes.

“They are moving forward in security the property outside the plant,” Spanik said. He added that Shell is currently waiting on approval of a required air quality permit – which Spanik anticipates will be finalized very soon.

He said the thousands of jobs that will be created by the plant, both directly and indirectly, will be a boon for Beaver County and the surrounding area.

“Construction-wise, it will create anywhere from 8,000 to 10,000 jobs. There will be 400 to 500 permanent plant jobs once the construction is finished.

“Ancillary jobs, or what we call the ‘downstream customer base,’ could create another 15,000 to 20,000 jobs,” Spanik said.

And while commercial property is being snatched up at a record rate, Spanik said there is no reason to panic.

“There is still industrial property available,” Spanik said. “Hopewell is looking at putting in two hotels in their community. And the Beaver Mall is looking to expand.”

He said the mall property owners were originally seriously considering selling the property.

“Now, they’re looking at renovating and expanding it,” Spanik said. “Next to the mall, Columbia Gas is supposed to be moving one of its regional headquarters there. And housing developments are expanding.”

As a result, Spanik expects a boost in population, which currently stands at just above 170,000 persons – about 20,000 more than Centre County.

“It will take three to five years of development before people will be moving in, depending on the nature of their business drawing them here,” Spanik said. “But we are certain that population will grow in certain areas, like Center Township.”

 

R. Brock Pronko contributed to this story.

A step toward energy independence

New “greenfield” pipelines to take Marcellus and Utica gas to markets in Northeast, Southeast and New England

This year, the Federal Energy Regulatory Commission (FERC) announced 10 proposed Marcellus and Utica shale gas transmission pipeline projects. All but one have significant new “greenfield” construction, which means they are new pipelines with new rights of way.

Before 2014, all of the Marcellus and Utica interstate pipeline projects had been upgrades to existing pipelines that carried natural gas from the Gulf Coast and the West. Some of those pipelines were expanded or “looped” to accommodate additional gas from the Marcellus and the Utica shale plays. The 10 new “greenfield” pipelines would transport Marcellus and Utica shale gas to markets and processing facilities.

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The Springville line, pictured here during construction in northeast Pennsylvania, will transport natural gas from Williams operations in Susquehanna County to Williams’ Transco system in Luzerne County. Photo courtesy of www.williamsinthenortheast.com

Currently, 20 interstate natural gas pipeline systems operate within the northeast region. The larger capacity pipelines are owned by the Columbia Gas Transmission Company (9.4 Bcf per day), the Transcontinental Gas Pipeline Company (8.5 Bcf per day), Texas Eastern Transmission Company (7.3 Bcf per day), and The Tennessee Gas Pipeline Company (6.7 Bcf per day).

The interstate pipelines transport gas to several intrastate natural gas pipelines and at least 50 local distribution companies, which deliver gas to homes and businesses. They also serve large industrial customers and natural gas fired electric power plants.

“The Marcellus shale play has made Pennsylvania the second largest natural gas producer in the country, and the Utica in Ohio is a proven major source of valuable natural gas liquids,” said Dave Messersmith, a member of Penn State Extension’s Marcellus Education Teams.

He said production has reached the point where new lines are needed to get the gas to market, which is why new “greenfield” projects are being proposed in Pennsylvania and surrounding states.

Additionally, because existing interstate pipelines run from south to north and laterally across the state, new pipelines would originate in the major shale gas regions like the Northern Tier and the southwest to take the gas out of state.

Williams, an Oklahoma-based midstream company that owns 100 percent of the 10,200-mile Transco Pipeline and 49 percent of the Gulfstream Pipeline, is the sole sponsor of three of the 10 new pipeline projects — Atlantic Sunrise, Diamond East and Western Marcellus Pipeline Project. It would also own 70 percent of a fourth proposed project — the Constitution Pipeline.

Atlantic Sunrise

This pipeline would run 178 miles north to south from Susquehanna County to Lancaster County, and have a capacity to deliver 1.7 Bcf per day of natural gas.

The pipeline is expected to increase economic activity in project regions by $1.7 billion, according to Williams. If approved by FERC, construction would begin in 2016, with an in-service target of 2017.

Residents of Lebanon County opposing the pipeline are trying to use an ordinance that would return major infrastructure decisions to local communities rather than corporations and the state and federal government.

Legal challenges have sometimes been effective in stopping intrastate pipelines such as distribution lines. For example, a Columbia distribution line was stopped from going through downtown State College in 2013. Local laws have rarely stopped interstate pipelines from proceeding — although pipelines are sometimes rerouted if significant environmental impacts are discovered.

Earlier, the proposed Commonwealth Pipeline had a similar path from north to south, but after the open season seeking customers and gas drillers was announced, the project was cancelled.

“It’s not unusual for large scale, capital intensive pipeline projects to get pulled because of lack of open season interest or perhaps issues with planning and execution of the pipeline, and that could happen with any of these new proposed pipelines,” said Messersmith.

Diamond East

Announced in August, the Diamond East Pipeline is designed to be a large scale transmission pipeline that would stretch from a gathering system in Luzerne and Lycoming counties, run through the Delaware River Basin, and terminate in Mercer County, New Jersey. The project includes new pipeline looping and additional compression to transport about 1 billion cubic feet of natural gas per day.

The project will need permits and authorizations from the Federal Energy Regulatory Commission (FERC), the Army Corps of Engineers, and the Pennsylvania and New Jersey Departments of Environmental Protection before it can proceed.

“The permitting process for pipelines can take two to three years because of all the regulatory bodies involved,” said Messersmith. “Before a company can receive a permit for construction, it must also prove there’s an economic need for the project, meaning in this case that the market price of gas coming from the northern Marcellus counties is less than where it’s going to be delivered by a substantial margin.

Last year, when temperatures plummeted into single digits, the price of gas coming from the Gulf cost was 35 times higher on the spot market than Marcellus gas.

Western Marcellus Pipeline Project

By late 2018, the Western Marcellus Pipeline would connect Williams’ Ohio Valley Midstream processing and gathering system in northern West Virginia with the Transco pipeline, and provide as much as two billion cubic feet per day of Marcellus and Utica natural gas to markets in the Mid-Atlantic and southeastern U.S.

The Constitution Pipeline

This 124-mile pipeline through Pennsylvania and New York would have a capacity to transport 650,000 dekatherms of natural gas – enough natural gas to serve approximately 3 million homes per day.

The 30-inch pipeline would collect Marcellus gas from pipelines in the Northern Tier feeding into the Williams Midstream Central Station in Susquehanna County and  transport it into New York State to the Iroquois Gas Transmission to move gas to New York City, and to the Tennessee Gas Pipeline to move gas  to Boston.

In addition, the pipeline would have five tap lines to bring gas to local communities in New York State along the pipeline path. The target in-service date is 2016.

Penn East

This proposed 105-mile pipeline would emanate in the Wilkes-Barre area and move gas southeast to Trenton, NJ. Sponsors include Atlanta-based AGL Resources, NJR Pipeline Company, PSEG Power LLC, South Jersey Industries, UGI Energy Services, and most recently, Spectra Energy Partners.

“What’s unique about some of these newer projects is that instead of being owned by one major midstream company such as Williams or Kinder Morgan, they’re sponsored by a number of different companies including gas distributors,” said Messersmith.

The remaining pipeline projects include: Duke Energy, Piedmont Natural Gas, AGL Resources and Dominion Energy’s Atlantic Coast Pipeline in WV, VA, and NC; Kinder Morgan’s Northeast Energy Direct in PA, NY and MA; Energy Transfer Partners’ ET Rover Pipeline in OH and MI; Sunoco’s Mariner East Phase II in PA; and Mountain Valley Pipeline in WV and PA.

The 550-mile Atlantic Coast Pipeline would move Marcellus gas into North Carolina, and the 300-mile Mountain Valley Pipeline into Virginia.

“These are the first major pipelines to move Marcellus gas into the Southeast market,” said Messersmith.

“All these projects are still in the permitting phase with the exception of Mariner East II, which would use an existing pipeline that was repurposed to move natural gas liquids from western Pennsylvania to the Markus Hook refinery in Philadelphia.

“The gas from all 10 projects will ultimately end up being used in homes, businesses, manufacturing plants, power plants, and at some of the export terminals that will be shipping liquid natural gas abroad.

“It’s hard to overemphasize the importance our domestic oil and gas production will have toward our nation’s goal of becoming energy independent,” said Messersmith. “These new pipelines are a step in that direction.”