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2017-11-10 / News

Predicting Shale Gas 2018

Industry upturn sees companies re-hiring truck drivers, pipeline drivers and rig operators
BY R. BROCK PRONKO
Regional Business Analyst

This New Year’s Eve, gas operators won’t be toasting the end of the oil & gas downturn, but they are beginning to see light at the end of the (unplugged) tunnel.

According to Baker Hughes latest report, issued on November 3, there were 898 rigs operating in the U.S - an increase of 329 rigs compared to November 4, 2016.

There are currently 31 active rigs in Pennsylvania and 29 in Ohio. While the rig counts are lower than those before the downturn in 2014, they show that the natural gas industry in the Appalachian Basin is recovering.

To unravel the reasons for this uptick and to learn more about where the industry is heading next year, Marcellus Business Central spoke with Tom Murphy, co-director of the Marcellus Center for Outreach and Research at Penn State University.

MBC: Where are the returning rigs drilling in the Marcellus and Utica?

Murphy: If you look around the state, even in the dry gas region of northcentral Pennsylvania in Tioga, Lycoming, Bradford and Susquehanna counties, you’ll see rigs operating in gas fields that have not seen activity since 2014. The targets operators are going after are not just in the Marcellus but also deep Utica wells in the northcentral part of the state, which are producing phenomenal amounts of gas.

Even though Range Resources’ production is concentrated in the southwestern part of the state, Range also has wells in the northeastern and northcentral Pennsylvania, but they’re not currently drilling there -- Seneca is, Southwestern is, Cabot is, and Chesapeake has a rig or two in Bradford County, Chief has a rig, and Inflexion is operating in this area. In the southwestern part of the state, you have Range, EQT, Rice, Chevron, and Gulfport. Some are drilling dry gas, some wet gas, some a combination of both.

If you look at the wider Appalachian Basin, the number of rigs now operating in eastern Ohio is close to matching those operating in Pennsylvania, and I believe that’s the first time that’s occurred since the beginning of shale development in Ohio.

The growth in Ohio rigs speaks to a variety of factors including the demand for natural gas, the increasing takeaway capacity in that region, and the ramping up of ethane development in anticipation of the demand for ethane for the Shell cracker plant, which is expected to consume about 105,000 barrels of ethane per day. Shell has already signed supply contracts with 10 gas operators. Even though it’s going to be a couple years before the plant is running, operators need to build capacity before that, so they’re ready to meet that increased demand.

MBC: Gas workers were laid off during the downturn, is this uptick significant enough to create new jobs or get laid-off workers rehired?

Murphy: Yes, that’s already occurring. Truck drivers, pipeline drivers and people operating on the rig itself are being hired. Any time you have more rigs operating and all the other components occurring around that in the midstream, it’s eventually going to impact workforce development. So, a lot of gas operators have been hiring, and businesses that service the industry have also been re- hiring and rebuilding their crews.

However, there are some developments that are eating into those numbers. There are still not as many rigs on the ground as there had been in the past, and efficiencies and new technologies that have been created in the industry are also lessening the workforce demand. For example, hoisting pipe up on a drill rig was done mechanically with fork lifts, but now all rigs have that capability built in, so that lessens the number of workers needed per rig, but it creates a safety advantage.

Also, some companies are drilling longer laterals, adding more frac stages, doing better placements, and all that’s leading to more productivity especially in the sweet spots, but even in the surrounding areas. If you look at Eclipse, for instance, they’re seeing a significantly increased level of production in their long laterals in Ohio.

Drillers learned that to produce more gas from a well, they needed to use more sand and water to frac that well. Even before they knew this, it required over 500 tanker truck trips per well. However, the demand for CDL licensed drivers has diminished because less wells are being drilled today and the water is moving to well sites by pipeline.

So, you still have increased amounts of gas being produced, but in some cases, technology has replaced steps in the fracking process.

MBC: How important is price in driving the uptick?

Murphy: Price is a factor more so in the outer reaches of Pennsylvania where you have less takeaway capacity. So, the price is a negative in some regards. It all comes down to takeaway capacity, meaning if you’re in an area where takeaway capacity is restrained, then price is clearly going against you. If you are in other areas where you have more options such as western Pennsylvania and eastern Ohio, then prices are going up.

By the end of this year and the first half of next year, we’re going to have much more takeaway capacity in play, so there’s optimism that gas prices will rise for wells throughout the state.

What the current moment is and what’s anticipated in going forward in the near term are not necessarily the same story. Obviously, you can’t drill a shale well and bring it on to production in a week’s time, you need lead time in order to fill that expected gas pipeline capacity or ethane demand, and much of the growth we’re seeing now is in anticipation for that higher demand to come. .

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