May 2021, Vol. 248, No. 5
Features
Marcellus, Utica Ready to Pick Up Where They Left Off
By Danielle C. Roberts, U.S. Correspondent
Cautious optimism appears to be the name of the game for operators and others associated with the Marcellus and Utica Shales, according to representatives of key coalitions in the regions. That reflects the attitudes of the greater public as vaccinations continue to be more widespread and COVID-19 infections and deaths wane.
“2021 is looking up,” said Mike Chadsey, director of public relations at the Ohio Oil and Gas Association (OOGA) in Columbus, as pent-up demand for travel and a return to the office are being met. “[We’re] still recovering; we got down to about four or five drilling rigs for most of last year. We’re back up to about 10, so that’s encouraging. With more drilling comes more production and the ability to keep things moving again.”
“We’ve certainly had some ups and downs,” added Dave Callahan, president of the Pittsburgh-based Marcellus Shale Coalition. “Just looking at EIA’s [Energy Information Administration’s] data, their Short-Term Energy Outlook shows that we’re going to end 2021 – at least they project we will – with consumption a little bit lower, from 83.4 Bcf/d total consumption down to 82.5, so … that’s relatively flat, I would say, for 2021.
But within that, we see the industrial sector taking off a little bit, and we see residential/commercial taking off a little bit, and maybe [the] electric power sector responding to what EIA projects for prices … I think the industry as a whole is keen to watch those price signals and respond accordingly. And from just a policy standpoint, from a commonsense standpoint, the industry is ready to fuel this recovery.”
As the end of the pandemic appears in sight, the oil and gas industry is ready to pick up where it left off in 2019, overlaid with the policies of a new administration, a restless public that’s pushing for cleaner energy and more focused pipeline strategies.
Pre- and Post-Pandemic
While Marcellus and Utica Shale gas producers had what many describe as a “banner” year in 2019 – with Pennsylvania, Ohio and West Virginia collectively supplying one-third of U.S. natural gas production, or 30 Bcf (850 MMcm) – production in 2020 was already predicted to slow down, even before COVID-19. That was due to low prices and elevated storage levels. Then, the pandemic drove down demand and further reduced prices.
However, overall gas production fell by only 1% in 2020, averaging 111.2 Bcf/d (3.15 Bcm/d). It was back up to 113 Bcf/d (3.2 Bcm/d) by December 2020. By February 2021, the U.S. EIA noted that Henry Hub spot prices will likely average US$2.95/MMBtu in 2021.
In 2020, low prices also led to an 8% decline in oil production – the largest annual decline on record – from a peak of 12.8 MMbpd in January 2020. A price decrease in March 2020 due to a COVID-19-related drop in petroleum demand pushed operators to shut in wells as well as limit those brought online.
Crude oil prices began to rise again in the fourth quarter of 2020, contributing to production increases. While production is still not back to January 2020’s peak, the EIA forecasts monthly domestic crude oil production will reach 11.3 MMbpd by the end of this year.
Meanwhile, Callahan pointed out that while there have been slowdowns – as there have been in many other industries. “Throughout the pandemic, this industry has been instrumental in terms of providing feedstock that’s used for personal protective equipment – whether it’s gloves, visors, masks and even for the vaccines themselves. So, products derived from natural gas liquids are part of the actual vaccines, not to mention the syringes. We’re playing an important role.”
One of the more visible downstream effects of 2020’s slowdowns has been worker layoffs and project delays, including Shell Pennsylvania Chemicals’ petrochemical cracker plant in Beaver County, said Callahan. That project, however, has been back up and running and is expected to be completed in 2022.
Yet, a Deloitte analysis suggests that 107,000 oil, gas and chemical industry jobs disappeared between March and August 2020, not including workers on furlough or taking pay cuts. While only 30% of those lost jobs may return by the end of this year, according to Deloitte, “a $1 change, up or down, in U.S. oil prices can potentially impact 3,000 upstream and oilfield services jobs,” reported CNN in October 2020.
But, said Chadsey in late March, the future is yet to be determined.
“Going back to the COVID driving a lot of this, as COVID cases continue to drop [and] statewide health orders continue to be lifted, that will increase demand, which will follow with an increase of supply to meet that demand, whether that’s in gasoline, jet fuel or ongoing plastics for things like masks and gloves and things of that nature for first responders, he said, adding, “All of this is going to be needed, so we want to do our level best to meet that demand.”
Red State, Blue State
Another major issue of the past year and a half has been visible public pushbacks and regulatory changes as a new administration has taken the reins. As a state, Ohio has tended to be supportive of its fossil fuels industry, said Chadsey, and protests at the level of those in other states are relatively uncommon.
In past years, major interstate pipeline projects, such as Energy Transfer Partner’s (ETP’s) Rover or Spectra Energy Partners/DTE Pipeline Co.’s NEXUS, moved forward with few issues; although, ETP is now facing some scrutiny over its handling of a historic home that was demolished.
It’s also helpful that Ohio’s Department of Natural Resources (ODNR) has “sole and exclusive authority over all aspects of oil and gas. They do the permitting, they do the siting, they do the inspections,” said Chadsey. “There are other agencies that have small bits and parts, but it’s really with the ODNR. And so, that’s good. You’ve got a one-stop shop for everything that you’re working on.”
And, as a Republican state, “We’ve got a governor who supports what we do, a legislature that supports what we do. All of those things help.”
In contrast, “we’ve faced pushback from the early days of the Marcellus Shale play,” said Callahan. “The Keep It in the Ground movement is just as old as we are … with that said, there’s a strong, strong desire for clean, affordable, abundant energy.”
With major interstate pipelines such as the Atlantic Coast Pipeline shuttered, Mountain Valley is likewise facing permitting delays and ongoing protests. Even as the industry is continuing to advocate for new major infrastructure, one result, said Callahan, is a turn to more efficient, smaller projects and moderate upgrades.
“I can’t imagine going to my board and saying, ‘we want to build a new greenfield pipeline,’” Williams Chief Executive Officer Alan Armstrong said in a January 2021 interview with Bloomberg. “I do not think there will be any funding of any big cross-country greenfield pipelines, and I say that because of the amount of money that’s been wasted.”
Meanwhile, Pennsylvania’s Democratic governor, Tom Wolf, has been pushing for a severance tax in addition to an impact fee on the natural gas industry, a 2.8% combination that is expected to raise $300 million over 20 years to fund is Back to Work PA post-pandemic plan.
“We already have a severance tax … It’s just called an impact fee,” said Callahan. “It’s designed to compensate the state, and then those dollars are largely farmed out to the communities where oil and gas development is taking place. That fee has generated, projected as of this summer, $2 billion – a significant amount of money for state government and a significant amount for local governments … our argument all along [is] we already have it, it works, why burden the industry and why complicate things with something else.”
Meanwhile, on the federal front, both associations are determining how to proceed. “I think more than anything, we’re watching what happens at FERC [Federal Energy Regulatory Commission] with any changes in process, any changes in requirements,” said Callahan. “Quite frankly, we’re concerned about the unknown. We don’t know what will come out of the administration from a regulatory standpoint.”
From a legislative standpoint, there is expected to be a fair amount of debate, but industry leaders plan to keep tabs on the administration and see if it tries to step over the states where regulation is concerned.
“What we emphasize and what has to be emphasized – whether it’s with this new administration, the state governments that regulate us directly, or with the general public – there are very, very strong economic arguments.”
The Coalition feels that without natural gas, the nation would not be able to achieve significant carbon dioxide (CO2) emission reductions. In Pennsylvania alone, CO2 emission reductions from the electric generation sector total 40%, its data shows.
“We are in an ongoing conversation with not only the administration but members of our Ohio delegation on what’s at stake here. We have 208,000 employees here in Ohio who work in the oil and gas industry. We have over $86 billion invested, really since 2011 when shale started here in Ohio. That’s at stake,” said Chadsey. “When you’re talking about climate change or a transition away [from fossil fuels], we want to be a part of that solution. We know that natural gas is part of the solution to climate change, and we are proud of what we have done, most recently last year, providing those feedstocks for face masks and face shields.”
One example of that, which Chadsey said OOGA is keeping a close eye on, is the Biden administration’s temporary ban on new oil and gas leases on federal lands and waters. While it’s a topic of major discussion in Texas and Western states, “don’t forget we have federal minerals here in Ohio in the Wayne National Forest,” said Chadsey. “We’ve been talking to our delegation about that money and the impact of reducing that money or limiting the development of those minerals for not only the private landowners that live in and around the Wayne … as well as the revenue that won’t go to local schools or that community …. This is an eastern states’ issue as well.”
‘Ready to Go’
Despite public sentiment, potential legislative hurdles and the steep drop in demand and consumption caused by COVID-19, the EIA forecasts that overall energy consumption will continue to rise. According to Chadsey, the outlook for the Utica Shale is mostly locally focused.
“The goal is to keep that energy here. The closer you can keep it to the wellhead, the more investment you can get,” Chadsey said. “So, you keep that ethane here by building these cracker plants; you could then have a robust plastics and polymer industry … the more we can keep here, that’s a good thing for Ohio’s economy.”
He hopes that Ohio and nearby states such as West Virginia will see new plastics and polymer manufacturing operations, such as the Shell plant that’s nearly complete in Pennsylvania.
“Right now, when ethane leaves Ohio, it goes down to the Gulf Coast, it’s cracked, put in plastic pellets, put in a train car, brought back up to Cleveland, Pittsburgh, Charleston, wherever, because this is where the end-users are, this is where the population is, that’s where the injection mold locations are,” Chadsey said. “So, let’s cut out the middleman, drill for it here, process it here, mold it here, sell it here.”
The oil and gas industry was deemed essential at the start of the pandemic, added Callahan, and that hasn’t changed. “Our members here, whether they’re public or private, they’re keen to respond to the price signals,” he said. “We see [we’re] relatively steady in terms of rig count presently – so not much erosion there. I think we’re well positioned in terms of drilled and uncompleted wells to respond to those market signals.”
That positioning also includes liquefied natural gas (LNG). The United States shipped LNG to 37 countries last year, primarily in Asia, and with Maryland’s Cove Point terminal shipping gas from Marcellus producers such as Cabot Oil & Gas and Antero Resources.
“There’s a real appetite in other parts of the world for – again – clean, affordable natural gas,” said Callahan. “And I think there are so many benefits associated with that. First and foremost, economic benefits for the U.S., economic benefits for this region, trade balance benefits, national security benefits, geopolitical benefits – and let’s not forget environmental benefits … None other than our energy secretary, Jennifer Granholm, when she appeared before the Senate back in February, said that natural gas, and specifically LNG, has an important role to play in reducing greenhouse gas emissions worldwide.”
While COVID-19 may have slowed down production in the Marcellus and Utica Shales, “we never really stopped,” said Chadsey. “We don’t like the term boom and bust; we like ebb and flow. We’re price takers, not price makers. Price is going to continue to drive that investment, drive that production.
But a lot of folks are starting to get stimulus checks, businesses are starting to open up again and health orders are starting to be lifted. That’s all going to get things moving again, which is, at the end of the day, what we need.”
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