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PointLogic Energy Highlights Utica Production & Flows

April 3, 2015 | By Luke Larsen

While the industry continues to debate the impact to natural gas production from the diminished economic outlook for crude oil and product prices, certain producing basins continue to demonstrate that opportunities are robust as ever.  One particular region that consistently draws headlines amid the ongoing global oil glut is the Utica shale basin.

The Utica play is a shale rock formation that is located several thousand feet below what has become the most prolific play in the U.S., the Marcellus Shale. The center of production activity in the Utica is located in Ohio, but the basin also extends much farther west geographically, covering a large portion of Pennsylvania, New York, West Virginia and Ohio. This sizeable area offers deposits rich in fossil fuel liquids and natural gas. The oilier sector is centered in eastern Ohio and is known as the Point Pleasant formation.

Utica-Marcellus Shale Play

In this week’s edition of Get the Point, we will take a closer look at the recent growth in output from this basin as well as the respective regional production outlook for the next several years to come. We’ll also review current flow schematics utilizing PointLogic Energy’s new Pipeline Module and regional throughput viewpoints. Finally, we will look at the impact of several pipeline expansion projects that will come into play over the next several months that will help mitigate current capacity issues.

PointLogic Energy production data shows that shale plays accounted for more than 40 Bcf/d of production in February 2015. This represents more than half of all domestic (lower 48) production. Based upon the chart below, the Utica basin is still only a small fraction of the lower 48 shale total. However, the chart clearly displays that, despite its current small representation, Utica has made serious gains compared to other giant shale plays as production crossed the 2 Bcf/d mark earlier this year.

Utica Shale

Source: PointLogic Energy

Well & Rig Activity

The most recent data released by the state of Ohio shows that officials have approved 1,852 Utica shale permits, as of March 29, 2015. Of that total, 1,393 Utica wells have been drilled and 828 Utica wells are in production as disclosed by the Ohio Department of Natural Resources (Ohio DNR). Twenty new permits were recently approved: six in Belmont County, one in Columbiana County, five in Harrison County, four in Monroe County, and four in Noble County.

With the recent shift in drilling economics, it is only natural that we might expect to see a correlating decline in rigs as exploration and production (E&P) companies scale back operations due to falling crude oil prices.

Subsequently, the number of drilling rigs in Ohio’s Utica shale region has been in sharp decline since early January. The latest data from the Ohio DNR shows that there are only 27 rigs drilling in Ohio based on permit information through Saturday, March 29. That’s down from 37 rigs as reported the prior month’s end on February 28.  Furthermore, since the beginning of the year rigs in Ohio have fallen by nearly 45% (49 down to 27).

Despite the recent decline in rig activity, production in the near term is still expected to reflect the success of drilling efforts of months and years past by growing well into the future. On an annualized basis, PointLogic production data for the region shows that the Ohio Utica supply has grown nearly 350% from 2013 to 2014 and will grow another 86% from 2014 to 2015 as it is expected to average 2.2 Bcf/d for the current year. 

Eastern U.S. Annual Supply Forecast, PointLogic Energy

Source: PointLogic Energy

The table above reflects the latest PointLogic Annual Supply Forecast for the Eastern U.S.  As you can see, the Ohio-Utica shale production estimates will continue to grow but the recent impressive scale of annual improvements will level off over time and total supply in the basin will still represent about 12-15% of Eastern U.S. totals though 2019.

The PointLogic Supply Forecast Model is basin specific and applies logical data components such as annual number of wells first delivered against the specific gas type curve for each basin to forecast an expectation of future production.  The five-year forecast featured above also provides flexibility for the user to apply their specific assumptions associated with the aforementioned variables.

Tracking the Gas; Destination Elsewhere!

During the short history of the current shale boom, the more difficult part of the production equation to predict has been the producers’ and operators’ ability to economically and efficiently move new supply to market.

Since the traditional pipeline grid infrastructure was established to move Southern and Western production to markets in the more populous consuming East, the recent over-abundance of local supply in this area has made significant changes to the pipeline grid necessary.

One such project that will help facilitate this change is the Rockies Express Pipeline’s (REX) Zone 3 East to West project with an expected in-service date of June 1, 2015. PointLogic’s Pipeline Projects list explains that the expansion will allow 1.2 Bcf/d of east-to-west gas flow from Zone 3 of the REX mainline from Monroe County, Ohio to the existing NGPL delivery interconnect located in Moultrie County, Illinois and is in addition to the approximately 600 MMcf/day of east-to-west capacity being served through the Seneca Lateral and Zone 3 mainline.  When the project is placed into service, REX will have the ability to flow 1,800 MMcf/day of gas in either direction in Zone 3.

This completion of this project is coming just in the nick of time as we continue to witness significant increases of supply receipts on REX’s system from Ohio production interconnects. 

Ohio Production on REX

Source: PointLogic Energy

The chart above was compiled utilizing the download feature in PointLogic’s Pipeline Module and shows supply activity for the only two active locations on REX in Ohio. Seneca Lateral volumes come in from Markwest’s processing facilities which were completed in Q2 2014. Production receipts also flow in from Magnum Hunter’s Eureka gathering system which began making deliveries to REX earlier this year. Since last June, REX receipts in Ohio have gone from zero to almost 0.7 Bcf/d and are nearing capacity on the Seneca lateral. 

One might expect that this additional gas would displace gas flowing from west to east from the Rockies. However, analyzing the data from the past two winters does not exactly confirm that hypothesis.

Winter to Winter REX Compressor & Throughput Volumes

Source: PointLogic Energy

The graph above compares a sixteen month strip of flows at the Mexico, MO Compressor Station with independently calculated PointLogic throughput values for molecules moving across the border from Nebraska to Kansas. These newly created state border throughputs are the backbone of the PointLogic Regional Flow view which is also a part of the Pipeline Module. 

You see in the above graph a noticeable drop in volumes moving west to east in January and February of this year compared to January and February 2014, but we also have to take into consideration different weather conditions between the two periods involved. March 2015 flows seem to confirm a recovery in east to west flow patterns similar to the height of winter in 2014. We believe that the primary reason behind the lack of Rockies West to East decline has everything to do with the somewhat more expensive and correspondingly flexible Canadian molecules being displaced first.

The PointLogic Supply Forecast for the entire eastern region is expected to grow another 6 to 7 Bcf/d to around 24 Bcf/d in 2019. Subsequently, more pipeline capacity and projects will be needed to move this production out of the region and show a definitive impact to east to west flows on REX. Projects from PointLogic’s Pipeline Projects list that are planned to come into service in the next two years are detailed below: 

Additional Regional Projects

Texas Eastern – Ohio Pipeline Energy Network (OPEN). The OPEN Project will provide 550 MMcf/d of capacity to deliver new incremental production from the emerging Utica Shale and Marcellus Shale plays to markets in the Midwest, Southeast and Gulf Coast. The expected in service date is 12/1/2015. 

Dominion Pipeline – Monroe to Cornwell Project. This project will provide 205 MMcf/d of firm transportation service. The Project is designed to provide natural gas firm transportation services in Ohio and West Virginia in order to ensure that supply can reliably access markets outside of the Marcellus and Utica production basins. The new firm transportation capacity is fully subscribed pursuant to a precedent agreement with Columbia Gas Transmission. DTI will receive gas from Columbia at DTI’s existing Boltz Hill Interconnect, EB495, in Monroe County, Ohio and deliver the gas at a new interconnection with Columbia at DTI’s existing Cornwell Station in Kanawha County, WV. DTI proposes to commence construction of the Project facilities in late 2015.

ANR – Shelbyville Meter Station Expansion Project. Take notice that on August 22, 2014, ANR Pipeline Company (ANR), 717 Texas Street, Houston, Texas 77002–2761, filed in the above Docket, a prior notice request pursuant to sections 157.205 and 157.208(b) of the Commission’s regulations under the Natural Gas Act (NGA) and ANR’s blanket certificate issued in CP82–480–000, for authorization to construct, own and operate facilities to expand its existing meter station and interconnection, located in Shelby County, Indiana. The REX Shelbyville Meter Station Expansion Project is designed to meet new firm contractual commitments up to 657 million cubic feet per day and to provide enhanced receipt point flexibility, all as more fully set forth in the application which is on file with the Commission and open to public inspection.

Texas Gas Transmission – The Ohio to Louisiana Access Project. This project will provide long-term firm natural gas transportation from Lebanon, Ohio for natural gas sourced from the Marcellus and Utica production areas to diverse delivery markets in Louisiana. We will primarily utilize existing pipeline facilities for this project and will invest approximately $115 million to reverse the traditional flow of natural gas from northbound to southbound on a portion of our Texas Gas system. We have executed precedent agreements for 625,000 Dth/day, and the in-service date is targeted for the first half of 2016.

Rockies Express Pipeline LLC. This project is conducting a non-binding open season to solicit interest in additional east-to-west capacity for Appalachian producers to move their gas out of the production basin and into the attractive Midwest markets and interconnects beginning in 2016-2017. REX is accepting bids for new firm transportation capacity, under Rate Schedule FTS, from physical receipt points in or around Clarington, to available delivery points in REX’s Zone 3 including deliveries at Lebanon and points west as far as MGT Edgar. 

Energy Transfer-Rover Pipeline. This project will connect Marcellus and Utica shale supplies to markets in the Midwest, Great Lakes and Gulf Coast regions of the United States and Canada. As a result of the additional agreements, the pipeline is fully subscribed through 15 and 20 year fee-based contracts to transport 3.25 billion cubic feet per day (Bcf/d) of capacity. The approximately 800-mile natural gas pipeline, estimated to cost $3.8 to $4.4 billion, will deliver natural gas from processing plants and interconnections in Northwest West Virginia, Western Pennsylvania and Eastern Ohio to the Midwest Hub near Defiance, Ohio as well as to multiple delivery points in Michigan and to the Union Gas Hub near Sarnia, Ontario. Rover also will interconnect with ETP’s Panhandle Eastern Pipe Line (PEPL), allowing shippers to deliver gas to Gulf Coast markets through ETP’s Trunkline system. Transportation from the supply regions to the Midwest Hub near Defiance is expected to begin by December 2016 to serve the Gulf Coast and Midwest markets. The remaining service to other markets including Michigan will be in service by mid-2017.

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