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MLP Flash Report
Energy Revolution in The Marcellus Shale
The Marcellus is a shale formation rich in natural gas and natural gas liquids (western Marcellus). The Marcellus represents the second
largest natural gas find in the world, spanning
over an estimated 95,000 square miles with an
estimated 410 tcf of natural gas. The energy
revolution is sparking economic renewal in an
area previously called the rust belt, where unemployment was high as steel and other heavy
industry had moved many jobs abroad. Today,
the Marcellus is one of the fastest growing exploration and production regions in the US.
Pennsylvania has most of the activity for now.
West Virginia activity is smaller, and New York
has had a moratorium (lifted for 5 counties
June 14th, 2012) on drilling and development.
PGS recently visited Pennsylvania to witness
this gas revolution and its impact on Pennsylvania. Much of the Pennsylvania Marcellus is
beautiful farmland nestled among the mountains. Many landowners, especially farmers,
have new found wealth resulting from leasing
their land and earning royalties on natural gas
and NGL production. Drilling has increased
from 27 wells in 2007 to 2073 wells in 2011.
The following pictures were taken during our 3
day tour of the region. Significantly more drilling will take place over the next several years.
Production should be significant. The Marcellus
has very little infrastructure. The region presents an excellent opportunity for MLPs.
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The Marcellus Shale
The Marcellus Shale extends from
West Virginia, through Pennsylvania and New York.
MLP Flash Report
Exploration, Fracturing &
Production
There are 4 primary stages to exploration and development. The exploration and production companies
(E&P) have leased land from landowners. In Pennsylvania, they generally have 5 years within which
time they must drill. Well sites are fairly dense along
the landscape. Most wells are considered development wells —being drilled in an area of other successful wells. Once the driller has determined the
specific site, Stage 1 begins. The land is cleared and
a pad is put down to protect the environment from
the operations. For Stage 2, the drill rig is erected
and vertical drilling begins. In Pennsylvania, the average well is drilled to approximately 5000 feet. If
the well seems promising, the curved drilling begins
which may extend several thousand additional feet.
Finally the horizontal drilling commences which may
range another 3000-7000 feet deep underground.
The drill rig is removed and Stage 3, begins. The
fracturing team arrives and prepares the site. Dozens of trucks deliver thousands of gallons of water.
Water and chemicals are injected through the well
with extreme pressure. Fracturing opens crevices in
the shale formation, allowing natural gas and NGLs
to escape. Once fracking is done, the well is completed and the site cleaned up. For Stage 4, production infrastructure is built, pipelines connected and
the production flows may begin. A successful well
takes approximately one year from preparation for
drilling to production and requires significant capital.
Active drillers are Range Resources, North Coast Energy, Chesapeake Energy, Equitable Production
Company and Cabot Oil & Gas.
Stage 4: The Production
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Stage 1: The Pad
Stage 2: The Drill Rig
Stage 3: The Fracturing
MLP Flash Report
Building the Pipelines
Thousands of miles of pipelines are being built throughout the Marcellus. In
Stage 1, the pipeline companies lease
the land, design the path and begin excavation. In Pennsylvania, this includes
tree removal, as much of the land is
heavily forested. In Stage 2, the contractors lay the pipe, bury the pipe and
then in Stage 3 cover, the pipeline with
dirt. Almost all pipeline is buried. There
are paths where the pipelines networks
run throughout the mountains. In Pennsylvania, most pipelines are supposed to
be at least 1000 feet apart. It is estimated that in a few years, there will be
pipelines running every 1000 feet in
many areas, connecting production to
the markets. Several of the major gathering & processing MLPs have announced, or are building, significant
Gathering & Processing infrastructure in
the regions.
The drilling, fracking and infrastructure
construction have brought thousands of
people and trucks to Pennsylvania.
Many of the busiest areas are located on
farmland near very small towns. Some
of the energy companies have contributed to the local communities by building
hospitals and other community infrastructure. Others are building better
roads so they can access remote areas.
Once the drilling finishes, the area becomes quiet again. But today, the Marcellus region of Pennsylvania is very
busy.
Active midstream companies in the Marcellus include Enterprise Products Partners, Williams Partners, and Mark West
Energy L.P.
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Stage 1: Excavating The Path
Stage 2: Laying the Pipe
Stage 3: Burying the Pipeline
The mountainous, forested terrain makes pipeline
building expensive and complicated in the Marcellus.
MLP Flash Report
The impact of the Marcellus to the northeastern economy cannot be underestimated.
Significant infrastructure projects are being
announced. Pipelines are being built to supply Manhattan with natural gas. Pipelines
will go down the eastern seaboard to supply
utilities which are using natural gas or
switching to natural gas. Chemical companies are announcing new plants to be built
near the production to lower the cost of
transport of their feedstock. The US steel
industry is reviving. Pipeline companies
have huge demand for steel pipes. Chinese
imports have been turned down after they
began exploding. Now steel pipes are being
manufactured locally. Cheap natural gas is
helping both chemical, steel and unregulated utilities since energy is one of their major
expenses. Cheap energy is encouraging
companies to move jobs back to the US.
Natural gas is replacing coal as a cleaner
less expensive alternative. In the Marcellus,
we saw windmill farms being built by pipeline companies as they were installing their
pipelines. Pennsylvania has become an important energy capital.
Pipe inventory for building pipeline
throughout the Marcellus.
Virginia and Michael Parker serve on the Board of
Visitors of Duke University’s Nicholas School of the
Environment. The Parkers joined the Dean, another
Board member, A professor, two graduate students
and staff on a fact finding mission in the Marcellus in
June 2012. They visited a drilling site, a water treatment plant, and toured Pennsylvania’s Marcellus region by helicopter. They met with companies and
residents to better understand the activity, the opportunities and the challenges in this major region for
natural gas exploration and development.
Several areas of the Marcellus include diversified energy infrastructure including natural gas
development, pipelines and windmills.
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