New 190-Mile NatGas Pipeline Planned for Delmarva Peninsula

Delmarva Pipeline map – click for larger version

It’s not often we run across a new pipeline project in our region that we haven’t heard about. But this is one of those days. Last August through October (for 60 days) the Delmarva Pipeline company ran an open house for a 190-mile pipeline that will originate in Rising Sun, Maryland and extend down the Eastern Shore to Accomack, Virginia. We missed the original open season announcement. An open season, for those new to the oil and gas business, is when a pipeline company floats a plan for a pipeline and gets potential customers to agree, contractually, to use the pipeline for the first 10-15 years (or longer) after it’s built. Those signed-on-the-dotted-line contracts give the builder, in this case H4 Capital Partners, confidence to file a plan and proceed with construction. The purpose of the Delmarva Pipeline is to flow natural gas to two rural counties in the southern portion of the Delmarva Peninsula–Somerset County, MD and Accomack County, VA. (Delmarva, for those not along the East Coast, stands for Delaware, Maryland and Virginia–the peninsula where portions of all three states can be found.) H4 Capital Partners has reportedly spent the past four years planning the $1.3 billion pipeline project, and they are now, after a successful open season, ready to file plans with FERC to make it happen. The plan is to get the pipeline built and in-service by late 2020 or early 2021. The reason MDN is interested in this pipeline should be obvious. Although there’s no mention of where the gas will come from to feed this new pipeline, we have zero doubt the gas will come from the Marcellus Shale–making the Delmarva Pipeline an important new demand source for our bountiful supplies of clean burning Marcellus gas…
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PA DEP Plans to Raise Marcellus Well Permit Fee by 250%

Pennsylvania Gov. Tom Wolf’s Dept. of Environmental Protection (DEP), the agency charged with overseeing oil and gas drilling in the state, has “blindsided” the shale industry with a proposal to hike the fee required when submitting an application to drill a new shale well. The current fee is $5,000. The proposed new fee is $12,500–or 2.5 times greater (i.e. 250% higher). The DEP Oil and Gas Technical Advisory Board (TAB) is scheduled to meet next week, on Feb. 14, to discuss the permit fee increase. The fee funds the oil and gas program within the DEP. Wells must be visited and inspected throughout their life–decades after they are initially drilled. The permit fee is a one-time, up-front fee. Over the past couple of years the number of new wells getting drilled has decreased (although in 2017 it went back up, see PA Shale Wells Drilled Soars 56% in 2017; Impact Fee Up $5,400/Well). Because there have been fewer wells drilled in recent years, there’s a lot less money in the DEP’s budget for well inspectors. Hence the plan to hike the fee. The industry does not object to a measured increase–but going up 250% is “excessive” and not called for, according to the Marcellus Shale Coalition. In addition to the permit fee hike, the TAB meeting will also hold a discussion on finalizing new GP-5 and GP-5A General Permits to control methane emissions from oil and gas operations. Buckle up, the next TAB meeting looks like it may get heated…
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Sunoco Appeals DEP’s ME2 Pipe Suspension to Enviro Hearing Board

PA State Sen. Andy Dinniman

In early January, the Pennsylvania Dept. of Environmental Protection (DEP) issued an order shutting down all construction for the Sunoco Logistics Partners Mariner East 2 (ME2) pipeline project (see PA DEP Caves to Big Green Pressure, Stops All Work on ME2 Pipeline). The DEP claims Sunoco had violated the conditions of the permits that allow it to drill and trench for the project. In particular, the DEP is hot and bothered about drilling mud spills associated with underground horizontal directional drilling (HDD). The DEP said Suonco can restart work when/if certain conditions are met. So far the DEP has not allowed Sunoco to restart work. In the meantime, thousands of workers are in the unemployment line, and have been since Jan. 3rd. Sunoco has just appealed the DEP’s cease and desist order to the PA Environmental Hearing Board–a special court set up to hear appeals of DEP decisions. Sunoco lays out their case in a filing (below) for why the DEP is incorrect in issuing their stop work order…
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Rover Again Asks FERC for OK to Restart Tuscarawas Drilling

On Jan. 24, the Federal Energy Regulatory Commission (FERC) sent a letter to Rover Pipeline stopping drilling at the Tuscarawas River site, which had only restarted in December (see FERC Stops Rover Drilling Near River After 200K Gal Mud Disappears). In a strongly worded letter dated Sunday, Jan. 28, Rover told FERC they are “frustrated by the inaccurate central premise underlying the letter received from” FERC shutting down drilling at that location (see Rover “Frustrated” with FERC Order to Stop Drilling at Tuscarawas). Some 99% of all construction work is now complete for Rover Pipeline. There’s only a little more to do to finish things up, including installation of a second Rover Pipeline (next to the first) underneath the Tuscarawas River. Rover has “lost” 200,000 gallons of drilling mud down the hole in drilling for the second pipe. However, the “lost” mud has not come back to the surface. Mud disappearing–and staying down the hole–when drilling for pipelines is not uncommon. Yet FERC will not lift the stop work order. On Friday, FERC sent a letter to Rover saying Rover must provide information on three different scenarios before work can resume: (1) how Rover plans to complete drilling at the current location without losing any more mud, (2) change locations and run the second pipe under another part of the Tuscarawas River, or (3) forget about drilling and installing a second pipe altogether, and stick with just a single pipe already in place now. FERC’s letter brought a swift response. On Sunday, Rover provided a mountain of evidence to say the current plan of drilling under the river at the existing location is the right plan. Rover went one step further, asking FERC to allow them to begin drilling again by yesterday (Monday) afternoon at 3pm. To the best of our knowledge, that did not happen…
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XTO Plans 5 Shale Wells at Former Golf Course in Armstrong County

You don’t hear much about XTO Energy drilling in the Marcellus these days. That’s not to say they aren’t busy. They certainly are/have been. In PA’s Butler County, XTO had spud (begun to drill or completed drilling) some 145 shale wells as of 2016. In neighboring Armstrong County, XTO had spud/drilled 4 shale wells as of 2016. The number in Armstrong will more than double if XTO wins approval for a series of wells they plan to drill on a single well pad. Last night XTO presented a plan to build a drill pad on what used to the seventh green at the former Phoenix at Buffalo Valley Golf Course in Freeport, PA. The plan calls for drilling 4 Marcellus wells and 1 Utica well on the pad. Some 20 residents showed up for the meeting. Not a single one spoke out against the plan. Nor did any of the Freeport officials. Here’s the details on XTO’s plans to sink a hole (in one!) on the seventh green in Armstrong County…
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Clash of the Titans: PA Marcellus Gas Competes with TX Permian

Last week MDN editor Jim Willis attended Hart Energy’s Marcellus-Utica Midstream conference in Pittsburgh (a series of stories are coming this week from that event). One of the stray comments Jim heard at the event was this: The chief rival or competitor to the Marcellus with respect to natural gas production is not, as you might assume (we sure did) the Haynesville Shale in Louisiana. No. The chief competitor, producing more and more volumes of natgas, is…the Permian! That’s right, an oil play! Why? When you drill for oil, you get other hydrocarbons out of the ground along with the oil. Primarily methane, or natural gas. It’s called “associated gas.” Even though most of what comes out of a Permian well is oil and not gas, because there are so darned many oil wells in the Permian (with more being drilled all the time), the total volume of gas coming from the Permian is going up, dramatically. The problem is, some Marcellus/Utica gas heads to the Gulf Coast to be used by petrochemical companies or to be exported. However, gas produced right there in the region is less expensive to get to market (shorter distance), so that Permian-sourced gas is competing, and increasingly crowding out, Marcellus/Utica gas. Investors have noticed and have, in a sense, “punished” some of the biggest of the big Marcellus/Utica producers by selling their shares, leading to a loss in share value. Among the hardest hit have been Southwestern Energy, Gulfport Energy, and Range Resources. The stock price for those three companies is down, since Jan. 1st, 33%, 30% and 25% respectively. A Bloomberg article says the stocks for those companies have been “mauled.” Indeed. Here’s some insight into how the Marcellus/Utica is increasingly going up against the oil giant Permian Basin, sometimes getting mauled…
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Patterson-UTI Rig Count of 165 in January Another All-Time High

As we do each month, MDN tracks how many rigs oilfield services company Patterson-UTI Energy reports operating–as a proxy for rig count health in general and rig count health in the Marcellus/Utica in particular. Patterson operates many rigs in our region. Last April, Patterson bought out and merged in Seventy Seven Energy (SSE). The addition of SSE’s rigs served to rocket Patterson’s rig count number in April and May much higher (see Patterson-UTI Rig Count Continues to Rocket Skyward – 159 in May). With SSE fully absorbed into Patterson, the rig count number settled down. In September Patterson’s rig count slipped by 1–the first loss since June 2016. In October the count retreated another three, to 158. But the trend reversed in November when the the count jumped again–back up to 161. Then in December Patterson’s rig count hit a new, all-time high of 163 (see Patterson-UTI Rig Count Hits All-Time High in December, Up to 163). And here we are, in the dead of winter, and Patterson has done it again. The average rig count for January was 165, another new, all-time high…
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NJ Continues to Hassle PennEast Pipe with Refusals & Rejections

The State of New Jersey and its elected leaders (Governor and Attorney General) continue their quest to hassle and block the PennEast Pipeline from entering a small portion of their state. Why? To answer that question you’d have to enter their brains to understand all of the political calculations that go on–a very scary proposition. NJ Attorney General Gurbir Grewal (far-left Democrat) on Friday rejected PennEast’s request to use state-owned land for small part of the pipeline’s route. Also last week, the NJ Dept. of Environmental Protection (an executive branch agency, reports to NJ’s newly elected LibDem Gov. Phil Murphy) told PennEast the DEP is closing the books on PennEast’s water crossing permit application for lack of information. PennEast says the DEP’s action was not a surprise and that they will refile the application with the additional information sought. It all just points to a very hostile (to private business) government that has seized power in The Garden State. Don’t worry, PennEast isn’t letting NJ’s hostility stop them. This pipeline will still get built…
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Trump Tax Cut has Unintended Consequences for Pipeline Projects

President Trump’s marvelous tax cut has had some unintended (negative) consequences for pipeline companies. Trade groups and some states are pressuring the Federal Energy Regulatory Commission (FERC) to force pipeline companies to cut the rates they charge customers in light of the Trump tax cut. The corporate tax rate is going from 35% (highest of any modern/Western country) down to 21%. Which will encourage all sorts of investment in the good old US of A. When pipelines file rate cases for how much they will charge customers to flow gas (or oil or whatever else) through the pipeline, part of the calculation for what FERC allows them to charge is based on profitability. Since those companies will now be a whole lot more profitable (tax payments going down), the customers using those pipelines want the rates recalculated to reflect the savings. In other words, they want part of the tax savings too. But wait just a rootin’-tootin’ minute! (says the pipeline companies). The pipelines have duly signed contracts in place. You can’t just rework a single portion of those contracts with the sweep of a pen. What about other components in the contract that are used in calculating prices? In some (many?) cases pipeline companies have borne increased costs that are not passed along to customers. If the customers (mainly utility companies) want FERC to adjust the rates, they may not like how those rates get adjusted considering all the other factors that could/should be changed. Maybe they’ll go up instead of down! A battle is brewing between utilities and the pipelines that feed them, all because of Trump’s tax cut…
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Marcellus & Utica Shale Story Links: Tue, Feb 6, 2018

The “best of the rest”–stories that caught MDN’s eye over the break that you may be interested in reading. In today’s lineup: Northeast becomes net exporter of natgas to Canada; New Hampshire blocks electric line to Massachusetts; fracking comes with risks, but also benefits; the outlook for condensate looks brighter; Hess posts 13th quarterly loss, tangles with corporate raider; China surpassed US as world’s largest crude oil importer in 2017; Canadian natural gas disaster; and more!
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