New 190-Mile NatGas Pipeline Planned for Delmarva Peninsula
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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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 
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 
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…
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…
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 
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…
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…
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!