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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Cuomo Shafts NY State Yet Again; Bans Oil Barge Storage on Hudson

Freedom in New York State is all but gone–snuffed out by a corrupt dictator by the name of Andrew Cuomo. Warning to other states: Be careful who you elect in high office. Cuomo is not content to simply destroy the drilling industry in NY–he wants to destroy anything to do with fossil fuels. Crude oil from the Bakken in North Dakota has, for some time, arrived in New York’s capitol city of Albany via rail cars where the oil is loaded on barges at the Port of Albany for a quick trip down the Hudson River. Cuomo went after those rail shipments, trying to slow them down or stop them altogether (see NY’s “Progress” to Control Bakken Crude Trains Passing Through). Somehow those oil trains continue to roll into the Empire State, over the objections of Cuomo & company. The Port of New York/New Jersey, the American Waterways Operators, and the Hudson River Pilots’ Association floated a plan earlier this year to allow up to 43 barges filed with crude oil to temporarily anchor along a 70-mile stretch of the Hudson River, south of Albany, between Kingston and Yonkers NYC. The barges could add capacity and transport more oil down the river to NJ refineries than is currently possible. Yet enviro Nazis rose up and pressured the state legislature into passing a bill to (essentially) prohibit the oil barge plan. Cuomo gleefully signed the bill in October, cutting NY out of yet more commerce it could have had. All because of an irrational hatred of fossil fuels…
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How U.S. Shale Changed the World Geopolitcally

American shale has fundamentally transformed the world geopolitically. How? Just think about. #1 – Saudi Arabia and Iran are on the brink of all-out war. For decades Saudia Arabia has been the world’s leading oil producing country. Iran has been in the top five oil producing counties. #2 – Venezuela, the country with the world’s largest oil reserves, is rumored to have defaulted on its foreign debt. Either situation, #1 or #2, hint at the potential for the flow of oil to be disrupted. Both happening at the same time is an oil cataclysm. A decade ago such news would have resulted in oil hitting $100, perhaps even $150 per barrel. The price of gas at the pump would have soared, overnight, to more than $5/gallon. Yet what has happened to the price of oil with this recent geopolitical news? Nothing. If anything, the price has gone down! The only reason oil prices are not through the roof is because of the abundance of American shale oil. An occasional guest blogger here on MDN is Daniel Markind, a partner with law firm Weir & Partners. Dan recently sent along what we consider masterful insight into how shale energy has literally changed the world. As a bonus, Dan asks a probing and relevant question of those who want to stop the use of all fossil fuels…
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OPEC Report: US Shale Dominates Until 2025, then OPEC Rises Again

Even OPEC–the Organization of the Petroleum Exporting Countries–now admits that U.S. shale energy is here to stay. At least for the foreseeable future. For OPEC, the foreseeable future is until 2025. Yesterday OPEC released its annual “World Oil Outlook 2040” (copy below). The massive 364-page report predicts that U.S. shale oil will continue to grow, and dominate the oil markets–until 2025 (eight years from now). At that point OPEC says shale oil will peak and following that, OPEC will once again be in the driver’s seat–ready, willing and able to screw Americans and everyone else who buys their oil. We think OPEC is smoking some good stuff…
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Recent Drilling Downturn Created “The A-Team” of Rig Fleets

According to a recent column on WorldOil.com, you can thank the recent downturn in oil and gas prices with producing the lean, mean drilling machines we have today. Because of the downturn, only the “most mechanically sharp, efficient and best-equipped drilling rigs and crews were left operating in the downturn.” The result? It created “the A-Team.” The rigs and crews operating now drill twice as fast at half the cost of just a few years ago. According to Chesapeake CEO Doug “the ax” Lawler, “We don’t need to run 175 rigs anymore. Forty or 50 rigs can deliver the same volume today.” Our point: Today we have far fewer rigs operating, but they’re producing far more oil and gas than they ever have. Welcome to the world shale created…
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Fracking Comes to Kentucky – Encore Drills First Horizontal Oil Wells

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Kentucky is an interesting state with respect to the oil and gas industry. Historically there has been a fair amount of conventional (vertical only) drilling for oil and gas in the state. Over the past few years there have been a number of gas and petrochemical projects in the state (see our Kentucky stories here). However, the state also has a liberal tilt, at least when it comes to fracking and pipelines. A few years ago Kentucky pretty much single-handedly axed the Bluegrass NGL (natural gas liquids) pipeline, a $1.5 billion project that would have stretched from the Utica/Marcellus all the way to Gulf Coast (see Kentucky House Votes to End Eminent Domain for Bluegrass Pipeline). As for fracking, in 2015 the Kentucky Oil and Gas Conservation Commission, a group that “rarely meets” (previous meeting was in 2006) held a meeting to consider granting Kentucky’s very first deep horizontal natural gas drilling permit (see Kentucky Fracking One Step Closer: Commission Considers 1st Permit). The permit under consideration was to drill in the Rogerville Shale, by an affiliate of EQT. So when we spotted a press release/article about Encore Energy currently drilling its first (of four) horizontal oil wells in the Berea in Kentucky, wells that will be fracked…that’s big news! No, it’s not the Marcellus/Utica, but it’s close to us, and it’s in the Appalachian region. And it’s fracking a horizontal well in a state that has not been overly friendly in approving such activities. Here’s the low down on Encore…
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Oil & Gas DUCs Now Flying in Different Directions

A quick oil & gas lesson, for new MDN readers. A DUC is a Drilled but UnCompleted well. Many times drillers will drill the initial hole in the ground, but then not “complete” (or frack) the well. Why do that? For a variety of reasons. The biggest reason is usually because the commodity price of gas (or oil, depending on the well) is not favorable. Rather than lose the lease a company paid good money for, they will begin the process by drilling, and then leaving, the well–only to return later to complete it when prices go up again. Keeping an eye on DUC inventories tells you a lot about the economics of a commodity–what drillers believe will happen in the near-term with the price for that commodity. Once upon a time both the oil and natural gas industries tracked together. When there was more drilling (and production) for oil, there was also more drilling and production for gas. The prices for both oil and gas tracked along the same path. What is now obvious–has been obvious for some time–is that “tracking together” is no longer the case. Each commodity, oil and gas, now have their own economics, driven by different factors. What makes it evident that oil and gas economics have now separated are DUCs. Right now oil drillers are drilling but not completing wells like crazy, piling up a high DUC inventory, saving wells for later, when prices improve. However, DUCs for natural gas are going down, especially in the Marcellus/Utica region, which means drillers believe prices will soon go higher for natgas. The fewer DUCs there are, the more new drilling there will be…
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Watch Out Marcellus/Utica, Here Comes Gas from the Permian

The Wall Street Journal has an interesting article appearing in today’s edition that points out the Permian Basin shale play (in West Texas) may, in a few years, “rival new gas output” from the mighty Marcellus Shale. Really? Where did that come from?! It makes a great deal of sense. The Permian is an oil-focused play. Drillers can’t stand enough rigs in the Permian fast enough. Drilling for oil in the Permian at $50/barrel is profitable–for everyone. So where does natural gas come in? Ever read about “associated gas” here on MDN? We’ve talked about it a fair deal over the years. Whenever you drill for one hydrocarbon–like oil–you get other hydrocarbons coming out of the borehole too. Like natural gas, and gas liquids (propane, ethane, butane, etc.). The converse is also true. Drillers targeting natural gas sometimes get oil and NGLs. In the Permian, an “oil play,” there is a LOT of associated gas coming out of the holes drilled, along with the oil. And the massive drilling program under way there means overall output from the Permian may, at some point, rival (or come close to) the output in the Marcellus. What does that mean for Marcellus drillers and landowners?…
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Pilgrim Pipeline Takes Arrows from Radical Antis – Project Dead?

In November 2015, MDN told you about Pilgrim Pipeline Holdings, developing an East Coast pipeline to carry refined petroleum products such as gasoline, diesel, heating oil, and jet and aviation fuel northbound from Linden, New Jersey to Albany, New York (178 miles). In addition, a second Pilgrim pipeline will carry crude oil from Albany south to NJ and other locations. Two pipelines, side by side, different liquids flowing through them in different directions (see Will Pilgrim Pipeline be Allowed to Settle in the NY World?). The oil that would flow south from Albany comes from trains delivering crude from the Bakken Shale play–a double evil in the sight of radical anti-fossil fuelers. Antis from both New York and New Jersey have vigorously opposed the project from the beginning. We told you about a meeting in Bergen County, NJ last year where the antis “got rowdy” (see NJ Residents “Get Rowdy” in Opposition to NY-NJ Pilgrim Pipeline). Pilgrim has been working hard to accommodate concerns about the pipeline. Most recently, Pilgrim adjusted its route in NJ. The radicals at the New Jersey Sierra Club are encouraged by the route change–encouraged that the project is now on life support and the Clubbers are itching to pull the plug…
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Respectable Volume of Oil (Yes, Oil!) Coming from Marcellus/Utica

We spotted an article on The Motley Fool website by one of our favorite authors, Matt DiLallo. The article shines a light on the states that produce the most shale oil. Surprisingly (for us), the Marcellus/Utica was in the list. Appreciable amounts of shale oil are coming from Ohio, Pennsylvania and West Virginia, from both the Marcellus and Utica formations. Of course the amount produced in our neighborhood pales in comparison to the enormous amounts of oil coming from the Texas Permian and North Dakota Bakken. But hey, the fact that we even show up in such a list is kind of exciting…
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Five Facts About Shale: It’s Coming Back, and Coming Back Strong

Major multinational bank Société Générale, headquartered in Paris but with major operations here in the U.S., has just issued a 37-page report on U.S. commodities. The theme of the report caught our attention: “Five facts about shale: it’s coming back, and coming back strong.” Analysts working for Société Générale asked themselves this question: Will the U.S. recovery in oil and gas production offset OPEC cuts? They review some of the key dynamics of U.S. shale production in their report. Specifically, they highlight five facts about U.S. shale production that all point to the same underlying trend: shale is coming back in a big way…
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300 Turn Out to Oppose Pilgrim Oil Pipe in Kingston, NY

In November 2015, MDN told you about Pilgrim Pipeline Holdings, developing an East Coast pipeline to carry refined petroleum products such as gasoline, diesel, heating oil, and jet and aviation fuel northbound from Linden, New Jersey to Albany, New York (178 miles). In addition, a second Pilgrim pipeline will carry crude oil from Albany south to NJ and other locations. Two pipelines, side by side, liquids flowing through them in different directions (see Will Pilgrim Pipeline be Allowed to Settle in the NY World?). The oil that would flow south from Albany comes from trains delivering crude from the Bakken Shale play–a double evil in the sight of radical anti-fossil fuelers. So they turned up the pressure on the spineless Andrew Cuomo (see NY Antis Hope Gov. Cuomo Will Halt Pilgrim Pipeline’s Progress). The pressure worked (he’s so predictable). In September the state Dept. of Environmental Conservation and the state’s Thruway Authority, working together, informed Pilgrim they will need to submit to a detailed anal exam, called a full environmental review, before obtaining approval. Anti-fossil nutters rejoiced that the project has been slowed (gives them a chance to kill it). Even with a delay, fossil fuel haters are still worked up about the possibility that those rascally Pilgrims will slip across the continent, laying a pipeline in their wake. So, just like other oil pipeline projects, antis began invoking the sacred name of the great Dakota Access Pipeline killing gods to rain down death and destruction on the innocent Pilgrims (see Indians No Friends of the Pilgrims (as in Pipeline)). The antis continue to agitate and invoke the name of Dakota Access Pipeline, doing so at a packed session in Kingston, NY where antis spread lies about the pipeline…
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Indians No Friends of the Pilgrims (as in Pipeline)

In November 2015, MDN told you about Pilgrim Pipeline Holdings, developing an East Coast pipeline to carry refined petroleum products such as gasoline, diesel, heating oil, and jet and aviation fuel northbound from Linden, New Jersey to Albany, New York (178 miles). In addition, a second Pilgrim pipeline will carry crude oil from Albany south to NJ and other locations. Two pipelines, side by side, liquids flowing through them in different directions (see Will Pilgrim Pipeline be Allowed to Settle in the NY World?). The oil that would flow south from Albany comes from trains delivering crude from the Bakken Shale play–a double evil in the sight of radical anti-fossil fuelers. So they turned up the pressure on the spineless Andrew Cuomo (see NY Antis Hope Gov. Cuomo Will Halt Pilgrim Pipeline’s Progress). The pressure worked (he’s so predictable). In September the state Dept. of Environmental Conservation and the state’s Thruway Authority, working together, informed Pilgrim they will need to submit to a detailed anal exam, called a full environmental review, before obtaining approval. Anti-fossil nutters rejoiced that the project has been slowed (gives them a chance to kill it). But Pilgrim spun the news as a good thing–saying they welcome the full environmental review to prove the safety and righteousness of their proposal. We’ve seen that movie before–remember the Constitution Pipeline? At any rate, fossil fuel haters are still worked up about the possibility that those rascally Pilgrims will slip across the continent, laying a pipeline in their wake. So, just like other projects (see today’s story about the Sabal Trail Pipeline), antis are invoking the sacred name of the great Dakota Access Pipeline killing gods to rain down death and destruction on the innocent Pilgrims…
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Société Générale Questions OPEC Oil Cut Agreement; Russia Lying?

Two weeks ago MDN editor Jim Willis attended the “Platts Global Energy Outlook Forum 2016” held in New York City (see Harold Hamm Talks About Trump, OPEC, and Global Warming). Our previous report focused on the keynote address and Q&A with Continental Resources CEO Harold Hamm. However, there was a second keynoter–for lunch–that riveted the attendees’ attention. That person was HE Abdalla Saem El-Badri, the former Secretary General of OPEC. While the audience munched away on salmon and Cornish game hen, John Kingston, director of S&P Global Market Insights sat on stage with El-Badri and peppered him with questions, mainly about the recent OPEC agreement to cut production among member states by 1.2 million barrels per day, and a follow-on agreement by non-OPEC members (like Russia) to cut another 600,000 barrels per day. At one point Kingston grilled El-Badri about those cuts, recounting that several speakers during the day had voiced the opinion that there would be perhaps 70-80% compliance with the proposed cuts by OPEC and non-OPEC countries. El-Badri voiced his opinion that “there must by 100% compliance” with the stated cuts–otherwise the price of oil will not hit and remain at the target of $55-$65 per barrel. Kingston was, understandably, incredulous, and continued to hammer El-Badri on the point–but El-Badri did not relent from his position that all participants “must” adhere to the cuts in the plan. Kingston is not the only skeptic when it comes to the cuts. The analysts at banking giant Société Générale maintain (in so many words) that Russia, in particular, is lying and will not cut 300,000 barrels per day of production as promised. Here’s SG’s best thinking about what will happen with the OPEC and non-OPEC cuts, and their prediction that the price of oil in 2017 will not hit $55-$65, but instead stay in the $50-$60 range…
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Harold Hamm Talks About Trump, OPEC, and Global Warming

Last week MDN editor Jim Willis attended the “Platts Global Energy Outlook Forum 2016,” held at the beautiful Cipriani, located across the street from the iconic bull that sits on Wall Street. As in previous years, this year’s event featured a number of big names in the oil and gas industry. Most notable was the opening keynote address and Q&A with Harold Hamm, CEO of oil driller Continental Resources (and an adviser to Donald Trump). The luncheon featured the former Secretary General of OPEC. As you can surmise, this year’s event, unlike previous years, was mostly about oil. The recent OPEC agreement to cut production among member states by 1.2 million barrels per day, and a follow-on agreement by non-OPEC members (like Russia) to cut another 600,000 barrels per day, was the topic du jour for speakers and audience members alike. Below are MDN’s notes from Harold Hamm’s address and Q&A session…
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Are Lower Costs to Produce Shale Oil Only a Mirage?

Every now and again it’s fun to read Peak Oil people and their wild theories that oil will run out any year now. Such theories have been exposed as complete bunkum, mainly because those crusty old guys (and gals) in the U.S. oil patch keep figuring out how to do new things to extract oil, at cheaper prices. Technology gets better, procedures get better, we do more with less. And we produce more oil, year after year. But it’s still good to read those with a different viewpoint from time to time, just to keep us on our toes. Sometimes they even make some good points. That’s what we found in an article that posits the theory that shale oil really isn’t as good as it may appear. Why? According to this peak oil author, better technology now being used is not nearly as important as the technique currently employed called “high grading”–or targeting the sweetest of the sweet spots, which are far more productive than the run-of-the-mill drilling locations. The author maintains we’ll run out the best areas to drill soon, leaving us with less-than-optimal areas and therefore much higher costs. And then shale is toast. That’s the theory anyway…
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