Marcellus and Utica: What Are They, and Why Do We Care?

March 27, 2018

What is the Marcellus Shale?

Covering six states, and 75% of Pennsylvania, the Marcellus Shale is one of the largest known sources of natural shale gas within the United States. Though the industry was aware of Marcellus’s potential, prior to 2008 it was largely overlooked as a viable source of sustainable shale gas production. This is because the gas is trapped within pockets surrounded by tough limestone layers, making it both difficult and economically infeasible to construct wells.

However, in 2005, a company by the name of Range Resources noted that the Marcellus Formation shared properties with another source of natural gas, the Barnett Shale, located within Texas. Namely, the tight rock trapping natural gas, and estimated quantity of natural gas available. Thus, Range Resources utilized techniques that had been recently developed to acquire gas from the Barnett Shale, namely that of horizontal drilling and slickwater hydraulic fracturing, or “fracking”.

In this article, we won’t be delving deeply into these practices, suffice to say that these techniques allow for a larger amount of natural gas to flow into the wells, allowing for significantly higher production than traditional vertical drilling. The utilization of this technique brought Marcellus shale gas extraction to the forefront of domestic natural gas production, and by 2008, it quickly became one of the largest shale gas plays in the nation.

What is Utica?

Named for the city in New York, the Utica Shale is a major source of tight gas in Quebec, and rapidly is developing as a major play in Ohio. Marcellus and Utica are often mentioned in the same breath, and rightfully so. The Utica Shale overlaps largely with Marcellus, resting thousands of feet below the play. Largely, most drilling efforts in Utica are focused in Ohio, as the state is believed to be richer in oil and natural gas. A large portion of the shale region also resides in New York which, at this time, has placed a moratorium on hydraulic fracking, which was renewed as recently as December of 2017.

Why We Care

The Marcellus and Utica Shales represent a major economic development in the United States. Of course, there’s the economic benefit of job creation and mineral rights leasing, but the true energy industry value in Marcellus and Utica are the transportation of the region’s plentiful shale gas to areas like the Mid-Atlantic, which has previously been dependent on gas pipelined in from the US Gulf Coast. Pipeline projects in the region are in various states of operation and construction, while others are still working their ways through regulatory bodies. It is expected that these pipeline projects will create a downward pressure on prices in the states they service, bringing them more in line with Henry Hub prices. This will, in turn, drive the price of electricity in said states down.

However, there are a number of factors currently driving upward pressure on natural gas prices. Exports to Mexico are expected to increase, as pipeline capacity to the country is projected to reach 14.4 billion cubic feet per day (bcf/d) by the end of 2018. This represents a 300% increase over 2014’s capacity. Liquefied Natural Gas (LNG) exports are also projected to increase, with the Dominion Cove Point LNG terminal newly operational, having exported its first cargo in early March of 2018. While production continues at record levels, much of it will be exported to markets where demand (and thus prices) are higher. As such, we should not assume that record levels of domestic production will lead to a continual downward shift in pricing.

If you want to discuss how your organization can benefit from the current state of the natural gas market, please contact APPI Energy at 800-520-6685 or via our contact us page.