Apr 20, 2016 4 min read

Two professionals close to the oil and gas industry predicted Tuesday normal natural gas production in the Marcellus and Utica shales will return in about 18 months.

The speakers, Dave Spigelmyer, president of Marcellus Shale Coalition, and Nathan Snyder, a certified financial analyst with Snow Capital Opportunity Fund and its Large Cap Value Portfolio, both prefaced their remarks with caveats, but were close in their assessments of when the region’s industry could see a reversal from the steep downturn in production that began in early 2015.

The seminar, “The Future of the Marcellus and the Utica” was presented by MSC, the Tri-County Oil & Gas Expo and Community Bank at the South Franklin Township fire hall and community center. The event also featured Bob Bishop, executive vice president with the Bishop Group of Janney Montgomery Scott and manager of Community Bank Wealth Management.

The audience of about 100 primarily consisted of area landowners, many of whom have leases with oil and gas companies, according to a show of hands.

Spigelmyer, whose trade organization represents oil and gas drillers and their supply chain partners, witnessed the shrinkage of activity firsthand. He noted membership in MSC fell from around 300 to 220 since drillers began announcing production cuts in early 2015.

He noted Pennsylvania was always a big producer of natural gas through shallow-well drilling, but since the ramp-up of drilling in the much deeper Marcellus strata with hydraulic fracturing began around 2008, Pennsylvania is now the second largest producer of natural gas behind Texas.

Gas is bringing about $2 per thousand cubic feet on the New York Mercantile Exchange, but only about 92 cents per mcf for Pennsylvania producers because of inadequate infrastructure that makes it more difficult to deliver the product to market.

He said the glut led oil and gas drillers to pull about $12 billion in capital investments in drilling projects in the region last year, and as a result, the rig count has plummeted from 111 to 17 units in the past 18 months.

“The supply chain has seen layoffs,” Spigelmyer said, adding that he believes the situation is a short-term one.

“We’re very much in the first inning of development” in the region, he said, giving several reasons for the growing uses of natural gas in numerous markets.

One of those is natural gas-fired power plants, which have been supplanting coal-fired plants in recent years.

He noted construction has begun on a $780 million gas- and steam-fired plant in South Huntington Township, Westmoreland County. According to reports, the plant will generate up to 925 megawatts of electricity, enough to serve 925,000 homes along the East Coast.

He added that the glut of natural gas in the region has brought consumers large reductions in their monthly heating bills between 2008 and 2015, with a chart showing Columbia customers saw a 54 percent reduction in that time.

Last month, producers here began shipping ethane east to the Philadelphia region, via the Mariner East 2 pipeline.

But the biggest advance, according to Spigelmyer, will come with the “ethane factor,” a reference to one of the gases derived from the region’s prodigious amounts of wet, or liquid gas.”

While stating he had “no inside knowledge” of whether Shell will build its proposed ethane cracker plant, Spigelmyer said such a project would enable the creation of everything plastic in the region, given ethane’s role as a building block for the material.

When asked to offer an estimate for when natural gas might see a return to regular production, Spigelmyer said it would depend upon higher prices for natural gas, stating that it would have to be priced between $3 and $4 mcf. He said he expected that to occur in about 18 months, which would be concurrent with the completion of a number of pipeline projects across the region.

His estimate was supported by Snyder, who said he believed gas production could reignite with a price of $4.

But both men said gas production going forward would occur in a much more controlled fashion, given the fact that many producers are simply making interest payments on their loans.

“What really matters is the cost to produce,” Snyder said, adding that going forward, “drilling schedules will be determined by the banks making the loans.”

Some drillers will weather the current downturn because of their strong financial standing, he said, naming Range Resources, EQT, Rice Energy and Consol Energy in that category.

However, many others could face bankruptcy unless prices turn around to the point where they can make money by drilling, he added.

Like Spigelmyer, Snyder said he is bullish on a cracker plant being built in the region to take advantage of the abundant amounts of ethane being produced.

He acknowledged one or more plants operating here have the potential of ushering in “another industrial revolution, but it’s going to take a long time.”