New pipelines necessary for Marcellus and Utica shales to play relevant role in supplying natural gas to new Gulf Coast LNG facilities

Source: press release, 20 January 2021

Appalachia Basin, crude oil and natural gas production, 2019-2020 (source: GlobalData Oil & Gas Intelligence Center)
Appalachia Basin, crude oil and natural gas production, 2019-2020 (source: GlobalData Oil & Gas Intelligence Center)

The Appalachia Basin, made up of the Marcellus formations and the Utica Shale, accounted for more than 40% of the natural gas produced in the US in 2020. Unlike many of the oil plays in the US Lower 48, natural gas plays, including the Appalachia Basin, saw a less drastic change in production and drilling activity during the economic contraction caused by the COVID-19 pandemic, says GlobalData, a data and analytics company.

GlobalData’s latest market analysis report, Marcellus and Utica Shales in the US, 2020, reveals that the Appalachia region averaged 32.19 billion cubic of natural gas per day (bcfd) and 33.44 bcfd in 2019 and 2020, respectively. While major oil-producing operators slashed their 2020 capital expenditure up to 50-60%, the top three producers in the Appalachia Basin – EQT Corporation, Antero Resources, and Southwestern Energy – have cut their capital only by 20%, 35% and 40%, respectively.

Andrew Folse, Oil & Gas Analyst at GlobalData, comments, “The future prices for Henry Hub in 2020 are currently averaging $2.75 per mcf, which prompts many companies to increase drilling and completion activities. The higher price is linked to the growing exports of LNG, growth in the number of heating days, and the drawdowns in the US natural gas storage. In 2019, the US exported approximately 5 bcfd of LNG, which increased to 6.53 bcfd in 2020. The EIA forecasts that LNG exports will continue to grow to an average of 8.50 bcfd in 2021.”

The outlook for the Marcellus and Utica plays is closely tied to the demand for LNG exports from the US. Currently the US has an export capacity of 9.17 bcfd, and, with current planned and under construction projects, this value will grow to 11.97 bcfd in 2023. While other plays near the Gulf Coast such as the Permian Basin, Eagle Ford, and the Haynesville are better located to provide natural gas to meet LNG feedstock demand, the Marcellus and Utica can also play a relevant role in supplying natural gas to the new LNG facilities located on the Gulf Coast, but additional pipeline capacity will be needed.

Folse concludes, “For the Appalachia Basin to significantly grow production in the future it will need to gain more access in infrastructure to transport natural gas, in particular for reaching the LNG plants in the Gulf Coast. In the meantime, the basin will continue to play a key role in supplying other non-LNG related natural gas demand in other US regions such as the Northeast and the Midwest.”