As many of our customers and visitors to this site are aware, the steady downward trend in the price of natural gas has resulted in a slowing of leasing and exploration activity in the “dry gas” areas of the Marcellus, particularly the eastern and northern portions of the Marcellus in Pennsylvania. However, we currently see significantly increased leasing and exploration activity in western Pennsylvania and eastern Ohio. Why?
For many, the short answer is “the Utica.” Certainly, the existence of a second large shale gas formation presents significant new gas exploration opportunities. But that’s only part of the answer. To fully understand these current leasing and exploration trends we must look closer at the nature of these and other formations.
These shale formations contain areas of both “dry” and “wet” gas. The term “wet” gas denotes gas with a significant amount of Natural Gas Liquids (NGL’s) such as ethane, propane, butanes, pentane, hexane, and a lot of other “-anes.” The term “rich” gas is sometimes used interchangeably with “wet” gas.
These NGLs sell at a different price than that specified for natural gas (methane). In the past, the value of these NGLs did not exceed the costs of extracting and refining them; thus dry gas was more profitable for the industry to produce and was preferred.
Now, however, the value of the Natural Gas Liquids far exceeds the cost of the additional processing associated with their production. Wet gas now produces an additional profit potential for gas producers of between 40% and 70% above that realized from the production of dry gas. Additionally, unlike natural gas prices, the prices for NGLs have not fallen and may trend upwards with the price of crude oil. Finally, the Utica has shown a capacity to produce significant quantities of oil.
In sum, then, the industry is focusing on shale gas plays with significant wet gas and oil potential while methane prices are in decline.
In addition to the oil producing areas of the Utica of eastern Ohio and western Pennsylvania, the Utica has significant potential wet gas areas in eastern Ohio and western Pennsylvania as well. The Marcellus has significant areas of wet gas in the western portion of the formation as well. Thus, many companies are shifting their leasing and operating budgets from dry gas areas to wet gas areas within the Marcellus and Utica formations.
Finally, it is important to note that there are other unconventional (shale) formations of current interest in the industry. Early lease activity is now occurring in northwest Pennsylvania with companies specifically targeting the Rhinestreet Shale (which lies above the Marcellus in the Upper Devonian group of formations). Similarly, early interest in the Geneseo-Burket shale in the north/central regions of Pennsylvania. The nature of the gas in these formations (wet vs. dry) will determine the level of industry’s continued leasing and exploration activity in them.