In recent years, Appalachian gas firms faced some big challenges: chronically low gas prices, infrastructure that is in perpetual catch-up mode, and the changing complexion of competition.

Initially, low gas prices resulted in part from success in dry gas plays like the Marcellus. More recently, associated gas from the Eagle Ford, Permian, Midcontinent and other oily plays factor prominently in the ongoing saga of low prices. However, chronically low gas prices may find reprieve this summer from low storage inventories.

This translates into opportunity for Appalachia.

Appalachian producers enjoy many advantages, starting with geography and economics. Geographically, the Marcellus and Utica are centrally located to leading consuming regions in the Northeast, Mid-Atlantic and Midwest. Storage deficits are meaningful in key East and Midwest regions. Hence, Marcellus and Utica producers with abilities to scale production are well positioned to address shortages in these areas.

Economically, the Marcellus and Utica gas are highly competitive. Break-even prices, particularly in over-pressured areas in Northeast and Southwest Pennsylvania, are among the top in dry gas plays.

Robust production growth in Appalachia is projected based on rising rig counts, continued focus on drilling in higher quality areas, and through enhanced well designs. Current projections call for 3.1 Bcf/d of growth for the region. However, additional upside is not only possible, but also deemed likely given the storage situation.

Associated gas from the Permian and Midcontinent is projected to add another 3.3 Bcf per day of incremental production this year. Vibrant activity, especially in the Permian, will remain a key driver of growth in associated gas.

As is often heard, things are different this time around. Appalachia has come a long way. Catalysts for higher prices have been identified and associated gas is likely to remain in the Gulf Coast region. That leaves one lingering topic—infrastructure. Gas processing and conduits for taking natural gas and related products to market appear to be mostly in place and regional downstream options are developing. Suddenly, the outlook for natural gas prices seems brighter.

Comments