Ohio’s Utica Natural Gas Helps Lead The Shale Revolution

Thanks to the Utica and even part of Pennsylvania’s Marcellus shale plays, Ohio is now one of our of major natural gas producing states. Despite low prices in the $3.00 range, producers in the Utica have added 10 rigs since early-March to now total 29. The Ohio Department of Natural Resources reports that 2Q gas production hit 4.3 Bcf/d, up 5% or so from the prior quarter and up 16-17% from the 2Q 2016. Four counties – Belmont, Harrison, Monroe, Carroll, and Jefferson – account for nearly 90% of the state’s output, with Belmont leading at 1.9 Bcf/d.

Looking forward, Ohio has many more gas opportunities: I’ve already documented the Northeast gas pipeline build-out primed to bring gas to more markets. Delivering over 0.6 Bcf/d in recent days, the massive $4.2 billion, 713-mile greenfield Rover pipeline finally started Phase 1 operations Friday, September 1. Rover’s Phase 2 will lift the project to its full 3.25 Bcf/d capacity and could come online by early-December. Rover will ship Appalachia Basin gas to markets in the Midwest, Gulf Coast, and eastern Canada.

With construction slowed by multiple delays and pressure from regulators, the gas market has been excitedly waiting for Rover’s arrival. This is the largest pipeline project since the beginning of the shale boom, so vital that regulatory policies surrounding it move the needle for the U.S. gas market.

Rover will have major effects on regional Northeast basis gas pricing, such as Dominion South. But be careful how you view new pipelines on gas prices, since they have a dual impact: pipelines can lower basis by increasing gas-on-gas competition but they can also increase production. Meaning that to a large degree, the price impact of gas pipelines for prices isn’t certain. For example, now that Rover is up and running, Northeast gas production has ramped up past the 25 Bcf/d.

Now, the similar to Rover routed 1.5 Bcf/d Nexus pipeline has been approved by FERC with startup slated for next year. Overall, there is an immense 18 Bcf/d of new gas pipeline takeaway capacity expected online for Appalachia by the end of 2018. Illustrating their commercial viability, many of these pipelines are 100% subscribed, with producers just waiting for them to be built to fill them with gas.
Data Source: EIA; JTC

Out of pretty much nowhere, Ohio is now our 6th biggest gas producing state.

There are nine gas-fired plants either under construction or in some phase of development in Ohio. Their capacity is around 8,500 MW, with most being developed near the shale fields in eastern Ohio. For natural gas especially, Ohio has lots of room to grow: in the first half of this year, gas was just 21% of Ohio’s electricity, about 1/3 of coal’s market share. The U.S. average is around 30-34% for gas, so high-gas producing Ohio understandably wants more gas plants. Ohio’s annual gas demand for power has basically quadrupled since 2010 to nearly 230 Bcf. Within the next decade, the state has room for 15-20 more units, given adequate access to more pipelines, the power grid, and a sufficient supply of water to run the cooling system.

Local production wise at 4.3 Bcf/d Ohio produces enough gas to generate around 230 terawatt hours of electricity each year – nearly double the total power needs of the state. I’ve already shown how more natural gas is drastically lowering CO2 and other Greenhouse Gas emissions in both Pennsylvania and Florida, so Ohio is smart to follow suit, not to mention the jobs, taxes, and other huge benefits a strong shale industry brings to a state.

Moreover, the Utica (and the Marcellus too) position Ohio as a new petrochemical hub using ethane from cheap natural gas to make the building block chemicals for plastics.

Beyond the Buckeye State, the Utica will remain essential to supplying gas to the Midwest and allow even more gas plants to get built across the entire country. Everywhere you turn the utilities’ Integrated Resource Plans are increasingly focused on just three things: 1) more natural gas to increase flexibility, reduce prices, and lower emissions, more renewables to lower emissions, and more efficiency to cut demand and reduce prices, and lower emissions.

Unfortunately, important baseload coal and nuclear plants are shrinking in number, but fortunately: gas is the most reliable, flexible, and affordable clean source of power to compensate. And as I show, gas plants are always upping their efficiency levels. Ultimately, as one of just 10 significant gas producing U.S. states, Ohio is instrumental in allowing the huge importers like California, Florida, and New York to increasingly turn to natural gas, not to mention allowing them to build more wind and solar farms because gas plants have the amazingly quick ramp up ability to buttress their natural intermittency.

Nationally, the U.S. is expected to increase its gas use by 1-2% per year and eventually surge to 45 trillion cubic feet of consumption by 2050. And even globally, affordable Ohioan gas will help the world use more gas to lower emissions, while supply modern energy to a mostly poor world. U.S. liquefied natural gas (LNG) exports could boom 5-fold to over 10 Bcf/d by 2020 alone, and we could be the largest LNG exporter within 6-8 years. Helped along by climate change goals to reduce greenhouse gas emissions, natural gas could overtake oil to become the world’s primary source of energy within 15 years.

Ohio’s Utica will be at the forefront. Although deeper and not yet as economical as its neighbor the mighty Marcellus shale, a recent study by experts at West Virginia University found that the Utica play contains technically recoverable resources of ~785 trillion cubic feet of gas, enough gas in the Utica shale play alone to meet current U.S. needs for almost 30 years. And there is probably a few billion barrels of oil and gas liquids or more that would also lead to more gas output.
From Forbes |  September 10, 2017