Energy Execs Like Prospects Once Oil Prices Rise

PITTSBURGH — Oil and gas production across the Utica shale in eastern Ohio and western Pennsylvania has hit a rough patch, but Shell’s recent announcement that it would build a $4 billion ethane cracker plant in Beaver County, Pa., could help producers in the wet gas portion of the play, which includes the Mahoning Valley.

However, the sale of natural gas liquids produced from wells in the Mahoning Valley is likely to be determined by a single factor: price.

“That gas for the most part is wet,” Mike Huwar, vice president of marketing for Columbia Midstream Group, says of product coming from wells in Mahoning and Columbiana counties. Columbia owns 47% of the Hickory Bend gathering and processing system that includes the cryogenic plant in Mahoning County near New Middletown. The plant separates dry gas, such as methane, from “wet” gas, such as ethane, butane and propane.

The two other partners in the venture are Hilcorp Energy Co. — the most prolific driller in the northern Utica — and Williams Three Rivers Midstream.

Huwar spoke to The Business Journal after delivering a presentation at Hart Energy’s DUG East conference in Pittsburgh June 22.

Hickory Bend’s pipeline system extends 39 miles from Mercer County, Pa., through Mahoning County in Ohio, and into Columbiana County.

“Production — like in so many other areas of the Utica and Marcellus – has started to decline a bit, which is solely based on price,” Huwar says. “We anticipate that when price comes back, and that’s starting to creep up now, production will be back to where we’d like to see.”

Columbia Pipeline has identified more than $6.3 billion in “regulated growth” and between $4 billion and $5 billion in modernization efforts in the Utica and Marcellus shale plays. The company’s system encompasses 15,000 miles of dry gas and wet gas interstate pipelines across the country.

Huwar says Hickory Bend is “one of the crown jewels” of the Columbia Midstream system. Gathering lines from wells in the northern Utica send gas into a pipeline that sends it directly to the Mahoning County cryogenic plant, where it is chilled, causing the heavier natural gas liquids to separate from the lighter dry gas. The NGLs are then shipped via a 36-mile pipeline to UEO Buckeye’s Kensington cryogenic plant in Columbiana County. From there, the wet gas is transported through another pipeline to a UEO plant in Harrison County, where the NGLs are processed into specific products such as ethane, propane or butane.

Helping demand for ethane production in particular is Shell’s plan to its ethane cracker plant near Monaca, Pa., just 40 miles from Mahoning County. The plant would convert ethane feedstock from the Utica and Marcellus shale in Pennsylvania into ethylene and processed further into polyethylene, which is used as a base ingredient for hundreds of products. The plant is expected to come online in the early 2020s, Shell reported.

“The direct impact is hard to predict,” Huwar says, because the complex won’t be operational for another four or five years. However, he did cite the project’s immediate potential for job creation – some 6,000 temporary construction jobs and 600 permanent positions.

“We applaud Shell and their investment here,” Huwar says. “It can only clearly help the natural gas industry.”

Shell’s ethane cracker may help demand for ethane in the region, but in the end markets will dictate the product mix that comes out the Utica’s wells, observes Timothy Dugan, chief operating officer of Pittsburgh-based Consol Energy.

“We’ve got ethane that will be used locally and abroad,” Dugan says. However, the company hasn’t released any details regarding marketing deals with Shell or the sale of ethane. “It will be a big part of what we do, but we haven’t talked about specifics.”

Dugan adds that overall market conditions related to ethane pricing are likely to influence product mix more than any other factor. “I think the cracker is a huge boost to the local economy and it’s going to make an impact worldwide,” he says. “The mix of our activity will be driven by rates of return and market impact.”

Consol operates three wells in Mahoning County, none of which have produced oil or gas of any significance. During the first quarter of 2016, its Hendricks Mahn2A well in Ellsworth Township was all but shut down, producing just 13,000 cubic feet of gas over two days. In Jackson Township, Consol’s Cadle Mahn 7A well produced just 27,000 cubic feet over two days. A second well at the Cadle farm yielded 14.9 million cubic feet of gas over 49 days.

“We’ve prioritized all of our assets and we look at them from a value standpoint,” Dugan says. “Mahoning County is certainly on our list of assets, but they’re not at a point where we’re ready to go back there and continue developing.”

Consol, which earlier announced that it’s considering resuming drilling, possibly this year after a yearlong hiatus, has not announced when or where it would target any new drilling program.

The company has focused most of its attention on the more lucrative areas of the Marcellus and southern Utica in Ohio, including the deep Utica formation in southwestern Pennsylvania. Moreover, Consol has an advantage in this area because most of its acreage is legacy land from its former coal mining interests.

“Right now, what we’ve got in southwestern Pennsylvania and in Monroe County, Ohio – those assets are rising to the top of our list,” Dugan says.

Three of Consol’s wells at its Brewster pad in Monroe County, for example, each produced more than one billion cubic feet of gas over an average 62-day period, according to the latest production data from the Ohio Department of Natural Resources.

And, as technology and drilling efficiencies improve, it’s likely companies such as Consol will have the ability to access the deep Utica at less cost, which could greatly improve the potential of the play, Dugan says.

“When you look at the acreage spread, the Utica could be as big or bigger than the Marcellus,” he says. “One Utica well could be as big as three Marcellus wells production-wise.”


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