Natural gas in our backyard will benefit from international expansion

Ohio will get to be part of the international natural gas expansion, thanks to the Marcellus/Utica Shale gas and oil formations. Natural gas is being produced and exported all along Ohio’s eastern border. While Texas still produces more natural gas than any other state, the core Marcellus/Utica region produces almost as much as Texas and Louisiana together.

The region consists of Ohio, Pennsylvania and West Virginia and thanks to pipeline reversal projects, Marcellus/Utica is moving gas south and taking market share from other regions.

Changes in the works
This extensive “replumbing” of the gas delivery infrastructure between the northeastern region of the U.S. and Texas/Louisiana will allow Marcellus/Utica to take advantage of exploding gas demand in Mexico. Historically, enhancements to pipeline networks in the Marcellus/Utica region have not all gone well.

A few projects marginally increased gas flows to New England and other projects have faced strong public opposition and regulatory delays. Fortunately for Marcellus/Utica producers, however, projects to get gas in the northeast to flow west and south have been advancing to construction.

Production is up
Even with low gas prices, production from Marcellus/Utica Shale has quintupled. Due to declining dry gas prices, Marcellus/Utica producers shifted production to wet (liquid-rich) gas containing natural gas liquids. NGL prices soared due to the ethane extracted and turned into ethylene, which is turned into plastics. After extracting NGLs, the “residue” natural gas is identical to dry natural gas, making “wet” gas formations the most desirable.

New developments
Seven projects are being developed to move gas out of the region through Ohio. Demand for export volumes, mostly from Texas border crossings, is increasing to require a projected 14 billion cubic feet/day of new pipeline capacity. By 2021, 13 new liquefaction “trains” (Liquefied Natural Gas) will begin operating (almost all of these will be in the Gulf Coast). These LNG trains allow exporters to transport large quantities of natural gas long distances because the liquefaction turns the gas into liquid form.

Stay tuned
Only three gas demand growth markets appear to be capable of absorbing several billion cubic feet of incremental gas production a day. One is gas-fired power generation and the other two are demand for LNG exports and pipeline exports to Mexico.

These demand sources will draw Marcellus/Utica gas to the Gulf coast.

There will be competition. However, our “backyard” gas will increasingly make the long journey to Texas and Louisiana. This is certainly a market and a trend within the market to pay close attention to in the weeks, months and years ahead.

Matthew P. Figgie is chairman and Rick Solon is president and CEO at Clark-Reliance