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Shale permitting explodes in southwest Pennsylvania as pipelines come online


According to Market Intelligence, December 2022


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Shale permitting explodes in southwest Pennsylvania as pipelines come online

Shale gas, liquids and Pittsburgh are the new common denominators for where Appalachian drillers will spud their next wells, judging by September permitting data pulled Oct. 9.

Shale gas drilling permitting in the southwestern corner of the state, including Pittsburgh's Allegheny County, exploded compared to September 2016, with Washington County alone accounting for 100 shale permits, compared to 20 a year ago. Three southwest counties ? Allegheny, Washington and Greene ? accounted for 155 of the shale permits issued by the state Department of Environmental Protection in September, more than half the 264 permits issued statewide.

The most active permittee, Rice Energy Inc., is scheduled to disappear into EQT Corp. by the end of the year, with the combination expected to surpass Exxon Mobil Corp. as the top U.S. natural gas producer. Rice was issued 59 permits in Washington County alone in September, with EQT receiving 11. Other drillers issued permits in Washington County in the past month were Range Resources Corp. with 25, and CONSOL Energy Inc. with five.

"The synergies from this acquisition are really focused in Greene and Washington counties, where we have very significant overlap in amongst the best acreage in the Marcellus play," EQT President and CEO Steven Schlotterbeck told analysts on a June 19 conference call explaining the $6.7 billion deal. "I think it's likely that you will see a strong capital allocation to those areas where we can drill the 12,000-plus-foot laterals and earn the highest returns. But more specifics will come when we release our capital plan in early December."

Asked whether EQT is directing Rice's current business efforts, an EQT spokeswoman said Oct. 9 that the two companies are still independent of each other.

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Interest in the southwest corner of Pennsylvania has been growing as Energy Transfer Partners LP's 3.25 Bcf/d Rover Pipeline LLC comes online in stages. While Rover does not extend into Pennsylvania, analysts expect that the line's opening will make room for dry gas on older systems outbound from the state, such as Dominion Energy Transmission Inc., Columbia Gas Transmission LLC, and Texas Eastern Transmission LP.

The more liquids-rich shale product in southwestern Pennsylvania has started to become profitable to extract from the production gas stream, while producers, which have capped their highest possible prices with hedges to protect their downsides, have been able to use NGL sales to boost their revenues and profits.

Overseas and Canadian markets are increasingly becoming the destination for Appalachian ethane, already exported to Europe and Canada through Sunoco Logistics Partners LP's Mariner East and Mariner West projects.

"Ethane exports posted a huge month in July, coming in at 201,000 bbl/d which is easily a new record and more than double year-ago levels," analysts at energy investment bank Tudor Pickering Holt said Oct. 2. "Year-to-date ethane exports now stand at 160,000 bbl/d vs 85,000 bbl/d over the same period last year. We expect these numbers will continue rising given new ethane boats coming online as well as the new [Kinder Morgan Inc.] Utopia East pipeline at the end of the year that will deliver Marcellus ethane to [Nova Chemicals (Canada) Ltd.]'s refurbished cracker in Sarnia."

The increased activity in the liquids-rich southwest portion of the state contrasted with the relatively flat activity in the dry gas northeastern counties, where there is little room on existing pipelines for volume increases. Susquehanna County was the fourth-most active county for permits in September, with 22.