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Appalachian gas production cannot continue to ramp up rapidly: exec

Despite improved drilling and completion techniques such as the drilling of longer horizontal laterals, natural gas production from the Appalachian Basin cannot continue on its current rapid upward trajectory indefinitely, a speaker at the Platts Appalachian Oil and Gas Conference in Pittsburgh said Monday.

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Appalachian producers will eventually experience "sweet spot exhaustion," Alan Farquharson, senior vice president of Range Resources, said on the sidelines of the conference.

"As you drill longer and longer laterals, it minimizes the number of wells it takes to develop that core position," Farquharson said. "As a result, the core of the acreage gets drilled up, you have to step out to tier one, tier two and tier three wells, which means you get lower productivity per well."

Forecasts from Platts Analytics' Bentek Energy unit call for production from the US Northeast to grow from an average 24.9 Bcf/d in September to a winter-ending average of 27.3 Bcf/d in March 2018.



In recent months, producers in Appalachia and other producing basins have been experimenting with the drilling of extended lateral wells, which have recorded higher per-well production. However, that per-well production growth comes at a cost when it is measure against an operator's production across the company's entire acreage, Farquharson said.

"The best thing that people need to look at is not individual well productivity, but productivity on a normalized basis," Farquharson said. "If you normalize everything under a common denominator, you will see if well productivity is remaining constant or not."

The Appalachian Basin is similar to other producing basins, in that there are core areas where well productivity is the highest, as well as non-core area, where output tends to be less prolific.

In the case of the Appalachian Basin, there are two distinct core regions, the dry gas Marcellus region in northeastern Pennsylvania and the wet gas region around southwestern Pennsylvania, West Virginia and Ohio, which is highly prospective for both the Marcellus and Utica shale plays.

"With the growth profile that maybe a lot of people have, they think the core goes on forever. They think technology can make tier-one acreage core acreage, but it can't," Farquharson said. "Because if it could ... there would be a lot of rigs running in the Barnett (Shale)."

In the near term, the pipeline capacity being built to carry Marcellus and Utica gas out of Appalachia should provide producers in the region with an incentive to continue to pursue high levels of production.

Platts Analytics estimates pipeline projects will add 12.8 Bcf/d of capacity to the region over the course of 2018.

Platts Analytics forecasts production will grow by about 2.6 Bcf/d over that period. However, even at this rate of growth, Platts Analytics forecasts the pipeline capacity coming online will be underutilized.

Farquharson said he agrees with that assessment.

Based on the current level of regional activity and the amount of capital that would have to be deployed to increase production to the point where it fills up all the capacity coming online, "we don't think there's going to be enough near-term supply to fill all the capacity," he said.

"It's going to come down primarily to commodity prices, to what netback is, for producers to decide whether to fill that capacity or not," he added.

In this respect, the development of the Appalachian Basin is similar to that of basins developed in prior years, Farquharson said.

"Historically, every play gets overbuilt. Pipelines always get bigger, because companies at any given point in time predict certain growth, but things change," he said.

"Whether it's commodity price, whether it's [the discovery of] new basins, whether it's a whole bunch of other things, it changes. Activity levels are going to be lower than probably most people expect," he added.

--Jim Magill, jim.magill@spglobal.com

--Edited by Keiron Greenhalgh, keiron.greenhalgh@spglobal.com