Marcellus Goliath Transforms Region to Gas Trade: Energy Markets (Bloomberg)

November 27, 2013

Bloomberg: Marcellus Goliath Transforms Region to Gas Trade: Energy Markets
By Christine Buurma - Nov 26, 2013

Beneath the rolling pastures and woodland of western Pennsylvania, a corner of Appalachia dotted with Victorian main streets and white church steeples, a radical shift is under way.

In Punxsutawney, home to a groundhog named Phil who prognosticates the weather each February, a $2.8 million hotel is under construction. A few miles away in DuBois, metal fabricator Staar Distributing LLC is expanding to neighboring Brookville. All this development is coming to an economically depressed region that lies atop the Marcellus shale, a rock formation that produces more natural gas than Saudi Arabia.

Output from shale deposits including the Marcellus has surged 10-fold since 2005 to account for a third of the country’s gas production, government data show. The boom has eliminated a regional price premium, redirected pipeline flows and left the nation poised to export the fuel overseas after cutting imports by 44 percent since 2007. It’s also helped make the U.S. 86 percent energy independent, the most since 1986.

“The Marcellus is a Goliath,” David Schlosser, senior vice president for engineering and strategic planning at EQT (EQT) Corp., one of the four largest gas producers in the Marcellus, said in an Oct. 31 interview at the company’s headquarters in Pittsburgh. “In some ways, we’re just at the tip of the iceberg.”

Hub Discount

Rising production has pushed down prices. Gas at the Tetco-M3 hub, which supplies New York City, traded at an average discount of 7.21 cents to the benchmark Henry Hub in Louisiana in October, compared with average premiums of 83.77 cents in October 2005 and 17.62 cents in October 2012.

Gas futures for December delivery rose 2.9 cents, or 0.8 percent, to settle at $3.818 per million British thermal units on the New York Mercantile Exchange. The futures have dropped 66 percent from November 2005.

The discount of Northeast prices to Gulf Coast gas comes even as colder weather boosts demand for the heating fuel, Adam Longson, an analyst at Morgan Stanley in New York, said in a Nov. 14 note to clients. Northeast output has been so robust that the bank increased its 2014 production growth estimate for the region to 2.4 billion cubic feet a day from a forecast of 2.2 billion just a month earlier, enough to supply about 24,000 homes in the U.S. for a year.

In Pennsylvania’s Greene County, workers at an EQT drilling site gather behind a bank of computers in a steel-sided shelter known as a doghouse, monitoring data as roughnecks on the muddy rig floor remove pipe from a well. Producers use a technique known as hydraulic fracturing, or fracking, to blast water, sand and chemicals underground, breaking apart shale rock and extracting gas buried thousands of feet below the surface...

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