Saturday, November 12, 2011

Natural Gas Is Boosting U.S. Regional Economies

AreaDevelopment.com -- "Hydraulic fracturing (“fracking”) and horizontal wells now make it possible to economically produce natural gas from low permeability shale rock, greatly increasing natural gas supplies while reducing prices. These shale rock formations are found primarily in Louisiana, New York, North Dakota, Pennsylvania, Texas, and West Virginia. Their development is helping many “downstream” businesses grow and create jobs.

For example, estimates of Pennsylvania job creation due to increased shale gas production since 2009 range from 44,000 to 72,000. In Bradford County, Pa., the 2009 unemployment rate of 10 percent has been halved because of Marcellus Shale gas development. New York’s economically depressed Southern Tier is also benefiting from gas field development in nearby Pennsylvania. Case in point: RB Robinson Contracting, Inc., a family construction business in Candor, N.Y., had eight full-time employees in 2009. Today, it provides full- and part-time work for 120 people.

Ohio’s steel industry has also felt the economic impact of the revival of shale production. More than 400 workers in Youngstown are constructing a new $650 million steel mill for Vallourec & Mannesmann Holdings, Inc. It will annually produce a half million tons of seamless steel well tubing used in drilling and “fracking” natural gas wells. U.S. Steel is spending $95 million to expand and upgrade its tubular steel mill in Lorain, Ohio, and Timkin is spending $50 million on a similar project at its Canton mill."

MP: The chart above shows the increase in mining jobs in Pennsylvania, which have almost doubled since 2004, due to the shale gas boom in the Marcellus region of the state.    

HT: Energy Tomorrow

10 Comments:

At 11/13/2011 9:54 AM, Blogger Rufus II said...

For example a recent post by Fractracker on the performance of 756 Marcellus wells notes that horizontal gas wells declined an average of 39% in the last year, while vertical wells declined 47.6%, though those numbers do not reflect wells that were closed because they were no longer producing (16.7% of the horizontal wells and 6.9% of the vertical wells). Figures from other gas shales have reported decline rates in the Haynesville, for example, of 85%.

What the Frac?

 
At 11/13/2011 10:47 AM, Blogger juandos said...

So rufus a serious question for you, is the following merely a sales pitch or is there some credible substance to it?

vangeIV feel free to take a stab at it also please...

The following was posted on the site PRFWeb: The latest Pennsylvania Marcellus gas production data reveals highest average daily production concentrated in Susquehanna, Bradford, and Greene counties. Operators with the most number of wells statewide reporting average daily gas production exceeding the 95th percentile of all producing wells in Pennsylvania include Chesapeake Appalachia LLC and Cabot Oil and Gas Corporation...

 
At 11/13/2011 12:03 PM, Blogger Rufus II said...

Juandos, I assume they've drilled some new wells in a "sweet spot," and are getting good 1st yr. production. Having said that, they're just shale wells. They'll have a very steep, pretty easily predictable, decline rate the first three, or four years.

I assume that outfit is selling "something." (most everyone is, right?) :)

 
At 11/13/2011 12:20 PM, Blogger Rufus II said...

This is where it's going to get tricky. Another one of these and you can piss on the fire, and call in the dogs.

EPA finds Fracking Compound (including tons of Benzene) in Wyoming town's aquifer

 
At 11/13/2011 3:28 PM, Blogger Benjamin said...

It's amazing. Some are speculating the USA will energy independent in 10 years. Wow.

 
At 11/13/2011 3:29 PM, Blogger Benjamin said...

Shales wells decline.

The question is, do they pay for themselves in the first three years, and are marginal costs of production below revenues if they keep producing after three years.

If yes and yes, then we have more and more natural gas.

 
At 11/13/2011 4:20 PM, Blogger Rufus II said...

Not at $3.50 gas, Benji, as evidenced by the thirty some-odd rigs that left the gas shale plays just last week. At $6.00, or so, it might be a different story.

We are still, as far as I know, the World's largest Natural Gas "Importer."

 
At 11/13/2011 4:43 PM, Blogger VangelV said...

For example a recent post by Fractracker on the performance of 756 Marcellus wells notes that horizontal gas wells declined an average of 39% in the last year, while vertical wells declined 47.6%, though those numbers do not reflect wells that were closed because they were no longer producing (16.7% of the horizontal wells and 6.9% of the vertical wells). Figures from other gas shales have reported decline rates in the Haynesville, for example, of 85%.

Notice the lots of information that says very little? There are a few things that matter. First, what is the first year depletion rate? To get to the 4.2 bcfe EUR assumption that is used for the typical well in the formation you expect to see a first year depletion of around 75%, a second year rate of around 33%, a third year rate of 22%, and so on. Averaging a bunch of wells of different ages and not counting those that are shut down due to under-performance is not very useful to someone like me who is not as familiar with the industry as the insiders who have a better idea of the distributions involved.

Right now I simply do not see how the huge optimism is warranted. If things go as they have before I would expect to see some very good production from a few sweet spots while the rest of the formation is downgraded as being very uneconomical at less than $8 gas. I expect that companies will make many errors before they finally identify the economic core areas. That should reduce returns even if the core areas are productive, which is not a given at this time. I would expect that the population density in the areas where drilling is going on will add political pressures and regulatory costs and should create water use problems that are not easy to deal with. And unless there is a very cold winter and a huge spike in prices I cannot see how this area is any less of a disappointment than all the other areas that were hyped up but are now being abandoned for the purposes of gas production.

 
At 11/13/2011 4:49 PM, Blogger VangelV said...

vangeIV feel free to take a stab at it also please...

The following was posted on the site PRFWeb: The latest Pennsylvania Marcellus gas production data reveals highest average daily production concentrated in Susquehanna, Bradford, and Greene counties. Operators with the most number of wells statewide reporting average daily gas production exceeding the 95th percentile of all producing wells in Pennsylvania include Chesapeake Appalachia LLC and Cabot Oil and Gas Corporation...


This is good news for the producers in the high quality formations in the core areas. It looks as if some of the core areas have been defined and the drilling risks have been reduced. The problem will come on the technical side. What will be the EUR of the typical well in these formations? Will we see enough fractionation plant capacity added to remove the high value NGLs that enhance the returns from the area? Is there a strong enough ethane market for the 55% of NGLs that the area produces to get an adequate price? Will the water use and disposal permits be granted? Will all of these make production economic at the prevailing market prices?

 
At 11/13/2011 5:49 PM, Blogger juandos said...

Thanks rufus and vangeIV...

Appreciate it...

 

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