Marcellus and Utica Shales in the US, 2020 – Oil and gas shale market analysis and outlook until 2021

12 January 2021 (Last Updated January 12th, 2021 10:49)

Marcellus and Utica Shales in the US, 2020 – Oil and gas shale market analysis and outlook until 2021
In 2020, natural gas prices started off averaging at approximately $2 per thousand cubic feet (mcf) and declined gradually down to as low as $1.63 per mcf. Credit: FreezeFrames / Shutterstock.

The Appalachia Basin, which is made up of the Marcellus formations and the Utica Shale, accounted for more than 40% of the natural gas produced in the US in 2020. Most of the production comes from the states of Pennsylvania and Ohio and partially from West Virginia. Unlike many of the oil plays in the US Lower 48, the natural gas plays, including the Appalachia Basin, saw a less drastic change in production and drilling activity during the economic contraction caused by the Covid-19 pandemic.

While major oil-producing operators cut their 2020 capital expenditure up to 50%-60%, the top three producers in the Appalachia Basin, which are EQT Corporation, Antero Resources, and Southwestern Energy, have only cut their capital by 20%, 35%, and 40% respectively. The region averaged 32.19 billion cubic feet of natural gas per day (bcfd) and 33.44 bcfd in 2019 and 2020 respectively.

Figure 1: Appalachia Basin oil and natural gas production

In 2020, natural gas prices started off averaging at approximately $2 per thousand cubic feet (mcf) and declined gradually down to as low as $1.63 per mcf, representing a decline of 20% from January 2020, which is much less significant compared to the oil price crash of as much as 70% to a decade low of $16.55 per barrel. However, future prices for Henry Hub in 2020 is currently averaging $2.75 per mcf, which prompts many companies to increase drilling and completion activities. The higher price is linked to the growing exports of liquefied natural gas (LNG), the growth of the number of heating days, and the drawdowns in the US natural gas storage. In 2019, the US exported approximately 5 bcfd of LNG, which increased to 6.53 bcfd in 2020. The EIA forecasts that LNG exports will continue to grow to an average of 8.50 bcfd in 2021.

The outlook for the Marcellus and Utica plays is closely tied to the demand for LNG exports from the US. Currently, the US has an export capacity of 9.17 bcfd, and with current planned and under-construction projects, this value will grow to 11.97 bcfd in 2023. While other plays near the Gulf Coast such as the Permian Basin, Eagle Ford, and the Haynesville are better located to provide natural gas to meet LNG feedstock demand, the Marcellus and Utica can also play a relevant role in supplying natural gas to the new LNG facilities located on the Gulf Coast, but additional pipeline capacity will be needed.

Figure 2: Henry Hub vs international natural gas prices

In July 2020, Duke Energy and Dominion Energy cancelled their plans to build the Atlantic Coast Pipeline due to delays and escalating costs, which would have brought 1.5 bcfd of natural gas from the Appalachia Basin to the Gulf Coast.

For the Appalachia Basin to significantly grow production in the future, it will need to gain more access in infrastructure to transport natural gas, in particular, for reaching the LNG plants in the Gulf Coast. In the meantime, the basin will continue to play a key role in supplying other non-LNG related natural gas demand in other US regions such as the Northeast and the Midwest.