Wednesday, February 23, 2011

Marcellus Production Data Off The Charts

While oil market stresses and convulsions cause oil prices to jump 40% over the last 12 months, the production data for Pennsylvania Marcellus wells exceed even high expectations.  Production is roaring even though natural gas prices are low, low, low (see post Oil Up 40%; Gas Down 20%).

Data reported to DEP show that Marcellus wells produced at least (not all companies have reported) 256 billion cubic feet of gas in just the last 6 months of 2010 and from only 1,147 producing wells.  Not all of those wells produced for the entire 6 month period.  Just one Cabot well yielded an incredible 2.4 billion cubic feet in the reporting period. 

Annual Pennsylvania gas production for 2011 will easily exceed 600 billion cubic feet, given the trends in this report.  When will the Commonwealth join the 1 trillion cubic feet club?  2012 looks likely.

Many wells seem likely to produce over their life 3.75 to 5.3 million mcf (thousand cubic feet).  One mcf has a market price of about $4 today.  As recently as July 2008, the market price was $13 per mcf. 

The Pennsylvania production data make it unlikely indeed that gas prices will return to those levels.  Indeed this data is consistent with a price range for gas of $3.50 to $6 over the next 5 years or more.

Approximately 6,800 Marcellus well drilling permits have been issued to date, with tens of thousands more in the future essentially guaranteed.

Pennsylvania will produce 2 trillion cubic feet and more by around 2014 or possibly earlier. Prior to the Marcellus boom natural gas production in the Commonwealth was less than 200 billion cubic feet for a full year. Pennsylvania will produce at least 10% of USA natural gas production.  Almost certainly more.

At today's prices, all that gas is cheaper and cleaner than oil and coal.  Yet, oil provides 90% of our transportation fuel and one-third of coal electric power capacity is more than 40 years old, inefficient, and with few environmental controls to prevent pollution that causes substantial human illness and mortality.

Our thinking must be accelerated about how expanding the use of gas to power vehicles and power plants can yield immense public health and national security benefits.

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