Experts Say Slow Growth Ahead for PA Marcellus in 2019
It’s that time of year when the prognosticators haul out the ole crystal ball and make predictions about what’s ahead for the coming year.
Sometimes it’s a useful exercise to predict what will happen. Most of the time such predictions are wrong, at least to some degree. What about new drilling, production, and overall activity in the Marcellus in Pennsylvania? Experts say to expect in 2019 what we saw in 2018–slow and steady growth. We’d point out that every single quarter in both PA and OH we set new record high natgas production records (see PA Natural Gas Production Hits Another All-Time High in 3Q18 and ODNR Releases Ohio Utica O&G Production for 3Q18 – Top 25 Wells).
Of course, there is a difference between drilling activity (the number of active rigs) and production activity. It used to be you could lay a ruler down and predict production growth based on the number of active drilling rigs. No more. Fracking techniques and technology over the past few years have revolutionized production. Far fewer rigs are required to produce far more gas.
So while we may see “measured growth” in the number of active rigs, our prediction is that production growth will continue to soar.
Here’s what the experts are saying about 2019:
The theme of 2019’s natural gas production will likely be the same kind of measured growth that exemplified the past year.
While the region’s big natural gas producers have yet to spell out their development and capital spends — that happens by the end of January — it’s clear that the strong boost in production that has made the Marcellus and Utica shales a force to be reckoned with is a thing of the past. Pennsylvania won’t lose its position as the country’s second-biggest natural gas producer any time soon. But gone is the frenetic pace of the early days of the industry, where scaling up was a big focus and there were more than 100 rigs working in Appalachia.
Pennsylvania has only half that level, 47, by the end of 2018. And that isn’t by accident. Publicly traded producers have responded to market realities not by outsized increases in natural gas production, but instead with more Wall Street-friendly efforts like stock buybacks and paying down debt. EQT Corp. is committed to growing within its cash flow, while Range Resources Corp. recently struck an overriding royalty deal on its southwestern Pennsylvania production that will help it decrease debt.
“Shareholders are favoring a more balanced approach,” said Matthew Woodson, senior analyst at Houston-based Wood Mackenzie Ltd.
Bernadette Johnson, VP of market intelligence at Drillinginfo, also doesn’t expect large production increases in 2019. Producers will be living within cash flow and there’s no reason for them to keep growing production because it’s not being valued the same as it used to.
“They’re not being rewarded for production growth as they used to,” Johnson said.
That’s been changing the way natural gas producers have approached their operations, and Woodson sees no change in the new year.
“Overall, the trend of just more measured growth and focus on getting cash flow positive is continuing,” Woodson said. “We’ll see growth that’s maybe just slightly higher than what we saw in 2018.”
But that doesn’t mean things are ebbing here in Appalachia, said Marcellus Shale Coalition President David Spigelmyer: A year ago, there was a cautious optimism about the prospects for the shale industry.
“We’ve gone from a period of cautious optimism to now living in an energy renaissance,” Spigelmyer said. “We’re beginning to see the downstream benefits that have been extraordinary for workers, extraordinary for consumers.”
Spigelmyer sees a lot of strength in the industry, including the petrochemical plant under construction by Royal Dutch Shell in Beaver County, and the potential for others. Not to mention the new manufacturing opportunities afforded by natural gas, he said.
“We’ve already landed a number of HQ2s in Pennsylvania with this industry,” Spigelmyer said.*
*Pittsburgh (PA) Business Times (Dec 31, 2018) – Look ahead: Slow and steady growth in natural gas will define 2019