Retail Energy Buyer

Subscribe to the free weekly newsletter written just for retail energy buyers

How the Marcellus Formation Is Transforming Energy Markets

May 20, 2015 By Josh Kessler

Natural gas produced through hydraulic fracturing (“fracking”) in shale formations has transformed the energy industry across North America over the past decade. The US Citygate gas price has fallen from a peak of 12.48 per thousand cubic feet (tcf) in July 2008 to just 4.55 per tcf in February 2015, according to price data from the Energy Information Administration (EIA). The Marcellus Shale Formation is the largest such formation in the country, accounting for 37 percent of US shale gas production in April and, according to the Bismarck Tribune, 18 percent of the country’s total gas production. A map on Geology.com shows it concentrated in Pennsylvania, West Virginia, Ohio, and New York, and it enters into Kentucky, Maryland, Tennessee and Virginia.

History of Marcellus

The Marcellus Shale formation was discovered in 1859 by an unemployed railway conductor, notes the Bismarck Tribune. Within two years, the Union began leveraging the resource in the Civil War. The find also helped to precipitate an oil rush in the region, but the rush died down before the end of the 19th century, and the area saw limited exploration until the 21st century began.

How Much Gas Is in Marcellus?

An article in Geology.com notes that as recently as 2002, the US Geological Survey estimated that Marcellus contained just 2 trillion cubic feet of recoverable gas – a fraction of the 30 trillion cubic feet produced every year in the US. In 2005, however, drillers began using new fracking techniques to extract gas in the region, and production began to grow. Then in 2008, estimates for the amount of gas stored in Marcellus exploded to 500 trillion cubic feet. In 2011, EIA estimated that the formation contained 410 trillion cubic feet, of which about 141 trillion cubic feet could be recovered using current methods.

EIA data show that Marcellus produced 15.2 billion cubic feet (bcf) per day in April 2015. At that rate of extraction, the formation’s 141 trillion cubic feet of reserves will last about 25 years. Extraction rates have expanded more than 15-fold over the past five years, from less than 1 bcf per day in April 2010, and if they continue to rise, the supplies are less likely to last 25 years.

Efficient Natural Gas Drilling Suppresses Prices

This week, EIA reported that increasingly efficient drilling operations are lowering the cost to extract shale gas across the country. This has helped to drive a continued increase in gas production despite the drop in the number of exploration rigs. This has had the effect of suppressing wholesale natural gas prices, and in turn electricity prices, which are driven by gas prices. What will happen in the future will depend on various factors, but it is clear that Marcellus will be a major driver of supplies and prices in the energy sector for many years to come.

Leave a reply


*