#391. Marcellus Shale Gas Tour
Posted on | The AgurbanMarcellus Shale Gas Tour
This past week I travelled to western PA along with seven others to study what could be an energy and economic revolution in the making. First started in 2000 in the Barnett Basin in TX, shale gas production has quickly spread to dozens of other states. PA is the center of both the Marcellus and Utica Basins, with the Marcellus estimated to be the second largest gas play in the word, even though production didn’t start from the basin until 2003.
Only the South Pars field which lies on the border of Qatar and Iran is larger than the Marcellus. Before the discovery of shale gas, these two countries and Russia controlled over 60% of the world’s natural gas supplies. Many were suggesting that their large market share would allow them to set up a cartel similar to OPEC. Shale gas discoveries have greatly lessened that possibility.
Western PA is where oil was discovered, in nearby Titusville where Edwin Drake drilled the first successful oil well in 1859. The oldest continually pumping well (The McClintock no. 1 still owned by Quaker State Oil) is near there in aptly named Oil City (former headquarters for Pennzoil and Quaker State Oil), pumping since 1861.
Our host was an independent gas producer who has developed over 1,000 wells in PA/OH and also in CO/NE. A family business that was being run by the second generation son, the firm had 30 employees and had invested over $250 million into gas exploration dating back to 1987. However, with current gas prices at around $3/mcf (thousand cubic feet), they weren’t drilling, waiting for prices to return to over $4.50/mcf. So, we visited a Shell Oil exploratory platform that was completing the first of a planned 18 wells from a single drill site over the next year.
The pipe used for drilling had been removed and the drill rig crew was inserting the production pipe, doing so one 50 foot length at a time, all the way down to 12,000 feet. It is a lot of pipe! It also takes about 200 people to keep a drilling rig running 24×7 for 365 days per year. The two tool pushers who were hooking the pipes together are the lowest paid workers on the site, making $23 to $25/hour. Working a 13 hour shift for 14 days on and then 14 days off is a wage of over $60,000/year. And yet, it is difficult to find enough workers who want to work those kinds of hours in the heat, rain and snow. Go figure, with unemployment over 8%!
Shell Oil was spending about $70,000/day, yet from what I could tell it looked like the only equipment they owned on site were a couple of computers for their handful of managers. The rest was either rented or outsourced, allowing them to gear up quickly when pricing was good and to pull back when times get tough like they always do in the oil patch. The oil industry was really the first outsourcer, employing dozens of entrepreneurs and other firms on every drilling rig in the country, which allowed the industry to react quickly to the economic twists and turns of energy.
In the geological trailer, a sophisticated looking computer bank monitored a number of sensors which were analyzing the composition and consistency of the dozens of rock formations that are breeched to reach pay dirt in the Marcellus and deeper Utica. One of my take-homes was the fact that virtually all of these different formations hold some form of either oil or gas. Retrieving them is only a question of technology and price. At a high enough price, they will likely be explored with new technologies developed to uncap them.
One of the concerns that I wanted to understand better, was whether shale gas could possibly leak into ground water aquifers. With the gas at 8,000 feet or lower and the water tables at 500 feet or higher, the only way that can occur if there is a problem with the pipe and concrete seal both of which go down well below the water table, or if there is a fracture in ALL of the dozens of rock formations between the gas and the water. With over 1 million wells having been fracked since 1947 and few problems to date, it seems like a remote risk that is certainly quantifiable.
It was an incredible trip. Next week’s Agurban is on the impact of this shale gas on new manufacturing plants in the USA. It is a game changer!