Despite Historic Drop in Crude Oil, Pure Gas Plays Set to Rise

Haynesville and Appalachian basins well positioned for near-term growth
exxon permian

Haynesville and Appalachian basins well positioned for near-term growth

Austin, TX Jon Haubert (September 9, 2020) — Enverus, the leading oil and gas SaaS and data analytics company, has released its latest FundamentalEdge report which reviews upstream and midstream activity in two active natural gas basins: the Haynesville, in Louisiana and Texas, and the Appalachian, composed of the Marcellus and Utica shales in Pennsylvania and Ohio.

Along with the overall economy, the energy industry was drastically impacted by the COVID-19 pandemic. Operators were forced to readjust their 2020 plans as prices fell due to oversupply in the market. These revised 2020 activity plans called for reduced rig activity and reduced production outlooks from most operators, particularly those in oil-directed plays.

The oversupply in the crude market and the subsequent price drop have lowered activity in crude-directed plays. While this activity reduction is needed to help balance the crude markets, associated gas in these areas will also be taken off the market as a result. To offset the drop in associated gas, dry gas plays will need to fill the gap — and this will require higher prices to incentivize production.

“While the Saudi-Russian price spat earlier this year, followed by coronavirus pandemic, rocked crude oil demand, gas-reliant industries like heating and power weathered much better,” said Rob McBride, senior director of Strategic Analytics at Enverus.

“For all that happened to oil, to some degree the inverse is true for natural gas, and that’s evident in the Haynesville and Appalachian basins,” McBride said. “Natural gas is well poised for the near future. Since the historic crash a few months ago, gas has slowly crept up, but drilling rigs haven’t yet followed suit.”

Key Takeaways:

Haynesville

  • In 2020, Haynesville production showed some resiliency by growing through May while the rest of the US started to decline in April. However, since then, production has declined and currently is down 0.6 Bcf/d year to date.
  • With the drop in crude oil prices, higher natural gas prices are needed to make pure gas plays economical. Higher gas-directed production will offset the production losses from associated gas in order to meet demand in the US. As production grows, additional takeaway capacity is needed from the play. At least four pipeline projects have been proposed to transport gas from the Haynesville to demand in the Gulf Coast.

Appalachian Marcellus and Utica

  • In terms of production, the Marcellus and Utica plays have held strong through the pandemic. Production dropped at the start of the year, and then dropped further in May as wells were shut-in. However, volumes have recovered to levels higher than the start of 2020.
  • While production in the Marcellus and Utica has battled through the pandemic, rigs have fallen as a result of COVID-19. That yields the question: How can production be up if new wells aren’t being drilled? The answer is DUCs. The DUC inventory in the Appalachian has been drastically decreased as operators have chosen to complete wells that have already been drilled in the past, as opposed to running rigs and drilling new wells.
  • Rigs have fallen off in the Appalachian, but there are still rigs running and new wells being drilled. Production is expected to continue to climb in the Marcellus and Utica. The Mountain Valley Pipeline (MVP) is expected to come online in early 2021, which will add 2 Bcf/d of takeaway capacity to the region and send gas to the Transco Zone 5 region. Should MVP meet the same fate as the Atlantic Coast Pipeline, which was canceled in early July, pipeline bottlenecks could be seen in the region as early as mid-2021.  Enverus does not expect this to happen.