Marcellus Shale Gas Investing

Brian Hicks

Written By Brian Hicks

Posted November 5, 2013

The Marcellus shale is the nation’s largest natural gas reservoir, located in the eastern United States and extending through much of the Appalachian Basin. Because of its vast and yet largely untapped natural gas reserves, it has become a haven for energy development.

Marcellus ShaleNot only does the Marcellus hold the largest natural gas reserve in the U.S., but it is performing beyond any expectations. And its proximity to high-demand markets along the East coast make it a very attractive target for investors.

Today, the Marcellus shale is producing 12 billion cubic feet of natural gas each and every day. Even some of the most optimistic predictions from experts and geologists didn’t anticipate these levels before 2015, according to the Wall Street Journal.

Because of its stellar rate of growth, the Marcellus is changing traditional flows of natural gas. While the resource has once moved from the south to the north, expects it will start moving east to west as we move into the future.

States like Pennsylvania, Ohio, and West Virginia are all seeing increased natural gas production, and as demand in the U.S. Southeast goes up during the next decade – in large part due to power plants switching from coal and pipelines flowing to the Gulf Coast – it is the Marcellus that will lead the transition.

And it starts now. The Marcellus will account for more than one third of the increase in U.S. natural gas production through 2013.

Growing Up

We’ve been talking for a while now about the continued increase in production throughout the U.S., but the growth rate of the Marcellus – and how much it has taken off – truly does come as a surprise.

Over the past two years, the number of drilling rigs has tapered off, giving no indication that the Marcellus would realize 12 billion cubic feet per day in 2013. A year ago, nobody was guessing a number anywhere near that.

It’s interesting to note that while the rate of Marcellus wells has fallen off, its production hasn’t. Most gas production occurs during the first two years of a well, but in the Marcellus, it hasn’t fallen off in the same way it has in other shale plays like the Bakken in North Dakota or the Eagle Ford in Texas.

We’re dealing with a unique beast here.

According to the Wall Street Journal, the Marcellus’ 12 billion cubic feet of natural gas per day, is about the equivalent of 2 million barrels of oil per day and more than six times the rate it was producing in 2009.

If we were to look at the Marcellus Shale region like it were a country, it would currently rank number eight in the world for natural gas production. It produces more natural gas than Saudi Arabia.

In Pennsylvania

Pennsylvania is as gas-friendly as they come. The state realizes the potential for big profits and cheap energy, and it is making the necessary moves to make natural gas a driving force to its economy for years to come.

Lawmakers in this state claim that they have the power to reindustrialize Pennsylvania, and they are doing so with subsidized natural gas vehicles and pipeline expansions.

In fact, over the next decade, hundreds of millions of dollars could be spent in proposed subsidies, a number that could reach as high as $1 billion. And that’s in addition to the more than $30 million the state has tapped for natural gas projects from four separate funds.

We don’t have exact numbers for how much Pennsylvania is willing to spend to spearhead these natural gas projects, but it’s a lot.

Pushing that aside, lawmakers last year approved what could become the state’s biggest taxpayer-paid development project ever, according to AP. That project could exceed $1 billion over 25 years, and it would entice the construction of a multi billion-dollar petrochemical refinery to convert natural gas into ethylene for the plastics and chemicals industries. Royal Dutch Shell plc (NYSE: RDS-A) is giving it consideration.

In addition, of $60 million a year could be made available to start converting the state’s mass transit system to compressed natural gas.


One thing is for certain: production has reached way beyond any of our expectations, and even the number of drilling rigs is slowly starting to climb back up in the Marcellus.

In Pennsylvania, recipients of subsidies already include Clean Energy Inc., Waste Management Inc. (NYSE: WM), and Sunoco Inc (NYSE: SXL).

Other states reeling off the success of the Marcellus Shale are also offering subsidies and are promoting the use of natural gas to drive the economy.

These states and the companies that are working them are fixed for prosperity, in the short-term and most definitely in the years to come.


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