Utica Shale Pipeline Investing

Brian Hicks

Written By Brian Hicks

Posted May 8, 2013

Keystone XL may be forestalled, but there is still room for infrastructure on the local level.

Enbridge (NYSE: ENB), Spectra Energy (NYSE: SE) and DTE Energy (NYSE: DTE) have all announced the upcoming Nexus Gas Transmission Project (NGT), a pipeline devoted to the shipment of natural gas from the Utica Shale to markets throughout Ohio, Michigan, and Ontario, Canada.

pipelineAll parties involved will share an equal 33.33 percent stake in the project. The pipeline will cover around 250 miles, starting from East Ohio and connecting with existing pipeline infrastructure in southeast Michigan.

The companies hope to have the pipeline ready by 2016, contingent upon timely construction and a smooth regulatory process.

The American end of the project will require approval from Federal Energy Regulatory Commission (FERC), and Canadian expansion would require separate approval from the National Energy Board of Canada.

The price of the project is expected to be anywhere from $1.2 billion to $1.5 billion, and the pipeline will transport 1 bcf of natural gas per day.

Above all, the pipeline is meant to serve the needs of the local region. NGT will be a great help to distributors, natural-gas power plants, and energy consumers throughout Canada, Michigan, and Ohio.

It will also provide jobs to the local area, offer a helpful boost to local economies, and offset the dwindling supply of natural gas from western Canada.

Natural gas is a cheap fuel source in Canada, used in large parts of its industrial sector as well as energy. Alberta accounts for 75 percent of Canadian natural gas production, but output has been declining in correlation to the United States, and the nation lacks sufficient infrastructure to transport it from the West Coast to the East.

The Utica will provide some measure of relief.

Utica Shale

The Utica Shale is strategically located a few thousand feet under the Marcellus Shale, one of the largest shale spots in the United States.

The region encompasses most of Ohio, Pennsylvania, West Virginia, New York, and West Virginia and spreads south into Maryland, Kentucky, Tennessee and north into Ontario, and Quebec.

Utica is, for the most part, a recent endeavor, with most of the drilling activity occurring in East Ohio throughout 2011 and 2012.

From a drilling standpoint, land in East Ohio is highly valued, fetching roughly $15,000 per net acre.

According to the Ohio Department of Natural Resources, Utica Shale contains at least 1.3 to 5.5 billion barrels of oil and up to 15.7 tcf of natural gas.

Some analysts have high hopes for the Utica, while others are more reserved and cautionary.

Even though the Marcellus has had its ups and downs, it is still cheaper for companies to drill in that region as opposed to a less developed region like the Utica.

Canada may be in need of natural gas, but high natural gas production in North America has led to a price decline, making domestic natural gas dealings less lucrative.

But shipping abroad to energy hungry areas in Asia, or converting it to liquefied natural gas (LNG), keeps the natural gas market alive and flourishing.

The Nexus deal can provide a great avenue of income at a time when many other oil and gas companies are focused on crude extraction. Because Utica is a lesser known area, it is a great chance to get gain access to a region with little competition and shipping to East Canada, where there is high demand.

There is no doubt about it: horizontal drilling and fracking are necessity when drilling in the Utica; the pores in the rocks are smaller than the Marcellus, making it harder for companies to extract the natural gas.

As drilling technologies continue to evolve, companies will hopefully get more results from the region.

Companies in the Utica

Many companies will surely benefit from the Nexus deal—from Big Oil down to smaller distribution centers.

The new pipeline will connect to existing pipelines already owned by Vector Pipeline, L.P. Vector holds the access way to the Dawn Hub in Ontario and Enbridge’s Tecumseh storage center.

Chesapeake Energy (NYSE: CHK) is one major company conducting operations in the Utica, along with venture partner EnerVest. A primary competitor to Chesapeake in the Utica is Exxon Mobil (NYSE: XOM).

Chesapeake has been a spearhead in supporting more pipelines and other infrastructure in the Utica. The region is less developed, but the company believes the resources alone are enough to warrant expanded facilities.

Some signs of relief will be in the form of an expanded processing plant in West Virginia and processing centers in Ohio’s Harrison and Columbiana counties.

But Chesapeake is hoping that more investment and grid construction will take place in Ohio, where the Utica yields its largest reserves.

Chesapeake is a primary driller in Ohio and believes the Utica can produce over 300 mcf of natural gas per year.

The company currently has 14 wells in the area, and more would be on the way were it not for the lack of pipeline infrastructure to support enhanced development.

Chesapeake is the second natural gas extractor in the United States, behind Exxon, and despite lower natural gas prices domestically, the company is not giving up on the commodity in Ohio.

Perhaps Chesapeake will be impassioned enough to do something about the Utica’s skeletal network by forging partnerships and deals in the future. 


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