Gregory Brunton Quoted in Columbus Business First Article on Infrastructure Needs Impacting Utica Shale Gas ActivityPDF
Ohio's shale play delayed by infrastructure needs
Ohio needs more pipelines and processing capacity to move the needle on the number of wells producing oil and natural gas in the state’s Utica shale play.
Development of those lines and plants, along with favorable prices for natural gas and oil, are key to Ohio’s hoped-for shale gas boom, said Greg Brunton, a lawyer in the Columbus office of Reminger Co. LPA.
“It’s really an infrastructure issue,” he said. “You can only pull as much out of the ground as you can process.”
MarkWest Energy Partners LP expects to open the first phase of a natural gas processing plant in Harrison County in eastern Ohio by the end of September. In addition, NiSource Inc., the parent ofColumbia Gas of Ohio, is among companies planning to build such facilities and pipelines to them in the state.
“When those plants get up and running,” Brunton said, “you’ll probably see an uptick in the drilling.”
Building up, drilling down
Several oil and gas experts told Columbus Business First that a lack of pipelines and processing plants is contributing to the relatively few Utica wells in the production stage. As of July 29, 14 of the 110 horizontal wells drilled in the Utica play were producing natural gas and oil, according to data from the Ohio Department of Natural Resources. Overall, 321 drilling permits have been issued since December 2009.
That pace may seem slow to those pumped up by the hype surrounding the shale gas boom, but it is normal in a multiphase development still in its early stages in eastern Ohio, said Bob Chase, chairman of the petroleum engineering and geology department at Marietta College and a member of the Ohio Oil and Gas Commission, which hears appeals from decisions made by the state’s Division of Mineral Resources Management.
The development process includes building pipelines and processing plants capable of handling oil and natural gas volumes well beyond those produced by traditional mom-and-pop operations in Ohio, Chase said.
“It takes a company several years to have everything in place to begin a true development program,” he said.
Most oil and gas producers, Chase said, are a year or two away from entering that phase in the Utica play.
The question of pipeline capacity was raised Aug. 6 in a public filing by Chesapeake Energy Corp., by far the biggest player in Ohio’s shale gas region. The Oklahoma City-based company said it had 28 wells waiting on pipeline completion in eastern Ohio. It also reported it has drilled 87 wells and has production information on 28 of them.
In March, a Chesapeake Energy subsidiary entered a partnership with M3 Midstream LLC and EV Energy Partners LP to spend approximately $900 million over the next five years on a natural gas processing complex in Columbiana County. A company executive could not be reached for comment on the status of the project.
MarkWest’s plans in eastern Ohio are much clearer. Josh Hallenbeck, vice president of finance and treasurer for the Denver energy company, said its processing plant in the Harrison County village of Cadiz is on track to open by the end of September. It will be able to handle up to 60 million cubic feet a day of natural gas in a process in which methane – the so-called “dry gas” used to heat homes and businesses – is separated from natural gas liquids.
The second phase of the processing complex in Cadiz is scheduled to go online by the first quarter of 2013. It will be followed by a natural gas liquids fractionation plant by the end of next year, Hallenbeck said. Fractionation involves separating natural gas liquids into propane, butanes and natural gasoline.
MarkWest also is building a processing plant in Noble County that will be connected by a pipeline to the processing complex in Harrison County. The company expects to spend $250 million to $300 million on Ohio projects this year, Hallenbeck said.
NiSource and Hilcorp Energy Co. have yet to decide where they will build a natural gas liquids processing complex to service the Utica shale play, said Joe Blount, president of NiSource’s Midstream & Minerals Group LLC subsidiary. The facility, plus 50 miles of pipelines linked to it, will cost an estimated $300 million. First-phase construction is expected to be finished by the third quarter of 2013. Second- and third-phase projects could follow, Blount said.
“There will be a lot of new infrastructure, expansions and a lot of people thinking about where to put that gas over the next couple of years as (the Utica play) develops,” he said.
For now, Columbus oil and gas attorney Neal Pierce is hearing that some of the delays in moving Utica shale wells into production are due to high demand for water trucks and fracking rigs for horizontal hydraulic fracturing operations. Fracking is the drilling process in which large volumes of water, sand and chemicals are used to blast through rock to extract oil and natural gas from shale formations.
“They’re waiting longer because other people are in line, too,” said Pierce, senior attorney in the energy practice at the Columbus office of Steptoe & Johnson PLLC.
Pierce noted that drilling horizontal wells is a drawn-out effort and more Utica wells will be moving into the production stage as pipelines and processing plants are finished this year and in 2013.
“It will probably be less than what people anticipated 12 months ago,” he said, “but it doesn’t strike me as though the process is way behind the curve or the activity level in Ohio will not be as significant as expected.”