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Energy glut, low commodity prices hitting Ohio’s Utica Shale; cutbacks are growing in eastern Ohio

Energy glut, low commodity prices hitting Ohio’s Utica Shale; cutbacks are growing in eastern Ohio

Drilling is slowing down in Ohio’s Utica Shale because of low commodity prices and growing energy supplies.

Continued low prices tied to the Organization of Petroleum Exporting Countries’ efforts to derail shale drilling in the United States have put a major crimp into drilling for natural gas and liquids in Ohio and other shale-drilling states.

OPEC has continued production, despite an oil glut that has reduced prices to $36 a barrel, in order to maintain its market share.

That natural gas-oil glut and low prices are good news for consumers who have cheap natural gas for heating their houses and petroleum for fueling their vehicles, but it has created serious problems for struggling energy companies.

And those impacts are also being felt across much of eastern Ohio in hotels, restaurants, gas stations and industries that supply drillers.

Warm winter temperatures are also hurting energy producers because there is less demand for Utica natural gas.

Some drillers have canceled, scaled back or postponed drilling.

Some have voluntarily cut back on production. Less money is earmarked in 2016 on well drilling. Some drillers have moved out of Ohio.

Others are trying to sell off non-core assets. Some are seeking financial partners to share the costs. Many have incurred heavy debt. About 20 firms across the country have filed for bankruptcy protection. That includes Magnum Hunter Resources Corp., an active Utica driller.

Many of the drillers in Ohio are in “survival mode,” said Shawn Bennett, executive vice president of the Ohio Oil & Gas Association, a statewide trade group.

It is an industry facing “significant turmoil,” he said. “What we’re witnessing is a ‘perfect storm’ of circumstances,” he said.

Improvements are far off

It appears unlikely that the situation will improve in the first nine months of 2016 and it may be 2017 before financial conditions improve, Bennett said. “We’re looking at more of the same from late 2015,” he said.

Ohio is going to see “less wells drilled and less wells producing” until prices rise, he said.

Ohio needs to “sit tight” and wait for energy prices to rise, a move that will bring rigs and drilling back to Ohio, he added.

The state is seeing a major cutback in Utica drilling.

From July through September, Ohio had about 25 horizontal wells that were being drilled, compared to 170 a year earlier, Bennett said “Every company is pulling back … and that hurts,” he said.

The number of drilling rigs in Ohio has dropped from 59 to 14 in the last 12 months, according to the Ohio Department of Natural Resources.

That means some companies won’t have any drilling rigs in Ohio in 2016 and the majority will only have one rig, Bennett said.

Carroll County, the No. 1 drilling spot in Ohio in the past, will have only a single rig drilling new wells, he said.

Ohio has issued 619 Utica permits in 2015, compared to 1,116 in 2014, the state said.

Ohio has 1,664 drilled Utica wells, of which 1,121 are producing Utica wells.

Ohio is not the only shale drilling area that is hurting.

Pennsylvania recorded only 76 Marcellus Shale drilling permits in September and 68 in October, compared to 600 permits a month in most of 2010. Texas, North Dakota and Oklahoma are all experiencing drilling cutbacks.

Production still grows

Despite fewer wells being drilled in Ohio, production from the Utica Shale is continuing to grow. Oil production grew by 2 percent and natural gas grew by 10 percent from the second quarter to the third quarter 2015. That was due largely to drilling improvements, new wells coming on line and new wells being hooked up to pipelines.

The Utica Shale is a very successful resource, but the economics are just not working out for drillers at this time, Bennett said.

The U.S. Energy Information Administration reports that gas production in the United States is expected to climb in 2016 for the sixth straight year. U.S. gas production has climbed 30 percent since 2008 due to shale.

Many of the newest wells are being drilled because companies must drill to hold onto leases or must ship certain amounts of gas to comply with pipeline contracts, Bennett said.

But those companies are struggling to sell their natural gas in a glutted market where new interstate pipelines are needed.

Bennett said three things would help Ohio natural gas producers: colder winters and hotter summers, more gas-burning power plants to produce electricity and growth in local industries like petrochemicals that can use the natural gas and liquids from the Utica Shale.

A fourth option would be for Utica Shale producers to ship natural gas and liquids to markets elsewhere via new pipelines, he said.

Nationally, natural gas has been selling for as low as $1.65 per thousand cubic feet. That’s at locations like Louisiana’s Henry Hub where it is distributed across the country via interstate pipelines. It is a 16-year low.

Ohio drillers, however, have been handicapped by the lack of pipelines. They have been getting far less: The prices have in some cases dropped to 60 cents per thousand cubic feet. But without more pipelines, they don’t have shipping or sales options and the growing natural gas supply remains trapped in the basin. Ohio, West Virginia and Pennsylvania are poised to get 34 new pipeline projects by 2018.

Making use of liquids

The high liquid content of Ohio’s Utica Shale natural gas is also hurting sales, Bennett said.

Drillers must now pay to have ethane and other liquids removed from all but the driest gas they produce. The pipelines won’t accept the natural gas if the ethane levels are too high.

Those liquids — ethane, butane and propane — were seen as a plus when the Utica Shale drilling started. That’s because it produced additional income for drillers.

But an ethane glut resulted and the price has plummeted. Now drillers must sometimes remove the ethane at a loss: They get less for their liquids than what it cost processors to separate them from the gas. That has left the Utica Shale at a disadvantage.

As a result, drillers in Ohio are primarily interested in the over-pressurized dry natural gas with little liquids in Ohio’s Belmont, Monroe and Harrison counties.

Ethane may remain a financial burden for drillers in Ohio until an ethane cracker plant is built. There are also pipelines planned to carry Utica ethane south to the Gulf Coast for processing.

A cracker plant turns ethane into polyethylene, a key ingredient in making plastics. There are proposals to build a $5.7 billion plant by an Asian chemical-maker in Ohio’s Belmont County. Royal Dutch Shell is looking into building a $4 billion plant in Pennsylvania’s Beaver County. A South American consortium wants to build a plant near Parkersburg, W. Va. Only one, if any, of those plants will likely be built, Bennett said.

Bob Downing can be reached at 330-996-3745 or

utica drilling ohio abj








By Bob Downing  Beacon Journal staff writer



From the Daily Digger:

Thursday, January 28, 2016
Utica Shale Drilling Down by Nearly 90% During 3rd Quarter 2015 Compared to 2014

From the Akron Beacon Journal comes this quick look at the ODNR’s record of number of wells drilled by quarter in the Utica shale:

1Q 2011: 3.
2Q 2011: 4.
3Q 2011: 5.
4Q 2011: 17.
1Q 2012: 29.
2Q 2012: 47.
3Q 2012: 58.
4Q 2012: 72.
1Q 2013: 90.
2Q 2013: 114.
3Q 2013: 93.
4Q 2013: 112.
1Q 2014: 124.
2Q 2014: 112.
3Q 2014: 144.
4Q 2014: 133.
1Q 2015: 102.
2Q 2015: 63.
3Q 2015: 15.
While the decline has been evident in watching weekly permitting numbers, this look at quarterly drilling data really drives home how much things have slowed. The collapsing price of natural gas and oil has throttled things back to the pace of 2011, before things really even got started in the Utica shale. Now the question is how much longer it will take for prices to recover, and how much worse can things possibly get in the meantime?


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