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Shale Shock: How the Marcellus Shale Transformed the Domestic Natural Gas Landscape and What It Means for Supply in the Years Ahead

Shale Shock: How the Marcellus Shale Transformed the Domestic Natural Gas Landscape and What It Means for Supply in the Years Ahead

Full Title:  Shale Shock: How the Marcellus Shale Transformed the Domestic Natural Gas Landscape and What It Means for Supply in the Years Ahead
Author(s):  Mark P. Hanson
Publisher(s): Morningstar
Publication Date: February 1, 2014
Full Text: Download Resource
Description (excerpt):

 

Over the course of just a few years, the Marcellus Shale has gone from being a promising upstart to the undisputed champion of U.S. natural gas production. The speed with which it accomplished this feat has been nothing short of astounding—growing from 2% of domestic supply in 2007 to a little less than 20% by the end of 2013—and has kept forecasters on their toes trying to keep pace with ever-improving well results and production rates that continue to climb despite a sharp pullback in rig activity.

Having examined the performance of close to 6,000 wells dating back to 2009, we’ve uncovered a handful of unexpected factors behind the industry’s ongoing underestimation of this play. Our bottom-up analysis leads us to conclude that Marcellus natural gas production—and by extension, that for the U.S. as a whole—is unlikely to reverse course anytime soon. We forecast domestic volumes to increase by almost 3 Bcf/d cumulatively (2% per annum) through 2015, with declines in areas like the Haynesville more than offset by the 5.5 Bcf/d of cumulative growth we expect in the Marcellus.

Importantly, however, we don’t believe industrywide marginal cost has been meaningfully affected by continued production growth in the Marcellus. If over the next few years demand keeps pace with supply (as we expect), natural gas prices are likely to normalize between $5 and $6 per Mcf, consistent with our industrywide marginal cost estimate of $5.40.

 

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