More than 1,000 drilled wells are waiting to be hooked up to pipelines in the Marcellus - about 700 above the norm - thanks to a busy drilling program in the region since 2009 that ran ahead of the infrastructure needed to move the gas to market, including pipelines, processing facilities and compressor stations.
While most companies have cut the number of rigs drilling there since gas prices slumped to ten-year lows earlier this year, these existing wells are expected to keep production flows strong for some time.
However, the actual output along the new pipelines will depend on when, and how quickly, producers decide to bring the new wells online. Statoil has about 400 wells that are waiting for new pipelines, the company said at the release of its second quarter financial results. Anadarko has about 200 and Range Resources and Penn Virginia about 50 each, according to recent company calls with analysts.
Not all these wells will start producing at once and the prospects for the Marcellus depends on how willing producers are to bring new cheap gas to market. And they remain cautious, after tumbling gas prices crimped profits this year. Anadarko said it plans to bring about 20 to 30 wells online per quarter, which could increase if the gas price rises.
"It is highly dependent on how many wells are ready to be completed and the operators' planned schedule for bringing those wells on line," said Randall Collum, analyst at Genscape in Houston, who estimates there will be between 0.5 bcfd and 1 bcfd of extra flows from the Marcellus this year and 1.5 bcfd next.
"I don't think producers will bring on those wells at once unless they want to see really low prices," said Collum. Still, even more conservative estimates for supply growth show strong output. Citi analysts see up to 2.4 bcfd of additional production if all the 1,000-odd wells came online over the next 12 months. That alone is an additional 3.5 percent of daily supply.
"Some people are not expecting all of this capacity to come on line. The argument is just because they have a pipeline doesn’t mean they will produce it. But I tend to disagree and think it will be more like the movie, 'If they build it, it will come.' and we're going to be flooded by supply," said Flynn of Price Futures Group.
While there have been some reports of rising heating costs this year, yesterday Consumers Energy as reported by Dow Jones said that natural gas customers can expect to pay about 8 percent less for heating costs for this winter compared to last winter. The lower cost estimate is because of reduced fuel prices — the lowest since 2003 — and is based on normal weather patterns. The utility provides natural gas service to 1.7 million customers in 45 counties in Michigan's Lower Peninsula. An average residential customer can expect to pay a typical monthly bill of about $130 this winter, down from $141 last winter.