Heading downstream: MSC president updates natural gas industry activity

Michael Bradwell
Observer Reporter

The president of Marcellus Shale Coalition said Tuesday the natural gas industry is moving to a new phase that seeks to develop new markets for the abundant natural gas now being extracted from the region.

David Spigelmyer recalled an ad campaign several years ago by Range Resources that had a tagline of “Drilling is just the beginning.”

“Drilling truly was just the beginning,” Spigelmyer told about 100 members of Washington County Chamber of Commerce at the Hilton Garden Inn in Southpointe. While drilling for the product is still very much active, he said the focus is now migrating toward finding new markets for wet and dry natural gas.

The coalition, which represents about 200 natural gas-related companies involved in drilling and supply-chain companies, was formed a decade ago as the industry was just beginning to tap the shale strata’s vast resources.

The market opportunities are broad, as a slide in Spigelmyer’s presentation showed: electricity generation, light- and heavy-duty transportation applications; feedstock for industries and exports.

According to Spigelmyer, Pennsylvania now supplies about 25 percent of the country’s natural gas. While there are 9,923 unconventional wells in the state, there are currently about 2,000 wells waiting for pipelines before they can be opened.

Citing a recent McKinsey study, Spigelmyer said the consulting company identified $60 billion in economic opportunities “if we get the downstream equation right.”

Much of that opportunity is expected to come when Shell completes its $6 billion ethane cracker plant in Beaver County in a couple of years, allowing it to convert the ethane into ethylene, a feedstock for making plastic compounds to produce everything from coatings to tires to plastic bags and bottles.

The hope is that in addition to Shell’s cracker, which is being built to supply its customers within a 700-mile radius of the plant, other crackers will be built in the tri-state region that will attract additional petrochemical manufacturers. Gas producers such as Range Resources already are tapping European export markets for propane and ethane.

“We have a glut of ethane moving on the Mariner One pipeline” east to export terminals at Marcus Hook, he said.

While the industry works to build up the domestic markets for its products from the Appalachian Basin – it’s now producing 5.1 trillion cubic feet of natural gas, up from 180 billion cubic feet in 2008 – Spigelmyer said it’s also facing challenges in meeting that goal.

One is the need for the continued buildout of pipeline infrastructure to help producers here receive higher prices for their product, which remain about $1.50 per mcf below New York Mercantile Exchange prices.

While acknowledging that there is about $13 billion being spent on new pipeline infrastructure in the region that should help eliminate the bottleneck of supply here, Spigelmyer said MSC continues to fight legislative proposals for a severance tax in Pennsylvania, adding that the fear is that it will be “stacked” on top of the impact fee producers already send to counties and municipalities that are in the path of natural gas development. He said the impact fee has resulted in $1.2 billion being collected since 2012.

While stating that the severance tax idea is mostly being pushed by lawmakers in the eastern part of the state, he said, “Legislators from Southeast Pennsylvania don’t see the magnitude of these dollars.”