Chesapeake: Lack of market for ethane is limiting gas production - WOWK 13 Charleston, Huntington WV News, Weather, Sports

Chesapeake: Lack of market for ethane is limiting gas production

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Lack of a market for ethane is limiting Chesapeake Energy Corp.'s production from the wet gas region of the Marcellus that includes northern West Virginia.

The company released details Feb. 21 about its operations in the Marcellus and Utica shales with its quarterly and 2012 earnings.

Chesapeake is the largest leasehold owner in the Marcellus, with 1.8 million acres across Pennsylvania and West Virginia — an area more than 10 percent the size of West Virginia

Its 2012 production in the dry gas part of the Marcellus, in northeastern Pennsylvania, was 645 million cubic feet of natural gas equivalent, or mmcfe, per day, an increase of 135 percent over 2011. Production increased dramatically in spite of the fact that the company announced at the beginning of 2012 that it would reduce drilling in dry gas areas due to low prices. Shifts in production lag shifts in drilling considerably.

At the time of the January 2012 drilling curtailment announcement, the company said it would cut back to 12 rigs in the dry gas portion of the Marcellus. In the Feb. 21 release, it said it is now operating just five and expects to maintain that level through 2013.

Peak well production in northeastern Pennsylvania was achieved in Susquehanna County, Pa., with a rate of 12.6 mmcf of natural gas per day.

Chesapeake's production is lower in the southern wet gas portion of the Marcellus, which includes West Virginia operations: 155 mmcfe per day — "equivalent" because it includes both dry gas and natural gas liquids. That's about a quarter of the production in northeastern Pennsylvania.

The company said it expects production in the wet gas area to remain flat until Enterprise Products Partners' Appalachia-to-Texas, or ATEX, pipeline comes online in late 2013 to take ethane from this region to the Gulf Coast petrochemical market.

What Chesapeake describes is a bottleneck that affects production in West Virginia.

Ethane is one of the natural gas liquids that are extracted with methane in the wet gas region, and it also an important petrochemical feedstock. Because there still is no market for ethane in this region — the ethane crackers that have been so much discussed but not yet materialized — the ethane is left in the methane when the propane, butane and other liquids are removed. Limits on how much ethane the methane can safely contain are now limiting production of methane.

The company is operating three drilling rigs in the wet gas region and plans to maintain that level through 2013.

Most notable among the West Virginia wells was one in Ohio County.

The Mark Hickman 5H well in Ohio County achieved an initial test rate of about 1,195 barrels of oil equivalent per day — a measure of production from wet gas wells that uses oil, rather than natural gas, as the standard. That included 290 barrels of oil, 305 barrels of natural gas liquids and 3.6 mmcf of natural gas per day;

It's interesting to compare peak production from wet gas wells in the company's Utica Shale operation in eastern Ohio.

Notable production in that area was much higher in 2012 than in the wet gas region of the Marcellus: the Houyouse 15-13-5 1H in Carroll County, Ohio achieved a peak rate of about 1,730 boe per day, which included 525 barrels of oil, 305 barrels of natural gas liquids and 5.4 mmcf of natural gas per day.

The company said it is in the process of selling some non-core Marcellus acreage.