Utica natural gas: longer well lateral lengths, higher productivity increase production even as rig count fluctuates

Natural gas rig count

Prices rose across USA as temperatures generally increased and higher cooling demand increased natural gas use for electricity generation

In April 2018, natural gas production from the Utica formation, located primarily in Ohio, averaged 5.8 billion cubic feet per day (Bcf/d), or about 7% of total U.S. dry natural gas production, according to the U.S. Energy Information Administration.

Utica natural gas production has increased relatively steadily since 2011, and in 2017, natural gas production from the Utica formation reached a new annual high of 4.9 Bcf/d, 23% higher than 2016 levels.

Despite steadily increasing production, Utica’s rig count and prices in the region have fluctuated. From 2011–14, as Dominion South and other nearby hub prices remained higher than $2.75 per million British thermal units (MMBtu), the average yearly rig count kept rising, reaching an average of 43 rigs in 2014.

However, by 2016, the rig count fell to 14 rigs, and prices declined to $1.50/MMBtu. New pipeline projects added takeaway capacity from the region in 2017 and both rigs and prices rose, though they remain lower than previous levels.

Utica’s natural gas production increase has been supported by higher per-well production from new wells. Similar to production activity in other regions, such as the Marcellus and the Haynesville, drilling operators have increased the lateral length of horizontal wells. From 2011 to 2017, the average length of laterals increased from 4,649 feet to 8,628 feet, according to DrillingInfo.

As production has grown, well productivity has also risen. EIA uses three-month cumulative production as a proxy for initial productivity (IP) rates because the number of days in production for any given month is not available. In Utica, the first three-month cumulative production per well increased from about 146 million cubic feet (MMcf) in 2011 to 824 MMcf in 2017.

Moving forward, productivity gains are expected to continue as lateral lengths increase and optimization of spacing between wells improves well recovery.

Prices rise across the Lower 48 states. Prices rose across the country this report week (Wednesday, May 16 to Wednesday, May 23) as temperatures generally increased and higher cooling demand increased natural gas use for electricity generation toward the end of the report week. The Henry Hub spot price rose 8¢ from $2.78/MMBtu last Wednesday to $2.86/MMBtu yesterday. At the Chicago Citygate, prices increased 26¢ from $2.48/MMBtu last Wednesday to $2.74/MMBtu yesterday.

Prices at PG&E Citygate in Northern California rose 14¢, up from $2.90/MMBtu last Wednesday to $3.04/MMBtu yesterday, with a low of $2.86/MMBtu on Thursday. The price at SoCal Citygate was volatile throughout the week, but overall it decreased 57¢ from $3.03/MMBtu last Wednesday to $2.46/MMBtu yesterday.

Northeast prices rise during shoulder season pipeline maintenance. Prices at Northeast market hubs increased to varying degrees over the report week as maintenance activity restricted flows on several pipelines. At the Algonquin Citygate, which serves Boston-area consumers, prices were mostly flat, rising 3¢ from $2.40/MMBtu last Wednesday to $2.43/MMBtu yesterday. At the Transcontinental Pipeline Zone 6 trading point for New York City, prices were volatile as on going maintenance on the Millennium pipeline affected flows, and overall prices increased 55¢ from $2.32/MMBtu last Wednesday to $2.87/MMBtu yesterday.

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