The Marcellus and Devonian shale-gas plays underlay portions of six northeastern states and cover 95,000 square miles. To date, the majority of under-development Marcellus shale gas is in West Virginia, Pennsylvania and New York, but savvy operators are eyeing the play's boundaries with a view toward growth. This could mean more midstream infrastructure will be needed to get ever-growing resources to market.

Marcellus resource estimates vary, but upward of 500 trillion cubic feet (Tcf) of gas-in-place is forecast for the collective play, with more than 50 Tcf of recoverable reserves already an accepted outcome. Other estimates are considerably higher, with some parties referring to the overall Marcellus as having "super-giant" potential.

After a period of aggressive leasing and initial evaluation of resource potential, regional development efforts have accelerated, particularly as state and local issues and expectations are clarified and operators report initial, successful development efforts.

Well permits

Permits for Marcellus wells rose from 99 in 2007 to 519 in 2008, 1,985 in 2009, and more than 2,100 through the third quarter of 2010, according to Pennsylvania state records. From those permits, 27, 161, 785 and 1,386 wells have been drilled in the respective years. Development efforts in West Virginia have similarly escalated, with more than 2,600 wells permitted since 2006.

Development efforts in New York have stalled, however, due to state intervention to clarify the industry's use of horizontal drilling and hydro-fracturing techniques, water usage and treatment, and other environmental issues, as well as defining other expectations for industry performance. An environmental-review rule is due by mid-2011. Until that point, no new Marcellus-related drilling permits are being issued in New York.

The wellhead price for Marcellus gas is strong due to its proximity to many high-value end-use gas markets in the northeastern U.S. Marcellus gas enjoys a pipeline-transportation cost advantage compared to other supply regions. Also, certain portions of the Marcellus are initially cost burdened, yet are ultimately upgraded in commercial value due to a higher-than-average natural gas liquids (NGLs) content associated with the developing gas streams.

"Initially burdened" implies that initial field-development efforts must provide for short-term infrastructure and equipment to assure that produced gas is treated to meet pipeline-quality specifications or, alternatively, is capable of being blended with other flowing gas already in the connecting pipeline. This is necessary to minimally impact overall gas quality at downstream pipeline market delivery points or gas storage.

"Ultimately upgraded" implies that supply developments will have successfully achieved a scale such that major new upstream infrastructure allows NGLs to be removed from the flowing wellhead production and that those liquids, valued relative to a higher forward crude-oil-price forecast, can be aggregated and marketed for added value above what those same products would have received had they remained in the gas stream and been priced and sold therein.

Many regional pipeline operators have signaled that ongoing area development will yield actual production volumes flowing from the Marcellus that will have exceeded regional pipeline-blending options and flexibility by 2012. At that point, regional treating-infrastructure capabilities to remove the gas liquids must be in place.

Therefore, a multifaceted, integrated regional gas-processing and NGL-distribution capability is being negotiated, designed and is in process for implementation by a mid-2012 target date.

Major gathering systems

Some of the major gas-gathering systems are focused on dry-gas development and are connecting to existing regional pipelines. Others contain rich-gas streams and are being developed in association with area gas-processing and liquids-handling capabilities.

Although the Marcellus production is not as rich as some other shale plays, gas-processing facilities are being implemented in a number of key locations. Portions of the rich-gas streams under development are high in ethane content relative to other U.S. shale plays and relative to other U.S. domestic gas sources. This high ethane content cannot be accommodated by nearby downstream markets or regional gas-storage facilities. Here, ethane must be blended with other flowing gas to pipeline-quality specifications or must be removed and marketed as an NGL product. Other NGL products being generated in the region are at quantities that can generally be removed and managed by truck or rail transportation to local markets. Several new processing plants or fractionators are planned, as well as connection to NGL transportation and distribution systems such as truck, rail, and NGL pipeline.

After producing, gathering and treating to pipeline quality where required, the Marcellus volumes are connected to regional interstate and intrastate pipelines for delivery to markets. Many of the pipelines in the Northeast are sold out with firm transportation contracts, both for annual gas transportation service from supply areas or from regional storage services providing firm withdrawals of gas in the winter months.

Also, most expansions are driven by downstream market demand for additional gas or storage, rather than being driven by supply availability.

The interstate expansions represent a unique combination of firm capacity offerings. Some of the expansions will finalize the connectivity of Marcellus volumes to points on the regional pipeline grid where firm capacity is already available to downstream markets (i.e., a feeder role, post gathering) while others represent availability and connection to incremental firm capacity that provides direct access to downstream markets.

Numerous other projects will be evaluated for future implementation, with most of them seen as needed by 2013 and beyond. In the interim, the developing Marcellus supplies will effectively compete for access to existing firm pipeline capacity and market share.

The Marcellus play is being heralded as a world-class resource, and regional infrastructure development is only just beginning. Development is expected to continue for many years.