The Effect Of The Marcellus Shale Formation On The Oil & Gas Industry

February 25, 2013

The Marcellus Shale Formation is one of the most frequently talked about oil plays in the United States. It underlies much of the Northeastern United States and even extends into the Southern Ontario region of Canada. In recent years the Marcellus Shale has been receiving more and more attention and understanding its importance in the US Oil & Gas Industry is essential for anyone who works within the industry.

What Is The Marcellus Shale?

The Marcellus Shale Formation is one of the most expansive shale regions in the United States. It stretches through New York, Pennsylvania, Maryland, Delaware, Kentucky, Tennessee, New Jersey, West Virginia, and Virginia, as well as into Ontario, Canada. Its total range is estimated at about 95,000 square miles and it varies in depth considerably, with some parts reaching the surface while other parts are more than a mile deep. It is named for an outcrop that occurs at Marcellus, New York.

The Marcellus Shale formation was formed around 384 million years ago. It is composed of various types of black shale and limestone. The primary reason that the Marcellus Shale is so important is because it is estimated to contain the second-largest natural gas reserve in the world. As such it easily qualifies as one of the most important US oil plays.

Why Does It Matter?

In addition to its size and the richness of its natural gas reserve, the Marcellus Shale Formation also matters due to its particular geographic location. It underlies some of the most densely populated areas in the United States. Historically the east coast has had some of the highest demand and consumption of energy in the country. However, in the past these energy needs had to be met by shipping oil and gas to these locations from far-reaching locations. Pipelines were built from the west to the east in order to supply this high demand area. This can drive the consumer prices up because typically the further away you are from the source – the higher the price.

However, as the Marcellus Shale Formation increases in prominence and becomes more and more developed there is a good chance that the east coast region will become completely energy self-sufficient. This will dramatically change the landscape of the US Oil & Gas Industry as new opportunities arise and others reduce or disappear.

What Is Being Done?

The Marcellus Shale Formation got a relatively later start as a focal point in the US Oil & Gas Industry. This is because original estimates of its natural gas resources were significantly lower than current estimates. Even in the recent past it was thought to have as little as 1.9 trillion cubic feet of gas, which given its extensive area seemed to imply only a relatively limited degree of output per mile. However, some newer estimates of its natural gas potential have the figure as high as 500 trillion cubic feet – or about 250 times as much as previously thought!

A big hurdle that has recently been overcome relates to the drilling and extraction of the natural gas. Because the Marcellus Shale Formation has primarily vertical rather than horizontal pockets of natural gas, this meant that traditional vertical drilling had limited effectiveness because it missed many of the gas “joints.” However, new technology in the area of horizontal drilling and hydraulic fracturing has drastically improved the efficacy and production of new wells.

As a result of these developments, the Marcellus Shale region has been buzzing with activity. Much work is being undertaken to improve and expand the infrastructure of pipelines in the area so that once the natural gas is extracted it can be transported. At the same time investors and other companies are more eager than ever to get involved in the Marcellus Shale region. This means that although it got a later start than other areas, the Marcellus Shale is now one of the main focal points in the US Oil & Gas Industry.


What Is The Future?

It is difficult for anyone to say definitively what is going to happen as a result of ramped up output in the Marcellus Shale region; however it is safe to say that it will significantly alter the balance between supply and demand. There’s a good chance that it will lower natural gas prices, which could be good for many feeder industries, but might actually dip margins below the break even point within the industry itself.

The ultimate ramifications are difficult to predict, but one thing is certain…the Marcellus Shale Formation will have a major effect on the Oil & Gas Industry and it will only intensify as development continues. The best thing for companies and consumers to do is likely to get on board with these major changes and attempt to position themselves in such a way that they can capitalize on them. Thanks to the Marcellus Shale Formation it is a very exciting time in the oil industry.