In 10 Years, This State Will Produce 25% of America’s Natural Gas

by David Fessler, Investment U Senior Analyst
Thursday, September 1, 2011

And it just happens to be the one I live in.


It’s nicknamed the “Keystone State.” But if current natural gas production trends continue at this pace, we may have to rename it something a bit more “energetic.”

My 90-acre farm is in the east-central part of the state. Unfortunately, it doesn’t sit over the fairway of either major shale natural gas basins located here. If it did, I might be penning this from my own tropical island. But the good news is there are plenty of ways to invest in the Pennsylvania natural gas boom.

And three companies standout above the rest…

Pennsylvania’s Marcellus Shale Basin

As you can see from the map below, the Marcellus Shale basin covers the western half of the state and extends in a northeasterly direction into New York.

Pennsylvania's Marcellus Shale Basin

The Utica Shale basin, partially shown on this map, is significantly larger. However, prospectors are just beginning to explore the region. This basin actually extends well into Canada, but it will be a few years before it makes any significant contributions to U.S. natural gas supplies.

Marcellus Shale production, on the other hand, is rapidly rising. Check out the graph below, courtesy of the U.S. Energy Information Administration (EIA).

Marcellus Shale production rapidly rising

In the northeastern part of the state, natural gas production from the Marcellus Shale was virtually nonexistent three years ago. It’s reached two billion cubic feet per day (Bcf/d), or nearly 750 billion cubic feet per year.

Gas production has grown rapidly in Pennsylvania, and to a lesser extent in West Virginia. Both states are beneficiaries of the new technological advances in hydraulic fracking and horizontal drilling that have made natural gas shale plays one of the hottest stories in energy these days.

And there’s no place hotter than the Marcellus. In a recent article published by the EIA, Bentek Energy, LLC estimates total natural gas production from Pennsylvania and West Virginia now averages nearly four billion cubic feet per day.

That’s more than five times what it was just three years ago. These two states now account for more than 85 percent of total gas production from the Northeast, and Pennsylvania produces most of that.

While the graph shows the most rapid gains are occurring in Northeastern Pennsylvania, Southwestern Pennsylvania production is currently 0.8 Bcf/d. That’s three times higher than 2010. West Virginia’s production recently surpassed 1.0 Bcf/d, up about 40 percent over last year’s numbers.

Production elsewhere in the northeast has been relatively unchanged since 2007. Even that could change once drilling begins in New York State. That hasn’t happened up until this point, largely due to concerns over the hydraulic fracking process.

New York City has been part of the legal roadblock, citing worries over potentially polluting New York City’s water supply, much of which comes from upstate aquifers.

According to a study commissioned by the Marcellus Shale Commission (MSC), by 2020, the Marcellus alone could produce 17.5 Bcf/d. That would be 25 percent of all the natural gas produced in the country. What’s more, it could support 256,420 jobs and pump an additional $20 billion into the Pennsylvania economy.

The Best Ways to Play Pennsylvania’s Natural Gas Boom

Dozens of companies have acreage and are drilling in the Marcellus. Here’s the quick and dirty on three of the biggest and most advanced producers in the play.

  • Chesapeake Energy Corporation (NYSE: CHK) is the number one producer in the Marcellus, and recently started drilling the oil-rich Utica Shale.
  • Range Resources Corporation (NYSE: RRC) has about 900,000 net acres in the Marcellus, and it expects to increase its output from the play by 50 percent from 2010 to 2011.
  • Anadarko Petroleum Corporation (NYSE: APC) has even more impressive growth in the play. In 2010, it produced a mere 31 million cubic feet per day (mcf/d) in the 2nd quarter. That number jumped to 119 mcf/d in the same quarter this year.

As you can see, the volume of natural gas produced from the Marcellus Shale play is skyrocketing. Any of the three companies mentioned above is a great bet on the future output of this huge resource.

Good investing,

David Fessler