TEXT-S&P examines Marcellus shale impact on U.S. gas industry

Mon Oct 15, 2012 9:46am EDT

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Oct 15 - Supply dynamics in the U.S. natural gas industry are rapidly
evolving, and the Appalachian region in the Northeast U.S. is a significant
proponent of change, according to a new report published by Standard & Poor's
Ratings Services. Specifically, the region is home to the sprawling Marcellus
shale, which could contain recoverable resources equal to almost half of the
current proven natural gas reserves in the U.S. Since production in the region
is largely undeveloped, increasingly rapid development is attracting new
exploration and production activity-a trend that is already affecting
long-standing national and regional gas flows, as well as regional pricing.

"The increased use of specialized technological capabilities such as 
horizontal drilling and hydraulic fracturing has really sparked the 
development of this resource," said credit analyst Carin Dehne-Kiley, a 
director in Standard & Poor's Oil and Gas group. "The rapid increase in 
production is clearly reducing the area's dependence on gas imports from other 
areas, and this growing independence is affecting national supply dynamics and 
the premiums that local producers could previously charge."

Since an array of major metropolitan areas are in the Northeast, it's little 
surprise that the region has historically relied on gas from elsewhere to meet 
its significant natural gas demand. As such, the location of the Marcellus 
shale holds an important advantage for producers and consumers of natural 
gas-even though natural gas prices have been notably weak in recent months.

Ms. Dehne-Kiley notes that the lower all-in costs and a higher natural gas 
liquids component relative to other producing areas of the U.S., as well as 
its prime location near major consuming centers, will ensure the Marcellus 
remains a key contributor to U.S. natural gas supply.

"We believe the development of the Marcellus will particularly benefit two 
groups of issuers that we rate: midstream and pipeline companies that are 
building or expanding infrastructure in the Northeast; and E&P companies that 
produce natural gas and natural gas liquids in the region," said credit 
analyst Bill Ferara, a director in Standard & Poor's Midstream Energy and 
Merchant Power group.

Conversely, Mr. Ferara notes that two other groups may not fare as well if 
they don't modify their current strategies to offset potential business risk 
or reduce debt to limit the possible dips in cash flow: long-haul pipeline 
operators that are unlikely or unable to reverse their pipeline flows, face 
recontracting risk, or have high asset concentration; and E&P companies 
producing natural gas in the U.S. Rockies or Canada that are currently sending 
gas to the Northeast.

The complete article, "How The Marcellus Shale Is Changing The Dynamics Of The 
U.S. Energy Industry," was published Oct. 15, 2012.


The report is available to subscribers of RatingsDirect on the Global Credit 
Portal at www.globalcreditportal.com. If you are not a RatingsDirect 
subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 
or sending an e-mail to research_request@standardandpoors.com. Ratings 
information can also be found on Standard & Poor's public Web site by using 
the Ratings search box located in the left column at www.standardandpoors.com.
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