Gas price spike will benefit Piceance
The price of natural gas jumped this month as the mercury, particularly in the Midwest and on the East Coast, plummeted.
Natural gas spiked to more than $5.50 per thousand cubic feet (mcf) at one point last week and ended the week at a little more than $5/mcf.
All of that augurs well for the bottom lines of companies working in the Piceance Basin, but it’s not about to spark a new drilling boom, industry officials said.
The bump in price benefited companies selling on the spot market, which can be volatile.
For instance, on Jan 21, the price to deliver natural gas into New York City leaped to $120 per mcf on the spot market leading into the city, according to a report in Bloomberg News.
Energy producers accustomed to eking out a profit from natural gas in the $3 to $3.50 range noted that seasonal increases are to be expected during winter.
Prices would have to be higher and last longer than this cold spell, said Don Simpson, vice president for business development for Ursa Operating Co. LLC.
“We’re in it for the long haul,” Simpson said. “We didn’t expect gas prices to go this high.”
Higher than expected revenue from the spike will give the company “a little flexibility” as it also pursues oil from offices in Texas, Illinois and, even, Nebraska, Simpson said.
Production from the Piceance Basin “forms part of our base and helps to generate the cash flow needed as we seek to further our growth in other areas,” said Doug Hock of Encana Oil and Gas USA. “Higher natural gas prices certainly help in that effort.”
Over the longer term, however, Encana is anticipating prices within a relatively narrow range, Hock said, noting that development of shales and tight sands around the country have made natural gas prices less volatile.
Ursa, which took over operations from Antero Resources last year, is operating one rig and plans to continue to do so through this year, though it might add a second in 2015, Simpson said.
Given the regulatory regime in Colorado, the company will have to “start way out in front” if it decides to add the second rig, Simpson said.
The benefits of a bump in the gas price will be fleeting at best, said John Harpole of Littleton-based Mercator Energy LLC.
“In my opinion, seasonality at least in the northeast part of the United States underscores the need for additional pipeline capacity,” Harpole said.
The cold will mean that there will be more demand come spring to replenish storage but beyond that, Harpole said, “a couple polar vortexes” don’t have any long-term effect.