Natural gas not fuel for boom
Natural gas might be the newest fuel of the immediate future, but the future remains a ways off for the methane trapped below hundreds of feet of rock in northwest Colorado’s Piceance Basin.
Standing between more rapid development of the basin are several impediments, including a renewed focus on oil, legal challenges and competition from other basins.
There is plenty of good news for the natural gas industry, Don McClure of Encana told the Grand Junction Area Chamber of Commerce on Wednesday.
For the Piceance Basin communities, though, “The bad news is the good news can’t get here fast enough,” McClure said.
McClure and representatives of Williams Energy and Bill Barrett Corp. told about 40 people at the briefing the immediate future for development will mirror the slow, steady pace of 2010. The boom of the previous decade won’t return, but the gradual improvement since the late 2008 slowdown will continue.
That is in part because of new competition from oil drilling, which McClure said is attracting capital, crews and rigs from less lucrative natural gas reservoirs. Natural gas is trading at a 75 percent discount to oil, and “we’re seeing people focus on oil because of the price disconnect,” McClure said.
The Piceance Basin also faces competition from nearly three dozen other basins in the lower 48 states that contain natural gas, McClure said. That means that Piceance Basin gas has to be collected and sold at roughly between $4 and $6 per thousand cubic feet, which puts the onus on energy companies to operate on tight margins, McClure said.
“We need to focus on reducing break-even costs because of competition,” McClure said.
Drillers have become far more efficient than they were a decade ago, said Chad Odegard, Piceance Basin vice president for Williams Energy.
Rigs that punched an average of 20 holes a year a decade ago have nearly doubled their efficiency, drilling an average of 34 wells a year now, Odegard said.
Williams Energy has been operating an average of 11 rigs during the past year, and the prospect is “flat” for the coming year, Odegard said.
Encana now is operating nine rigs in the Piceance.
Williams officials are limited about the information they can discuss because the exploration and production part of the business is to become a separate company, WXP Energy Inc.
The new company will be separate from Williams, which will keep the midstream business, meaning pipelines and related work, under its name. Williams executive Ralph Hill will head the new company, which still considers the Piceance a major asset.
Bill Barrett Corp. is tied up in litigation over its rights to drill on top of the Roan Plateau, said Doug Dennison, the company’s liaison for environmental and government affairs.
Still, natural gas remains a less expensive alternative for generating electricity, about 6 cents per kilowatt hour, than coal, 9.5 cents per kilowatt hour, or other energy sources, Dennison said.
On the optimistic side of the ledge, McClure said, natural gas is gaining national recognition as a reliable energy source.
“The good news is the traction we’re getting at the federal level,” McClure said.