Drillers juggle shifts in pricing, byproducts market
Piceance Basin energy companies have found ways to hold their own in a market marked now by slightly rising prices for natural gas but also falling prices for the liquid byproducts.
Natural gas prices topped $3 this week, but liquids, the business that has buoyed the Piceance Basin in recent years, continued to fall.
The spot price of one of those liquids, propane, is down 45 percent from a year ago, according to Energy Information Administration figures.
Natural gas, meanwhile, closed the week at just under $3 per 1,000 cubic feet after topping that level during the day’s trading.
Falling liquids prices are behind a finding in a Bernstein E&P Resource of the Month report that Piceance Basin wells “will not generate much value for investors.”
Piceance Basin operators have seen hydraulic fracturing open up vast new reservoirs near the nation’s population centers since honing the technique in northwestern Colorado.
The price drop for liquids, Encana Corp. spokesman Doug Hock acknowledged, “isn’t helpful.”
Still, Hock said, “The reality is that liquids still bring a premium, above what we can get from dry-gas well. It’s still a benefit.”
Encana is constructing a three-story office building in Parachute to house some 200 employees.
The term “dry gas” refers to wells that produce nothing but natural gas, or methane. “Wet gas” refers to wells that produce natural gas along with an array of liquids, including ethane, propane, butane, isobutane, natural gasoline and other petrochemical substances.
Natural gas liquids are isolated by cooling and separating them out before the gas is shipped.
The ability to separate liquids from gas in response to market conditions is the key to keeping the Piceance Basin in business, said David Ludlam, executive director of the West Slope Colorado Oil and Gas Association.
If the price of ethane, which is sold by the barrel for the manufacture of plastic, is high, computers can direct the gas stream into processing plants where it can be cooled to the point, in some cases as much as 250 degrees below zero, to separate out the desired commodity, Ludlam said.
If prices don’t justify the processing, the gas goes into the distribution system to be used for heating or other domestic purposes.
“When it comes to sales, energy companies are a bit like farmers in that they don’t care whether you make ketchup or salsa from their tomatoes, they just want a good, fair price for all their products,” Ludlam said. “So heat your home with methane, fire up your grill with propane or make Tupperware with ethane, we just want moderate prices for all three.”