Pricing differs for oil, natural gas

When oil kicked off 2010 on Monday by trading at more than $81 a barrel, the price of natural gas posted an increase as well.

But industry experts in Colorado say it would be a mistake to assume the two commodities’ values march in lockstep, or that prolonged higher natural gas prices that would trigger a significant resurgence in drilling in the region are in the offing.

“There’s been quite a separation between natural gas and oil for some time now” in terms of pricing, said John Harpole, president of Mercator Energy, a Denver-area gas broker.

In New York Mercantile Exchange trading Monday, natural gas rose about 6 percent, reaching $5.88 per thousand cubic feet. But Harpole said that in terms of heating value equivalent, gas is priced much more cheaply than oil.

“There is a shortage of oil as compared to demand in the world. We just don’t have that commensurate shortage of natural gas here in the U.S.,” he said.

Porter Bennett, president and chief executive officer of Bentek Energy LLC, which provides analytical data to the industry, said recent increases in natural gas prices will be short-lived. Although below-normal winter temperatures have increased demand for natural gas, it’s “not enough to really change the fact that we’ve got way more gas than we know what to do with,” Bennett said.

Around Dec. 10, the nation had over 300 billion cubic feet more gas in storage than a year earlier, Bennett said. That’s about half of total 2008 production in western Colorado’s Piceance Basin.

Gas development in shale formations elsewhere in the country has boosted production. Until storage levels come down, gas prices won’t stay high long enough to boost drilling in places such as the Piceance Basin, which faces higher drilling costs and increased regulation, Bennett said.

Still, there are some signs of recovery in the region. Williams Production RMT plans to add three rigs this year, and maybe a fourth. Two energy services firms, Calfrac Well Services and BJ Services, recently said they are increasing staff levels in Grand Junction.

Paul Fasold, a salesman at Bell Supply in Rifle, which sells equipment to the industry, said he thinks drilling activity will rise 10 to 15 percent this year.

“People go to where there’s gas, and we’ve got plenty of it trapped here in these mountains,” he said.

Harpole said he thinks local rig levels probably will be higher, partly because some companies have discovered ways to operate more efficiently.


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