The Piceance Basin in the northwest quadrant of Colorado has always been a tough place to drill for natural gas. It’s far away from user markets and it’s overlain by a patchwork of private land and public leases.

Recently, drillers were braced for new statewide drilling regulations because they prioritize a healthy environment over oil and gas development. Yet what’s really threatening the business of drilling is the market. For example, Chevron startled energy analysts last week by taking an $11 billion write-down of its natural-gas holdings.

When a company announces a write-down, it’s an admission that investments have reduced value. In Chevron’s case, Atlas Energy and other U.S. natural-gas assets have become essentially worthless. For Chevron, the country’s second biggest oil company, the move indicates that prospecting for natural gas in the United States and Canada is all but over.

Unlike Colorado’s Front Range, most wells drilled on the Western Slope of Colorado are so-called dry gas holes, or natural gas only. Baker Hughes, a firm that does a weekly rig count, announced recently that only 129 natural gas rigs were operating in the entire country. This is a decline of over 90 percent from 2008, when 1,606 wells were operating.

Chevron isn’t alone in retreating from natural gas, Conocophillips bought Colorado’s Burlington Resources for $38 billion in 2005, but over the last decade it has written that purchase down to nearly nothing. This year, Reuters reports that collectively, BP Plc, Repsol SA and Equinor SA have written off more than $11 billion in North American shale assets.

Liquefied natural gas was supposed to be a major driver of demand, giving U.S. producers the ability to access foreign markets. (Gas is supercooled and compressed, loaded onto ships, then sailed to far away markets where it is reheated and used.)

Yet LNG prices are in the dumps across the world. This fall, Bloomberg reported that because LNG markets were over-supplied, prices for delivered natural gas had dropped by 60 percent, almost to the point where prices didn’t cover costs of expensive cooling and shipping.

Russia is the reason. Russia has almost completed natural gas delivery pipelines to Europe through Tukey, and just finished a major gas pipeline to northern China. Despite new U.S. sanctions, a giant new pipeline through the Baltic Sea to Germany will surely commence operations in early 2020. NATO countries may hate Putin but they love cheap gas. These pipelines have major advantages over pricey U.S. LNG, and without exports, the future is grim for high-cost drilling areas like the Piceance Basin.

Looming over natural gas prospecting is the massive Permian Basin, straddling a huge chunk of West Texas and New Mexico. It’s the largest oil field in the world, producing over 4 million barrels of oil per day. The hydraulic fracturing process for oil also produces natural gas as a byproduct, and Bloomberg reports that 50 percent of U.S. natural gas is produced via the fracking process for oil. As U.S. oil production goes up, natural gas floods the market.

For oil drillers, natural gas can be an expensive nuisance. Early in 2019, prices for natural gas at what’s called the WAHA hub in West Texas were routinely priced below zero. In some cases, by as much as $9 per million British Thermal units. That’s no typo: producers were paying $9 per mmbtu to have their gas taken away.

This for a product that sells for just over $2 per mmbtu in most markets, the lowest price is 15 years. Permian gas prices have moved into the black with the addition of new pipelines, yet this just pumps more supply onto the nation’s saturated gas markets.

For big gas producers operating in the Piceance, like Laramie Energy, Ursa Resources and Caerus Energy, this may be the final straw.

In the past, prices collapsed but production and gas consumption didn’t disappear. But the rise of renewable mandates for electricity production in Colorado, New Mexico and California means that the next move in the gas cycle will be an ever-dwindling demand profile.

Boardrooms in the Piceance may be grim places these days. Perhaps there’s talk of remediating well pads and shutting in wells — permanently. Accountants may be pressuring chief financial officers to take drastic write-downs of gas properties.

“Drilling won’t happen in this area for five to 10 years or maybe never,” said Delta County Commissioner Don Suppes in an interview recently. “it’s economics; the prices for these resources are just too low.”

Suppes also pointed out that Delta County is a tough place to drill. High elevations, hunting seasons and animal migrations restrict drilling to half the year.

Then there are the environmental groups and many residents who have fought tooth and nail to protect the 14 vineyards and numerous natural food and meat operations in the North Fork Valley. And now, the turning point in their struggle may not be lawsuits but the market and a changing economy.

David Marston owns commercial property in Delta County and lives in New York City, N.Y.

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