Rocky Mountain natural gas producers waited a long time to have ample pipeline capacity to get their production to market. What a shame that now that they have the Rockies Express Pipeline (REX) they also find themselves in the midst of a humbling continentwide gas price collapse.

"Nominal Rockies prices will remain strongly driven by overall U.S. supply-demand balances and, as such, are likely to remain depressed in the near term," analysts at Barclays Capital said in a Tuesday research note.

Despite some localized bottlenecks, "overall capacity out of the Rockies is now sufficient to accommodate the region's production," the analysts said. And "with 1.3 Bcf/d of capacity slated to start operation in March 2011, pipeline constraints should not be a problem for the foreseeable future."

That's a good thing because Rockies production has to move. Regional gas consumption is relatively modest and Rockies gas storage "is extremely limited," the analysts said, noting that nameplate capacity (working plus cushion gas) in the Rockies amounts to just 4% of all U.S. storage capacity.

Of course, pipeline capacity also has been created by the reduction in drilling activity. "Colorado, Wyoming and Utah recorded a peak in 2008 drilling with a rig count of 249 on Nov. 21, 2008," the Barclays analysts said. "Since then, the rig count has collapsed to just 105 as of April 9 this year, marking a 58% pullback and retracing to levels not seen since May 2003."

The analysts wrote that they expect U.S. gas production to trend downward over the next few months and into the first half of next year. "A similar trajectory of production in the Rockies over the next two years would mean that the region's existing pipeline capacity (including the upcoming addition of REX-East) will be adequate to meet takeaway needs until at least 2011."

And the addition of the proposed Ruby Pipeline should be enough to serve the region until at least the end of 2012, they said. On top of that, the Rockies Alliance Pipeline is projected to come on-line in November 2013, according to Barclays, adding another 1.3 Bcf/d of capacity.

Rockies producers waiting for the market to turn can take some solace in knowing they aren't where they were about 18 months ago, back in the days of the basis blowout when cash prices into CIG got down to 6 cents/MMBtu on Sept. 18, 2007, as Barclays recalled. That same month NGI reported 7 cents/MMBtu for Rockies gas into Kern River.

"Thank god for Ruby; thank god for Rex," John Harpole, president of Rockies driller Mercator Energy, told NGI. "Where would our price be in the Rockies if we didn't have Rockies Express right now? And I think we might be saying that two years from now when Ruby goes into service."

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