Wyoming Backs Pipeline Construction Up to $1 Billion

Tired of watching Wyoming natural gas underselling the overall market, the state has authorized up to $1 billion in borrowing authority to fund construction of natural gas pipelines to deliver Wyoming gas to market.

The bill signed by Wyoming Gov. David Freudenthal last week energizes the long dormant Wyoming Natural Gas Pipeline Authority, allocating money for staffing and consultants and giving the agency a broad range of options for funding pipeline construction.

"We are hoping this authority can provide a catalyst for pipeline development," said Steve Waddington, new energy policy advisor to the governor. Although the pipeline authority has been around for a long time, "it never had any money or staff." It now has the authority and the funding to "plan, finance, construct and develop" natural gas pipelines in and out of state and subscribe to capacity on pipelines developed by others. The agency now has the go-ahead to issue up to $1 billion in bonds for the projects. Waddington described the legislation to producers attending the Rocky Mountain Energy Conference in Denver earlier this month, according to a report in the Rocky Mountain Oil Journal.

The funding legislation also hands the pipeline authority the power to subpoena witnesses, take testimony under oath, compel documents to be produced and to levy fines for false and misleading statements. This is directed at getting at the root cause of the price differential for Rockies gas and determining what's necessary to correct the market, according to Mark Doelger, who is chairman of the current five-member pipeline authority, which serves on a volunteer basis. "The market isn't functioning properly if we're seeing extreme below-market prices at the wellhead."

Pipelines or capacity rights funded by the state could then be turned over to producers who have been frustrated by the lack of pipelines to get their gas to market. Many producers in the state are small and cannot afford to make the multi-year commitments for capacity that project lenders require.

Doelger said they are "hopeful this will ease the price differential" for Wyoming gas, which he noted is trading well below gas in other areas of the country. The state collects about 17% of gas sales proceeds on the 4 Bcf/d that is exported from Wyoming, through severance and ad valorem taxes and royalties. "The state loses about a million dollars a day when the price for Wyoming gas is running at $2.50 below gas at the Henry Hub. The differential is hurting the state and killing producers," said Doelger, a geologist with the oil and gas consulting firm of Barlow & Haun Inc. in Casper, WY.

The low prices for Wyoming gas also mean that producers take their drilling activities to areas where they can get a better return. "There's been a real slowdown in drilling," Doelger said, despite the fact that the greatest potential for new reserves is in Wyoming. The area is "immature" and "very underdeveloped." At the current rate of production Wyoming reserves could produce for "well over 100 years, while other areas like Texas and Louisiana have only a 20 to 30 year reserve life." All the production surveys "point to the Rockies for new development."

For the state "it's a no brainer," Doelger said. Revenue to the state from natural gas is greater than oil and all other minerals combined. "Wyoming lives and dies on its minerals income. If you look at the state as a business and find you have a product selling for substantially less than the market, it makes sense to address that."

Doelger expects the pipeline authority will put some staff in place and then hire consultants who will explore markets, for instance "discussing the merits of Wyoming gas supply with end users in Chicago and the Midwest. Our goal is to have an impact within the next year," Doelger said, at the same time noting that getting an entirely new pipeline project going can take up to four years.

A draft report published recently on the pipeline infrastructure requirements for optimizing the flow of Rocky Mountain gas indicates that with strategic planning and significant pipe development, the region could reach its gas production potential of about 7.5 Bcf/d by 2005 and 10.9 Bcf/d by 2010 (see Daily GPI, Jan. 9).

However, the infrastructure has to keep up with development, said Pace Global Energy Services LLC, an energy consulting and management services company, which plans to finalize the report on Wyoming pipelines soon. An estimated 400 to 600 MMcf/d of gas currently is shut in, the study found.

In a "pipeline portfolio conceptual plan" presented by Pace, a "diverse portfolio of large-scale, economically expandable pipelines originating from the Opal and Cheyenne Hubs is critical. Benefits of new, large-scale pipelines are greater than new pipeline capacity costs." The report projected increased value for the state and energy companies could be $1 billion a year.

Several new pipeline projects are either under construction or in the planning stages for the Rockies. However, the largest of these, the 900 MMcf/d expansion of Kern River Gas Transmission due to go in service May 1, is expected to fill up quickly (see Daily GPI, Feb. 25).

Meanwhile, the Bureau of Land Management (BLM) is about to give the final nod to development plans for as many as 66,000 coalbed methane (CBM) wells in Wyoming and Montana, formalizing final environmental impact statements that have long been awaited by Rockies producers. BLM studies show that more than 25 Tcf of CBM may be recoverable from the Powder River Basin in Wyoming and Montana (see Daily GPI, Jan. 13).

©Copyright 2003 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.