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EIA Suggests Greater Access for Rocky Mt. Producers

EIA Suggests Greater Access for Rocky Mt. Producers

If the U.S. government would allow energy companies to drill on more federal lands in the Rocky Mountain states, natural gas production could increase and prices then would fall, according to a report issued last week by the Energy Information Administration (EIA), the U.S. Department of Energy's statistical agency.

The Rocky Mountain basins - which have become a hotbed of activity for coal-bed methane gas - are estimated to hold 235 Tcf, of which about 108 Tcf, or 45%, is located on federal lands that are off limits to drilling and exploration by energy producers.

EIA, in its report "Accelerated Depletion: Assessing Its Impacts on Domestic Oil and Natural Gas Prices and Production," said that increasing the access to the restricted area "could provide new fields to replace older fields and serve as a potential countermeasure to the effects of depletion on total U.S. production." The report said that with current drilling restrictions remaining in place, natural gas production in the Rocky Mountain basins would increase to only 2.7 Tcf a year by 2020, up from 2.1 Tcf a year now.

The report was undertaken after six trade organizations for oil and gas producers sent a letter to Secretary of Energy Bill Richardson, expressed their concerns about the effects of depletion on future oil and natural gas supply, and how future production may be more difficult than previously thought. The trade organizations included the American Petroleum Institute, Domestic Petroleum Council, Independent Petroleum Association of America, U.S. Oil and Gas Association, National Ocean Industries Association and the Natural Gas Supply Association.

In its report issued last week, EIA said that "while natural gas wells drilled in 1972 declined from their peak at an average rate of 17% per year, natural gas wells drilled in 1996 have been declining at an annual rate of 49%. At the same time, the ratio of natural gas production to the level of proved reserves --- resources that have been identified and are ready to be developed --- have increased from 15.7% in 1991-1992 to 18% in 1997-1998."

Pointing out that the Rocky Mountain basin might be a potential area to explore and develop, EIA said that ".the periodic opening of entire new areas to exploration and development has balanced the effects of resource depletion in the past." It said that "new" frontiers in Alaska and the deep waters of the Gulf of Mexico were two reasons why exploring in new areas would be important. "Increased Rocky Mountain access and improved productivity technology could ameliorate the effects of accelerated depletion."

Assuming Rocky Mountain producers were given greater access, the EIA predicted that the annual gas productivity of the Lower 48 would increase from 18.7 Tcf in 2005 to 23.2 Tcf by 2020. If rapid productivity technology were added to the mix, the agency projected Lower 48 annual gas production will soar to 29.2 Tcf by 2020. This compares to 22.5 Tcf by 2020 absent any action to stem the accelerated pace of well depletions.

An even sharper impact would be felt on national wellhead prices if the scenario (improved land access and technology advancements) exists, according to the EIA. It projected that wellhead prices would decline to about $2.22/MMcf by 2020, which is almost half of what they would be ($4.12/MMcf) if the depletion rate remained unchecked. At $4.12 MMcf, the study said gas consumption would drop about 9% as a result of gas customers switching to oil and coal. To access the entire 95-page report, see EIA's website at www.eia.doe.gov.

Carolyn Davis

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