Severely depressed basis spreads in the Rocky Mountain region “scream the message of shut-in gas,” yet very few pipeline expansions have been put in place to solve the problem, noted energy consultant Mary Menino of Energy Security Analysis Inc. She predicts that export constraints will continue to plague the Rockies market as long as power generators and producers are unwilling or unable to sign firm agreements for pipeline transportation capacity on expansion projects.

“If you look at Rockies prices (monthly averages) last year from March, April and May, the basis versus Henry Hub averaged just under negative 75 cents and this year it’s negative $1.25,” said Menino. “That differential is only getting worse. Some of these pipelines have to eventually be built, but this is really a chicken and egg problem. You have to get the power plants going on a firm basis to get commitments for firm pipeline capacity. Once you get that they can build the pipeline. But the generators aren’t sure right now what’s going to happen to them [because of excess power supply on the market]. Everybody knows they are eventually going to need that power. The production and reserves are there but they are being shut in or not produced.”

Menino noted that few of the multiple pipeline projects announced are moving forward on their original schedules. Colorado Interstate Gas’ Coastal Connect project has been delayed. Williams’ Western Frontier project has been slowly developing. CIG’s Ruby Pipeline to Northern California is on hold. Northern Border’s Bison project out of the Powder River Basin isn’t moving, and neither is Williston Basin’s proposed expansion out of the Big Horn Basin, said Menino. The only lines that have made progress are Transwestern’s Red Rock expansion (see related story) and Questar’s Southern Trails line in the Southwest. Meanwhile northern Rockies gas remains stuck behind a pipeline bottleneck.

“In contrast to the mature gas producing basins of the Midcontinent, whose output is on a steep declining trend, the basins of the Rockies offer the promise of great gas production,” Menino noted. Recoverable reserves in the Rockies are also only 16.7% depleted, while drilling rig productivity in the Rocky Mountain supply basins is the highest among on-land U.S. supply basins. At the same time, there is a strong demand for Rocky Mountain gas, both in California and other states of the West and for power generation in regions to the east.

“Despite the decibel level, the response in terms of additional export capacity since 2000 has been meager,” said Menino. ESAI believes pricing on Rocky Mountain gas will continue to be significantly below that of production in other basins, as export capacity constraints continue to bid up transportation costs. For more information on ESAI, contact Patsy Norton at (781) 245-2036 or

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