The Rocky Mountains over the past 20 years have been established as one of the largest natural gas reserve regions in the Lower 48, but there is no lack of challenges for exploration and production companies to access and develop the resource, according to Richard H. Lewis, CEO of Prima Energy Corp.

In terms of proved natural gas reserves, the Rockies have grown to about 22% of the proved natural gas reserves in the Lower 48, Lewis told Lewis told attendees at the tenth annual John S. Herold Pacesetters Energy Conference in Greenwich, CT. According to the Potential Gas Committee, the Rockies account for approximately 28% of total potential gas reserves with coalbed methane making up more than 10% of that.

“You have seen the significant growth in proved reserves, you’ve seen the significant component of potential reserves…the Rockies in the last 10 years have gone from about 11% of U.S. gas production to nearly 17% in 1999,” he said. “The need for us to move this gas out is obvious, he said. “Exports out of the Rockies have gone from 330 Bcf from a little over 20 years ago to 2.5 Tcf being exported in 1999.”

Despite seeing “significant opportunity” for gas development in the Rockies, Lewis said there are also “many” challenges that producers in the region face. The executive said major challenges include acreage acquisition, regulatory hurdles, infrastructure requirements and development, and the basis differential from Henry Hub to Rockies.

“Considerable gas potential reserves in the Rockies are currently off limits for oil and gas leasing,” Lewis said. “That is certainly an issue, but even those that are issued [leased] often times have restricted provisions relative to access.” He said that on some federal leases you can only operate during certain times of the year, which makes planning and development “challenging.”

“Regulatory considerations, particularly related to federal acreage are considerable,” Lewis said. The executive said between the National Environmental Policy Act of 1965 and state oil and gas commissions, exploration and production companies must adhere to numerous regulations and subject their projects to a slew of studies. With more than a few agencies to appease for each project, Lewis said “A big part of our desire in the National Energy Policy…certainly accessing the Rockies is a big part of it, but certainly streamlining the regulatory process, which you can see can become awfully cumbersome and time consuming and delay projects. It is certainly a challenge for us as well.”

Regarding infrastructure, as the amount of reserves that are developed increases, pipelines, gathering and processing facilities, water discharge plants, electric lines and roads all feel the continued strain. Lewis said that there are numerous gathering and takeaway pipeline projects that have recently been put into service or are in the planning/development stages. Lines proposed to take gas out of the Rockies include the Williams Western Frontier project from Cheyenne to Mid-continent (540 MMcf/d), the El Paso’s Coastal Connection, (540 MMcf/d) and Kinder Morgan’s Advantage project (323 MMcf/d).

“Those are all proposed and have had various open seasons,” Lewis said, “but it is probably unlikely that they would all get built.”

As for the basis differential, Lewis labeled it as a “highly volatile” situation. “Not only do we deal in the Rockies with the volatility of NYMEX…but the volatility of the basis between NYMEX and Rockies gas is likewise volatile,” he said. If you look back over the last five years on a monthly basis, it has ranged from plus $0.18, meaning Rockies gas was actually trading at a premium to NYMEX, to a basis differential as wide as [minus] $2.19.”

Lewis said he believes expanded takeaway capacity and better utilization of storage capacity will help the current volatility. He added that development of new local markets for Rockies gas, including power generation is also a step in the right direction.

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