Following the Green River and Powder River basins in Wyoming, the Piceance Basin in western Colorado is destined to be the next area of substantial gas production growth in the northern Rockies thanks to EnCana, Williams and other producers, and to plans for additional pipeline infrastructure. However, development never moves quickly in the Rockies; this could take at least two-three years.
The first step in the process began this week with TransColorado’s groundbreaking on some compressor station upgrades. The Kinder Morgan subsidiary is the biggest pipeline exiting the Piceance today, but its 22-inch diameter size provides minimal takeaway capacity. The company received FERC authorization two weeks ago to increase its capacity by 50%, but that still won’t be enough to accommodate the production growth some companies are expecting.
“We’re expecting to have our pipeline expansion up and running by Aug. 1,” said TransColorado General Manager Julian Huzyk. “Until then, the pipe will be running full.” In fact, Huzyk said some Piceance production already is being shut in because of pipeline constraints.
In total, there’s about 500 MMcf/d of gas coming out of the Piceance today. About 250 MMcf/d travels south on TransColorado and the other half flows in various directions. Producers have limited ability to move Piceance gas into Kern River Gas Transmission through Questar Pipeline. They also can move a small amount of production to Northwest Pipeline via Questar and to the Cheyenne Hub via Colorado Interstate Gas (CIG).
Despite these limitations, however, the two largest producers in the basin, Williams and EnCana, are drilling like gangbusters. EnCana has 20 active rigs. Williams is running about 10 rigs, and both are on in-fill development programs on existing established acreage. Both companies already have more than 200 MMcf/d of production and that has the potential to grow sharply.
TransColorado’s August expansion will provide some capacity relief, but it will be filled up quickly, said Huzyk.
The situation has prompted EnCana to step forward with a major new pipeline project of its own. Western Canadian gas production experienced similar pipeline constraints for years until producers got together to sponsor the 1.3 Bcf/d Alliance project to Chicago.
“I think if you listen to their first quarter reports and answers to questions from the media in terms of their intent on the Entrega Pipeline, our perception is that EnCana is trying to approach a new pipeline project on a similar basis to the producer-sponsored Alliance Pipeline,” said Huzyk. “At some point, I think their game plan is to bow out. They obviously have a tremendous problem to face long term if they are going to be the largest shipper on a pipeline that they are trying to build” (see Daily GPI Feb. 27)
EnCana already has awarded a project management and construction contract for the 327-mile pipeline project to Denver-based engineering firm Trigon-Sheehan.
The good news is that EnCana is bullish on the Piceance Basin and is willing to take the risk on a major new pipeline project, something Rockies producers are famous for avoiding.
The bad news for TransColorado is that EnCana is now committed to taking its gas East rather than South and West, as Rockies producers traditionally have done.
“The reason they want to go East fundamentally is that they have the lion’s share of their gas in the Rockies, whether in Canada or the United States, going to California and they want to diversify away from California,” said Huzyk. “They want to diversify, which I think is a smart move.
“Secondly they also have taken a look at basis differentials, and looking at Midcontinent versus San Juan prices over the last 10 years they know that Midcontinent holds a premium over San Juan.”
Entrega will terminate at the Cheyenne Hub, where gas will be delivered into multiple other pipelines, including El Paso’s proposed Cheyenne Plains system, which received a FERC certificate the same day that the TransColorado expansion was approved (see Daily GPI, March 25). Cheyenne Plains initially would bring 560,000 Dth/d of gas to a pipeline hub in Greensburg, KS, where there is about 6 Bcf/d of takeaway capacity. It is expected to be expanded to 730,000 Dth/d within a year and would have the potential to reach 1.7 Bcf/d.
But Huzyk believes it would not be wise for EnCana to send all of its Piceance Basin gas in one direction. The Southwest region is expected to experience substantial market growth and the San Juan Basin is in decline.
“I don’t think they have done their homework fully in terms of recognizing what is happening with the long-term decline in the San Juan that’s still continuing. Transport rates also are coming down on El Paso and Transwestern because of competition between them,” said Huzyk. There’s also Kinder Morgan’s proposed Silver Canyon pipeline project, which would bring Rockies gas to the Phoenix area.
Nevertheless, Huzyk is not worried. The optimism among Piceance producers has created a drilling and acquisition frenzy that’s sure to produce enough growth to continue supporting TransColorado as well as Entrega or an alternative.
In addition to Williams and EnCana, many other producers, including Tom Brown, ExxonMobil, Occidental Petroleum, Petroleum Development Corp. and Koch just to name a few, are waiting for further infrastructure to be developed so that the Piceance Basin can reach its full potential.
TransColorado’s Huzyk will be speaking on the 10 a.m. MDT Western Pipeline Roundup panel at GasMart in Denver on May 19. For more information go to https://www.gasmart.com/.
©Copyright 2004 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.
© 2020 Natural Gas Intelligence. All rights reserved.
ISSN © 1532-1231 | ISSN © 2577-9877 |