The Rocky Mountain region is seen by many as the supply savior of the U.S. natural gas marketplace, but production growth in the region probably will be lower than many expect for the same reasons that have hindered development historically: pipeline takeaway constraints and the slow regulatory process, particularly drilling permitting, said Stu Wagner, an analyst with Petrie Parkman in Denver.
“It’s my thesis that the Rockies are going to grow more slowly than people expect,” he said in an interview with NGI. “Do I think it’s going to be a growth area? Yes. Do I think it is going to grow attractively? Yes. But expectations are pretty high for the Rockies. I think permitting issues and pipeline issues will make it less than people have hoped for.”
He said if the Rockies could grow by 1 Bcf/d every three years, that would be surprisingly strong. But it still wouldn’t be enough to meet the market’s expectations or to meet demand growth given the steep declines in the majority of basins across North America.
“For Wyoming to go from 4-5 Bcf/d, which is what it is now, to 6 Bcf/d, it is going to need a lot of drilling and a lot of new pipeline infrastructure. And then to do that again it will need several years of a lot of investment both in pipes and drilling, and that is more challenging than most people realize particularly with the restrictions on permitting” and other regulatory issues, Wagner said.
Nevertheless, that isn’t slowing down the industry. There has been a significant increase in pipeline infrastructure planning. Several new plays also look promising, and the basins that have historically suffered because of their location are getting a lot of new attention.
“With the high prices that we have today, some of the more unconventional gas plays are starting to move beyond theory into actual implementation,” said Wagner. He said that Western Gas and Kerr McGee have some large lease plays in eastern Colorado where they are looking at the Niobrara Chalk. Western has drilled a couple test wells so far, and, according to Wagner, the early returns are encouraging. Western is planning on drilling up to 20 wells in the area east of the traditional Denver-Julesburg Basin this year.
“It has leased literally 340,000 acres, and what I’m hearing is that Kerr McGee has a like amount,” said Wagner. “I think there are pretty high expectations that this is going to be a viable play. There is some analogue here to the Powder River [Basin] in the sense that it’s shallow; it’s almost a manufacturing play. These are not big reserves per well or big flow rates but you can drill a lot of them.”
Another play that is showing promise is the Lance formation in the Wind River Basin of central Wyoming. Lance is the core sand that has been behind the tremendous growth in the Jonah field and in the Pinedale. “The key is that it is widespread but you need an overpressured area on the sand because it is tight,” said Wagner. “There have been a lot of tests around Wyoming because basically people are looking for the next Jonah and Pinedale.”
One of the most significant growth areas in the entire Rocky Mountain region going forward is likely to be the Piceance Basin in western Colorado. EnCana recently announced plans to build a new 1.3 Bcf/d takeaway pipeline from the Piceance to the Cheyenne Hub in northeastern Colorado, which will be the starting point for El Paso’s proposed Cheyenne Plains pipeline to the Midcontinent.
“It’s an indication that [EnCana] certainly doesn’t want to be locked into the California market. It’s also an indication that they think there is a boat load of gas in that area,” said Wagner. “It tells me that there’s a lot more drilling going on out there than I thought there was going to be.
“I’m hearing EnCana is going to run 25 rigs [in the Piceance] for 2004; I’m hearing Williams is running 12-15; I’m hearing Tom Brown is running double digits. You’re probably looking at 500-plus wells a year. If you are planning to build a 1.3 Bcf/d pipeline you are expecting a lot of gas for a long period of time.”
Cheyenne Plains, which has received preliminary approval from FERC, is expected to go into service early next year with an initial capacity of 730 MMcf/d. The $425 million project would extend 380 miles, providing a new direct route to Midcontinent markets for Powder River Basin coalbed methane production, gas supply from the Jonah Field and production from the Piceance Basin in Colorado. Greensburg, KS, was picked as a destination for the pipe because several pipelines meet there, including ANR Pipeline, Kinder Morgan Interstate, Northern Natural Gas, Panhandle Eastern Pipe Line and Southern Star Central (formerly Williams), which combined provide more than 6 Bcf/d of takeaway capacity in the area.
“It’s going to be a 36-inch diameter pipeline that ultimately could be 1.8 Bcf/d,” said Wagner. “I think you will see Cheyenne Plains get expanded with new compression before you see any other pipeline built. There’s not enough gas coming out of Kansas, Oklahoma and West Texas. I think you have such steep declines in those basins, such as the Hugoton, Anadarko and Permian, that you have to add this Rockies gas to replace it.”
But Wagner noted that there also have been some concerns that there won’t be as much supply growth coming from the Powder River Basin in eastern Wyoming to support multiple new regional export pipelines being built simultaneously.
“Basically what I think [the Powder River producers] have found is that the communication of the coal there is better than they thought,” he said. “It’s taken a lot of wells drilled over time to find out what exactly is going on. The early wells were looking very good, but eventually they found that they were stealing gas from other places.”
Wagner said some producers now say they should have had 160-acre well spacing in the Powder rather than the current 80-acre spacing. “It has caused them to revise reserves downward. They also thought the coal was saturated, but now they are finding that the Wyo-Dak was undersaturated; it had caused them to over estimate the amount of gas in place.” To make matters worse there’s a slow dewatering process for Powder River wells and a slow permitting process through the Bureau of Land Management, which has limited the pace of drilling.
It boils down to continuing growth, but less growth than once thought, Wagner said.
Wagner will be speaking at the GasMart conference in Denver on Tuesday May 18 at 12 p.m. For more information on the conference visit https://www.gasmart.com/ or call (800) 427-5747.
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