During the great Rocky Mountain region price depression of theearly 90s, MMBtus were going for pocket change; producers werelucky to get a buck for an MMBtu. Today they are enjoying justunder two bucks. The average price for gas at Opal, WY, in 1998 was$1.81 slightly down from the ’97 boom year ($2.01/MMBtu) but stillin gravy-land. The Rockies have enjoyed two years of relativeprosperity, but some say “look out for what’s ahead.”

“I see kind of a gray cloud on the horizon,” said John Harpoleof Mercator Energy, a marketing company based in Denver. Harpolenoted the Powder River Basin in northeastern Wyoming and southernMontana is likely to have a significant impact on the RockyMountain region marketplace in 1999 and 2000 because it could bringa flood of new supply on line. While more production generally isconsidered a good thing for producers, in the Rockies it is oftenconsidered the cause of a pipeline constraint. This time thesituation could be even worse, Harpole noted, because in additionto the expected pipeline transportation constraints there will bemore than the average amount of supply displacements. Theproduction increase in the Rockies will come at a time whenNorthern Border and Alliance are displacing Rocky Mountain gas inthe Midwest.

The region could end up with a supply glut unless demand fromthe western U.S. and the Denver market picks up considerably, saidHarpole. “I think we’re going to have a new CIG [price] index.You’ve got northern CIG and CIG DJ Basin. You may see DJ Basin goaway. But there’s going to be a CIG Cheyenne, WY. Gas is going tobe stuck there.”

Some Powder River Basin players are so nervous right now aboutbeing able to move gas away from Cheyenne that they already arebuying up capacity on Trailblazer, one regional marketer said. “CIGhas offered a 2-cent backhaul to Kern River and other westboundpipes and that’s going to be a steal for Powder River shippers,”the marketer said. He believes CIG could demand 10-15 cents for abackhaul to westbound pipes and still get producers to sign.

With potentially 300-500 MMcf/d of new Powder River productiontaking up space on pipes by the end of next year, at least someexisting Wyoming production is going to be displaced. And when thathappens, prices in the northern Rockies are likely to plummet fromheights they’ve enjoyed over the past two years.

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