NGI The Weekly Gas Market Report
Western Gas Resources has joined the Fort Union Gas GatheringPartnership formed to deliver 450 MMcf/d or more of coal-bedmethane from the Powder River Basin by the end of next year.
Western officially signed on for a 23.3% share of thepartnership which will build a new 106-mile, 24-inch diametergathering line to tap the basin in northeastern Wyoming. Westernalso will be the construction contractor and field operator of theheader and a related gas treating facility. CMS Gas Transmissionand Storage and Enron Capital & Trade Resources will each hold a33.3% share, with CMS serving as the managing member. CIG Resourceswill hold a 10% interest and provide administrative and gas controlservices.
The partnership now has the two largest property owners in thebasin on board. Western and joint development partner BarrettResources control over 800,000 gross acres in the play and have bigdrilling plans for this year and the foreseeable future. And CMSOil & Gas, whose affiliate CMS Gas Transmission and Storage ownsa 33.3% share in Fort Union, bought into Pennaco Energy’s positionin the basin, which is estimated to cover about 600,000 acres.
The basin is expected to contain up to 30 Tcf of coal-bedmethane reserves and production will be ramping up quickly thisyear. Western’s current production is 72 MMcf/d from about 300producing wells. But Western and Barrett plan to drill 500 morethis year. CMS-Pennaco could be expected to drill a similar number.
“The Powder River development is expanding rapidly and these newprojects should ensure that the increasing volumes from thislow-risk, low-cost gas reserve will have an outlet to favorablemarkets,” said Western President Lanny Outlaw.
Fort Union plans to build a gathering header with an initialcapacity of 450 MMcf/d. It will deliver gas to a proposed treatingfacility near Glenrock, WY. Construction is scheduled to begin inApril with operations to commence in September. Western currentlyis completing a 40 MMcf/d expansion of its existing MIGC gatheringline in the basin, increasing total gathering capacity to 130MMcf/d.
Wyoming Interstate Co. has filed with the FERC to construct anew 143-mile, 24-inch interstate gas transportation line known asthe Medicine Bow Lateral that will bring gas from Fort Union atGlenrock to the Cheyenne Hub, where suppliers will have severaloptions to downstream markets. But some regional players alreadyare concerned the Rockies’ age-old problem of transportation accessonce again will haunt producers.
‘Gray Cloud’ Approaching
“I see kind of a gray cloud on the horizon,” said John Harpoleof Mercator Energy, a marketing company based in Denver. Harpolenoted the basin 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.
©Copyright 1999 Intelligence Press, Inc. All rightsreserved. The preceding news report may not be republished orredistributed in whole or in part without prior written consent ofIntelligence Press, Inc.
© 2020 Natural Gas Intelligence. All rights reserved.
ISSN © 2577-9877 | ISSN © 1532-1266 |