Oil and Gas Update: Cheap Natural Gas Hurting Colorado

If you don’t think the oil and gas development on the Western Slope is affecting you, read on. For instance, your city’s proposed improvements could falter by the lack of funding from the Department of Local Affairs which survives on severance tax revenues. We’ll tell you how.

Also included: oil reserves are good; man camps are helpful; but the air quality….Western Slope Natural Gas Selling At Bargain Basement Prices
The lack of pipelines to the open market are capping natural gas revenues in Colorado and Wyoming forcing lower selling prices, which in turn are negatively affecting severance tax revenues to the states.

In essence, there is more supply than the pipelines can handle, which lowers the value of the gas and that scenario won’t change for at least another year until new pipelines to the Midwest are completed.

From the Grand Junction Daily Sentinel:

One of Western Colorado’s most sought-after commodities sells for a fraction of the price it fetches on national markets. That means that natural gas from the Piceance Basin is pumping far less money into Colorado’s treasury than it might otherwise, energy experts said.

The effect, according to a study by the Colorado School of Mines’ Colorado Energy Research Institute, could be massive because oil and natural gas accounted for about 6.1 percent of the gross state product in 2005 and accounted for roughly 71,000 employees.

The problem is shared by Wyoming and western Colorado, said Brian Jeffries, executive director of the Wyoming Pipeline Authority, who works out of Longmont.

All the natural gas drawn out of the Piceance Basin, along with much of that drawn from Wyoming “is fundamentally competing to get through the same pipeline grid,” Jeffries said. What Jeffries called “gas-on-gas competition” for space in the pipeline results in a glut of supply that forces gas producers to reduce their prices in order to get it in the pipeline.

Western Colorado gas was at an additional handicap in June when two major pipelines, the Trailblazer and Northwest, were shut down for routine maintenance. In June, those factors conspired to mean the price of gas sucked out of the Piceance Basin and Wyoming was about one-third the national average.

State coffers suffered because Colorado and Wyoming get royalty and severance-tax payments based on the sale price of gas. The lower its price, the less the states receive.

There is a $3.00 difference between gas sold at the Cheyenne hub in northeast Colorado and the Henry Hub, a pipeline head in Louisiana, where it was selling for $7.70 per thousand cubic feet late last month versus $4.70 locally.

At current prices, drilling for natural gas is still profitable to energy companies. However, questions arise– are the reduced severance taxes to the state covering the costs of mitigating energy development impacts? Will programs that are dependent upon that income — such as implemented by the Department of Local Affairs — be slashed? How will this impact the state’s budget?

Inquiring Minds Want to Know….
Who’s going to be appointed to fill the vacancies on the Colorado Oil and Gas Conservation Commission? The commission oversees the exploration, development and conservation of  oil and natural gas resources in the state, including mitigating impacts to public health, safety, welfare and the environment. It also promotes the development of oil and gas at the local, state and federal levels.

So far, Gov. Ritter has not announced the identity of the seven new commissioners he can appoint. He hasn’t been delayed by the lack of applications; many came from the Western Slope where oil and gas impacts have grown dramatically in the past few years.

With charges that the commission had grown too cozy with the industry, the state legislature passed a new law this year that expanded the commission from seven to nine members. Some of those commissioners now need to have a background in agriculture, public health, wildlife, soil conservation, local government and royalty owner issues. Previously, five of the seven commissioners had to have an energy development background.

Harris Sherman, director of the department of Natural Resources, and Jim Martin, director of the Department of Public Health and Environment were automatically added to the commission by the new law.

Industry Leader: We Have Plenty of Oil Left
Prices may rise, but there are enough oil reserves to last into the mid-century at current production rates, according to Mark Finley, head of energy analysis at BP (British Petroleum.) New oil sources such as Canada’s tar sands, new fields in the Gulf of Mexico and biofuels will help meet the demand, he noted.

From the Cortez Journal:

Mark Finley, head of energy analysis at the giant energy company’s London headquarters, walked a group of about 20 through BP’s annual Statistical Review of World Energy, which was released this month.  BP is well-known locally as the dominant gas producer in Southwest Colorado.

Drivers might wince at high gas prices, but it’s a sign of a well-functioning oil market, not a crisis, Finley said.

“The world’s not running out of oil,” he said.
The world has enough reserves to pump oil for 40 years at the current production rates, assuming no new oil sources are found, according to the BP review.

Critics of Saudi Arabia, which has the world’s largest oil fields, have questioned how much the kingdom can increase its production. “Our inclination is to give the Saudis the benefit of the doubt,” Finley said. “They’ve delivered in the past when they needed to.”

Highlights of BP’s review include the following:
World energy consumption grew 2.4 percent last year, mostly because of a good global economy.
  The demand for energy actually fell slightly in the United States and other rich countries.

  China accounts for half the growth of energy use in the world over the past five years, and most of that energy comes from coal.

Hundreds of Oil and Gas Workers to Live in “Man Camps”
Counties have the authority to regulate and permit temporary housing facilities for oil and gas workers. With the housing shortages acute in Western Colorado, more energy companies will be seeking to set up “man camps” on their drilling pads to alleviate the problem and reduce impacts from their large male workforce.

The Glenwood Springs Post Independent reported:

EnCana USA has won Garfield County approval to operate up to 31 temporary facilities housing nearly 750 natural gas development workers north of Parachute.

Each of the facilities, known informally as man camps, is allowed to hold up to 24 employees and contractors. None would be operated more than one year under the county permits. EnCana’s application is by far the largest the county has seen since the rules took effect.

“We recognize the magnitude of our proposal and also the possible precedent that we might be setting,” EnCana permitting and right of way coordinator Brenda Linster-Herndon told commissioners.

Pesnichak said other companies, such as Chevron, also are pursuing permits. “They’re permitting generally what they’ve already been doing out on those sites,” he said.

EnCana officials said they have a good working relationship with the county sheriff, donate money to the fire departments in Rifle and Parachute and enforce a zero-tolerance policy toward substance abuse, doing random drug tests and quarterly searches with dogs for drugs and guns.

They said workers at the housing units aren’t forbidden from going to town, but work 12-hour days and are provided with good meals, Internet access and other incentives to keep them from leaving the worksite.

Man camps were also set up during the oil shale boom in the 1980’s in Western Colorado, so the situation is not new. Rental and housing prices have skyrocketed recently because of the high demand from the oil and gas industry and motel rooms are rarely available in Parachute, Meeker and Rifle areas.

Air Quality Deteriorating in Western Colorado
Smog is increasing between Silt and Aspen with ozone levels at one Garfield County air monitor possibly exceeding new ozone standards being considered by the Environmental Protection Agency. Pollution from traffic and the natural gas industry most likely are the causes, according to local health officials.

Doctors have formed a committee to at the Grand River Hospital District in Rifle to investigate the connection between air quality and the increase of patient respiratory problems.

From the David Frey’s article in the Aspen Daily News:

“We’re getting obvious health concerns from the community,” said Dr. Jeremiah Eckhaus, director of integrative medicine for Grand Valley Medical Associates, who has helped organize the committee. “It’s hard to know whether someone’s asthma is because they have asthma or because they’re sitting next to gas wells or because allergy season is coming in.”

Environmentalists also worry about how poorer air quality could affect wilderness areas where air quality is protected. The Maroon Bells, Holy Cross and Eagles’ Nest wilderness areas on the White River National Forest are all considered class 1 air sheds.

Air problems could worsen, they say, if oil shale is developed in western Colorado. Large-scale production is expected to require new power sources to fuel the extraction process. Environmentalists worry that will likely mean more coal-fired power plants, adding more of the contaminants that create ozone and smog.

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.