The debate over the health of the natural gas industry will shape the 2010 campaign for the governor’s office, key seats in the state legislature and even local-level county commissioner races. Unsurprisingly, there are fundamental disagreements about what is happening on the ground in gas country.
With oil and gas prices creeping upward and with the benefit of new increased pipeline capacity running to Colorado, oil and gas industry observers say the state is headed for a major uptick in drilling activity, somewhat muting the persistent political argument that Democratic policies have tamped down the state’s natural gas business.
Industry officials counter that the once-booming economic sector will continue to struggle. They say industry hiring and tax payments have dipped due to the combination of tougher Ritter administration drilling regulations and the ongoing global recession.
Politicos, pipelines, rig counts
“Back when natural gas was around $3 a thousand [cubic feet], Rocky Mountain natural gas was essentially worthless. That’s why all those politicos … say stuff like [Gov. Bill] Ritter ran the natural gas industry out of Colorado,” said environmental activist Duke Cox, an industry observer on the Western Slope. “Well, that’s just bullshit.”
Cox, a member of the Western Colorado Congress and former head of the Grand Valley Citizens Alliance, says the low price of natural gas that caused the industry to drop off dramatically in late 2008 had more to do with Colorado’s limited pipeline capacity and decreased demand nationwide. That changed last fall with the completion of the Rocky Mountain Express pipeline.
“The local anecdotal information over here from all the people I know is that all of the oil and gas industry is ticking up and there are two major reasons for that,” Cox said. “One is that the price of natural gas has gotten up to around $6 a thousand [cubic feet] right now on the NYMEX [New York Mercantile Exchange] and the Rocky Mountain discount to the NYMEX has practically disappeared.”
The Rocky Mountain discount was the more-than $2-per-thousand-cubic-foot discount shaved off gas from this region because operators couldn’t guarantee a steady stream to key markets due to limited pipeline capacity.
Tisha Conoly Schuller, president of the Colorado Oil & Gas Association (COGA), an industry trade group, paints a darker picture.
“Drill rig counts are increasing across the nation at a rapid pace, while the recovery is demonstrably slower in Colorado,” she said. “Because shale plays are attracting investment in the East, Colorado will have to demonstrate a political and social will to ensure that Colorado is an attractive place for ongoing, long-term investment by natural gas companies.”
According to the Baker Hughes rig count – the industry standard for tracking drilling activity – Colorado last week added the second-highest number of rigs in the country last week (4) behind only Texas (15). But the state still lags well behind the high-water mark of 125 active rigs it hit in April of 2008. Last week Colorado had 42 active rigs, the lowest numbers since August of 2003, when there were only 40 rigs active in the state.
Of the 42 active rigs last week, a third were in gas-rich Garfield County on the Western Slope.
“I haven’t seen any real evidence of an uptick in drilling activity in Garfield County,” said county oil and gas liaison Judy Jordan. “It’s been pretty steady for the past six to nine months or so. The latest rig count that we got from the COGCC [Colorado Oil and Gas Conservation Commission] was 14, which is right about where it’s been. I couldn’t say that I’ve seen a trend or an uptick.”
But several oil and gas service providers on the Western Slope – companies that provide drilling equipment and infrastructure – have recently reported hiring increases, a sign that the state may be headed for a drilling resurgence later in the year or by 2011 at the latest.
That’s when last spring’s environmentally tougher drilling regulations, which put more emphasis on mitigating impacts to public health, wildlife habitat and air and water quality, will be truly tested for the first time, regulation proponents say. The Colorado Oil and Gas Association has challeneged the Oil and Gas Conservation Commission rulemaking process in court, arguing the economic impacts weren’t fully considered during the nearly two years of deliberation.
“COGA does not object to oversight by the COGCC,” Conoly Schuller said. “In fact, we embrace the COGCC and their role protecting Colorado’s public health and mitigating environmental effects. The litigation is focused on the rulemaking process, not the overall mission and role of the COGCC.”
Right and left pitches
Republican gubernatorial candidate Scott McInnis, a former six-time U.S. congressman from the Western Slope, has made scrutinizing the COGCC regs a lynchpin of his campaign, calling the rules a “job-killer” and tying them to an overall Democratic strategy aimed at undermining the state’s business climate.
His spokesman recently told the Colorado Independent that Denver Mayor John Hickenlooper, now running as the presumed Democratic candidate for governor with Ritter pulling out of the race, will have to defend that legacy. Conoly Schuller said she thinks the Republican strategy will strike a chord with voters in the current economic climate.
“Jobs and the need for state and local budget revenue will resonate with voters this fall,” she said. “The natural gas industry is responsible for more than 7 percent of Colorado’s economy and more than 6 percent of total employment. We are one of the most taxed industries in the state and contribute significantly to regulatory agency, local government and education budgets.”
Proponents of the state’s outdoor recreation, hunting, fishing and tourism sectors, however, argue that greater environmental controls are needed to protect their interests. Surveys of Colorado voters indicate many residents favor increased regulation of the oil and gas industry.