Colorado is blessed with many natural resources, including an abundance of natural-gas reserves. The nation, in fact, has experienced a profound change in the supply of natural gas.
Recent studies, most notably one by the U.S. Department of Energy, have determined that the recoverable natural-gas resources in this country are enough to last for the next 90 to 100 years based on the current rate of production.
Over the past two years, continental natural-gas production has grown 9 percent solely because of new shale-gas discoveries in states such as Texas, Louisiana and Pennsylvania. Advanced, proven technologies such as horizontal drilling and hydraulic fracturing provided the impetus to make these new “shale plays” viable.
In 10 years, this new production is expected to increase fivefold to 25 billion cubic feet per day.
Perhaps more importantly, from a business standpoint, this new gas supply comes from wells with high rates of production in markets in close proximity to major pipeline infrastructure. As a result, these wells provide a strong return on investment.
Rocky Mountain producers face near-term challenges in terms of constrained pipeline capacity and, in general, higher cost structures, relative to some of the newer sources of natural-gas production across the country. Costs have improved significantly in the past two years with technology advancements such as fit-for-purpose rigs and more experienced rig crews. However, continual cost improvement will be key, in particular for Rocky Mountain producers.
According to analysis by investment banks, average break-even costs for producers operating in areas such as the Piceance Basin of Colorado and the Powder River Basin of Wyoming, both among the best basins in America, are in the range of $7 MMcf (million cubic feet) to $9 MMcf versus a break-even in Louisiana’s Haynesville of $3.25 MMcf.
So how can Colorado compete with these new natural-gas resources?
Technological advances helped the Rocky Mountains become a leading source of natural-gas supplies, and continual process advancements will lead to solutions for the near-term challenge in reducing overall cost structures.
Colorado can also “move the needle” on climate change and reduce our dependence on hostile foreign sources of oil by increasing the use of natural gas for power generation and transportation within Colorado.
Natural gas is the cleanest of all fossil fuels. For example, natural gas emits roughly half the carbon dioxide of coal. This switch could occur quickly because Colorado is using only about 30 percent of the capacity of its natural-gas-fired power plants.
In the case of transportation, at an estimated long-term North American price of less than $8 MMbtu, or the equivalent of $50 per barrel WTI (West Texas Intermediate) oil price, natural gas is about 30 percent cheaper than current North American gasoline or diesel prices. In addition, independent studies have shown natural-gas tailpipe emissions are about 30 percent lower than diesel or gasoline.
North American natural-gas supplies are abundant, affordable and clean. They can play an integral role in reducing greenhouse-gas emissions and lessen our dependence on hostile foreign-oil sources. Colorado can strengthen its economy and job base by using more of its natural gas intra-state, with supplies that are currently exported to other states.
Don McClure is an EnCana Oil & Gas (USA) Inc. vice president and chairman of the Colorado Oil and Gas Association.
