The sharp increase in gas prices over the last five years dramatically raised the nation's optimism and producer interest in the Rocky Mountain gas endowment. Thirty years ago the region was not even close to playing the key role in the nation's gas supply that it does today and is expected to play in the future, Strachan noted. In 1977, proved reserves in the region were estimated at just over 19 Tcf, or about 10% of the total in the U.S., but by the end of 2004 Rockies proved reserves nearly tripled to 57.5 Tcf or about one third of the U.S. total.
Part of the past pessimism about the region was related in part to the percentage of reserves additions stemming from new field discoveries, which over the last 30 years was only about 3%. But what the region couldn't provide in the way of new fields it far surpassed in reserves revisions and field extensions. Over that 30-year period 90% of the reserves added were through revisions and extensions, Strachan said.
Ten years ago, the Energy Information Administration was pointing to conventional resources in the United States and the main driver of future production and reserves growth, but today the forecast points to unconventional resources leading the charge, with the Rockies largely responsibly for that change.
"The Rockies has continued to surpass expectations of many industry observers," Strachan noted. "This is primarily due to the hard work and the achievements of the operators, but I guess it comes as no surprise that gas prices have also played an important part."
Strachan noted that despite the steady growth of the Rockies over the last 30 years, activity levels were cyclical until prices rose sharply at the beginning of this decade. In 1996 only about 1,800 new producing wells were drilled compared to 8,000 new producing wells in 2001 when Henry Hub prices moved to nearly $4.50/MMBtu from the historical average of near $2. "That really gave operators the opportunity to get after the reserve potential."
Many of the new wells early in the decade were drilled in the Powder River Basin, the Raton and the San Juan. But the Uinta-Piceance and Greater Green River basins will be the major growth drivers over the next five years, said Strachan.
Wood Mackenzie predicts that production from the region will grow steadily to about 10.5 Bcf/d by 2015. By 2030, the consulting firm expects proved reserves to reach 130 Tcf, but Strachan noted that many operators have even more optimistic projections.
In another presentation Tuesday, Bill Barrett Corp. CEO Fredrick Barrett estimated the Rockies resource at 200-400 Tcf. He noted that the region is largely unexplored. For example, only about 5-10% of the region has been shot with 3-D seismic compared with 100% in the Gulf of Mexico.
Some say the Uinta-Piceance Basin (Utah and Colorado) alone holds as much as 300 Tcf of resource potential. A similar level of optimism surrounds the Greater Green River Basin in Wyoming where the Pinedale Anticline is estimated to hold about 40 Tcf of gas reserves, excluding the potential from some of the deep reservoirs. "The ultimate recovery from the field is dependent on well spacing," said Strachan. He said if 10-acre well spacing is approved, operators will be able to access an incremental 15 Tcf. Meanwhile, the Jonah Field holds an estimated 13.8 Tcf, but there's another 8 Tcf of potential.
"But it's not just about Jonah and Pinedale" in the Greater Green River, Strachan noted. "Anadarko has identified about 8 Tcf of coalbed methane potential... Questar also is working on development opportunities in the Vermillion Basin with an estimated resource potential of around 3-4 Tcf."
"These are just a few references to specific opportunities. There are many other operators [looking for gas in] many other basins" in the Rockies. He mentioned the San Juan Basin, the DJ Basin in Colorado and the Powder River in Wyoming as also holding tremendous potential. Barrett said the Niobrara Chalk in the DJ Basin "could be one of the biggest gas discoveries in the United States."
According to Wood Mackenzie, the top 34 gas production companies in the Rockies are expected to drill between 8,000 and 9,000 new wells per year over the next five years. This activity represents about $25 billion of planned capital expenditures. BP alone is expected to spend $2.2 billion to drill about 2,000 wells in one field, the Wamsutter in Wyoming.
"We see a huge commitment from industry to invest in developing reserves across the Rocky Mountains," said Strachan. "After examining the resource potential and reviewing what is currently happening on the ground we can see that it may just be possible to continue the reserve growth trends. But we can't get complacent... There are challenges that need to be overcome."
Strachan said the primary challenge is developing reserves in an efficient manner while overcoming constraints on rigs, drilling permitting and regulatory restrictions and while finding the manpower to do the job. The other major challenge is doing it in an uncertain pricing environment.
There have been concerns that growing liquefied natural gas (LNG) imports will suppress prices. But Wood Mackenzie expects prices to remain relatively strong going forward.
"In the short-term we see prices remaining strong despite the arrival of LNG," said Strachan. "The new LNG volumes are primarily are going to [help provide gas to the growing number of] gas-fired power plants and won't adversely upset the balance of the market. However, the further we go out we see the link breaking between gas and oil, and gas becoming more competitive with coal."
He said LNG supply will bring down gas prices somewhat over the latter part of the next five years. But perhaps a more important question is what impact LNG will have on basis differentials. New LNG supply coupled with new pipeline capacity could substantially increase basis volatility, said Strachan. As these factors begin to balance out, however, the direction of gas prices is expected to stabilize and remain relatively strong.
Wood Mackenzie projects a short-term peak at around $9/MMBtu around 2007, a slight decline from there to about $6 in 2009 and a gradual increase back up to $8 by 2020.
Copyright 2006 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.
Most Popular Articles