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Shale gas now a rival
New technology can recover the material, which means less investment for the Rocky Mountain fields.
By Mark Jaffe
The Denver Post
Posted: 01/30/2009 12:30:00 AM MST


Competition from new natural-gas reserves may delay the rebound for Colorado gas production — now at a three-year low, industry analysts and operators say.

Emerging shale-gas fields — the Barnett in Texas, the Haynesville in Louisiana and the Marcellus in Pennsylvania and New York — will compete for drilling dollars when the market rebounds.

"We are looking at a major realignment of the natural-gas markets," said Pete Stark, vice president for industrial relations at energy consultant IHS Inc. "This is a good thing. It means there is a lot more gas."

It might, however, be less good in the short term for the Rocky Mountain region.

"Some investment is going to flow to the shale plays, so the Rockies rebound might take four years instead of two," said Ward Polzin, a managing director at energy investment bank Tudor, Pickering, Holt & Co.

The story of shale gas mirrors that of Western tight-sands gas. In both cases, the reserves were known, but there wasn't a way to get at them.

"Technology is the key that unlocks the reserves, and it wasn't until the last few years that shale technology was perfected," Stark said.

Shale-gas recovery uses horizontal wells and fracking — a technique to create fissures in rock to release gas — and while it is more expensive to sink such a well, the yield is greater.

Fracking is also used in Colorado wells. Where it creates cracks in the tight sands, it shatters the shale like glass, said Jeff Wojahn, president of EnCana Oil & Gas USA.

"The Barnett shale before horizontal technology was going nowhere," said Wojahn, whose company has operations in Colorado and in the Barnett and Haynesville fields.

As a rough comparison, Stark said, a well in Colorado's Piceance Basin might cost $1 million and yield 800,000 cubic feet per day of gas, while a shale well's price tag might be $2.5 million with a yield of 5 million cubic feet per day.

"The logic is you are going to go to the place you can produce the most gas and get it to market, so shale gas may have an advantage," said Kobi Platt, an economist with the federal Energy Information Agency.

The agency projects shale gas' share of U.S. national dry gas tripling to about 18 percent in the next two decades.

Colorado, Wyoming, Utah, New Mexico and Montana accounted for 32 percent of reserves in 2006 and 22 percent of production in 2007, according to the most recent Energy Information Agency data.

Still, the potential for the shale reserves — not even part of the national estimates four years ago — are huge.

The Barnett field may have 30 trillion cubic feet of developable reserves; the Haynesville may hold 70 trillion cubic feet and the Marcellus 52 trillion cubic feet, according to analysis by Tristone Capital, a Houston-based energy consultant.

There are also shale plays in Arkansas and Oklahoma.

The Rocky Mountain region is estimated to have a total of 123 trillion cubic feet of gas, according to the Potential Gas Committee, a nonprofit, independent group backed by industry.

Cracking the shale was "a game- changing event," Polzin said.

While shale is the hot play, that does not mean the eclipse of Rocky Mountain gas, said Ray Dinkins, an analyst with Pritchard Capital Partners.

"There is a lot of infrastructure that the shale needs — pipelines, cryogenic plants to separate out liquids — and in this credit crunch, that investment is hard to come by," Dinkins said.

The development of the Rockies Express pipeline heading east and El Paso Corp.'s proposed Ruby Pipeline heading west will help keep Western gas competitive, Dinkins said.

EnCana's Wojahn said there are a number of factors that go into deciding where to drill, including the geology, the cost structure of wells and the regulations at different sites.

Still, Dinkins said: "If you have a choice to drill one place or another, you choose the cheaper one."