Oil, gas industry takes a hit
Pipeline shortage cuts value of state's output by 24 percent
Gargi Chakrabarty
Originally published 04:37 p.m., March 25, 2008
Updated 10:43 p.m., March 25, 2008
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Colorado's once-unstoppable energy industry has hit a pothole.
The total value of oil and natural gas produced in 2007 fell 24 percent, to $6.63 billion, compared with $8.75 billion in 2006, Colorado Geological Survey estimates show.
A dearth of pipelines hampered companies from transporting gas from Colorado to markets in the Midwest and on the East Coast, petroleum geologist Genevieve Young said. That, in turn, flooded local markets, severely depressing prices and leading to the sharp fall in the value of production.
"We had the supply, but we didn't have the pipelines," said Young, who compiled the survey's 2007 oil and gas report. "The lack of export capacity reduced demand, and that's reflected in the softening of the gas market."
That news comes at a time when state officials are looking at raising the severance tax on energy producers.
Sen. Chris Romer, a Denver Democrat who supports a ballot initiative to raise the severance tax from 5 percent to 6 percent, said that the decline in oil and gas value is a temporary setback. The problem can be resolved if the state helps the industry attract new pipeline investments, he said.
Romer suggested that Colorado work with Wyoming to stimulate pipeline construction.
"The state of Colorado has a financial interest in the gas. We should speak up, so that the gas is appropriately priced," Romer said. "One of the things we should look at is, in exchange for a fair severance tax rate, Colorado should join the Wyoming (Natural Gas) Pipeline Authority and become a facilitator of new pipeline projects."
Romer also said the Colorado Clean Energy Authority under the Governor's Energy Office ought to facilitate the financing of pipelines.
"We need to act like a shareholder, not just a regulator," Romer said. "And industry needs to recognize they are a partner."
Last year's decline in oil and gas value is even more stark when compared with the record value of $9.39 billion set in 2005, after hurricanes Katrina and Rita propped up prices of natural gas across the nation.
For example, Colorado's average price of gas rose to $7.39 per thousand cubic feet in 2005 as the hurricanes choked off supplies from the Gulf of Mexico.
Since then prices have softened, with the state average clocking $6.31 per thousand cubic feet in 2006. Last year, the average price languished at $4.67 per thousand cubic feet.
Weak prices have pulled down production. Last year's total gas production hovered at an estimated 1.132 trillion cubic feet, compared to 1.198 trillion cubic feet in 2006.
The value of gas - or production times price - dropped to $5.288 billion in 2007 from $7.345 billion in 2006.
And the value of oil slid to $1.343 billion last year, from $1.399 billion in 2006, despite higher prices. The average price of oil in 2007 was $65.48 a barrel, up from the previous year's $60.32 a barrel.
The $4.4 billion Rockies Express pipeline, which opened last month to carry gas from Colorado to Ohio, already is pushing up gas prices this year.
"Although the Rockies Express doesn't fix all of the export capacity limitations, it's a big step forward," the geological survey's Young said. "There certainly are indications that more pipelines will be built."
The survey, an arm of the Colorado Department of Natural Resources, will release its full report in April.
EnCana Oil and Gas spokesman Doug Hock agreed that the Rockies Express pipeline will improve the industry's outlook, coupled with the strong demand for natural gas nationwide.
But Colorado's efforts to overhaul gas drilling rules could make the business climate uncertain, lowering future production and its value.
Hock said that EnCana this year diverted $500 million of investment, originally intended for Colorado, to Texas and Wyoming, partly because of the current regulatory environment.
"We hedge our production, so we are able to withstand fluctuations in terms of prices. The market will take care (of prices) over time," Hock said. "We will continue to operate here. But in terms of our level of activity, and where we allocate capital, certainty is a big factor."
chakrabartyg@RockyMountainNews.com or 303-954-2976
Comments
Posted by TonyB on March 25, 2008 at 6:54 p.m. (Suggest removal)
Does Gargi Chakrabarty work for the Rocky Mountain News or EnCana?
Has anyone noticed their home heating and electric bills languishing lately?
Sen. Chris Romer, a Denver Democrat, wants the Colorado Clean Energy Authority under the Governor’s Energy Office to facilitate pipelines out of Colorado so that our gas prices will rise even higher. I do believe our taxes are "facilitating" both of those entities. So the question to Romer is how does he interpret the word "facilitate"? I suspect he does not mean "heartily encourage", but rather "help pay for."
Posted by justright on March 25, 2008 at 8:24 p.m. (Suggest removal)
TonyB,
Romer is talking about increasing tax revenue or as the Dems say increase "investment". The idea of being a share holder is to bring home the bacon. He wants what ever Liberal demcratic wants higher tax revenue not lower heating bills. The two have no relationship.
Posted by VVVV on March 26, 2008 at 6:30 a.m. (Suggest removal)
Pricing ourselves out of the rampant growth of oil and gas and slowing it down a bit sounds like a great idea. In the future gas prices will only continue to go up, so a dollar's worth saved now may be worth five when it's sold later. I see no reason for our government to provide money to an industry that isn't having any problem making a profit.
Romer needs to realize that the government is just a regulator. Shareholders get a voice in the particular company they own. A regulator doesn't care which company is doing the work, they keep them all on a level field. Whichever company takes our state's finite resources and makes a profit on them, and when, should not be a factor in legislation. Sure the "value", or total revenue taken in during a year may drop, but so what? That just means there will be more years to sell gas before it runs out. You don't put all of your furniture on the curb and price it at a dollar at a garage sale. You sell a little of what you can live without and try to recover as much as the market will bear.
All Colorado legislators need to stop focusing on creating short term growth and start considering long term prosperity. Romer is bordering on selling his first born so he can claim "improvement" aka "growth" for a year, abandoning his legacy for a little petty cash. Maybe if they all would stop wasting time with useless problems, like I-70 traffic, and start tackling the real issues, like the tug of war on the budget, they could create current growth while also ensuring a prosperous future. But that would be real work, and politicians don't like to roll up their sleeves, much less get their hands dirty.
Posted by Diff on March 26, 2008 at 9:01 a.m. (Suggest removal)
Did I not recently read an article that all the exporting of gas out of Colorado was in part cause for the increases in natural gas prices we have to pay for heating from Excel? - Now we are to believe that lack of an export pipe line (out of Colorado) is to blame for a down turn in prices? and slow down in the industry -
Which is it?
Does Excel and the Oil and Gas industry think we are stupid?!?
Figures don't lie but liars sure can figure!
Posted by Diff on March 26, 2008 at 9:04 a.m. (Suggest removal)
AND furthermore ...
Would someone PLEASE stuff a sock in Chris Romers mouth!
he seems to becoming almost as much of a embarrasment to the State as Doug Bruce, and Tom Tancredo!
Posted by mwanecek on March 26, 2008 at 11:01 a.m. (Suggest removal)
1. Natural gas prices have fallen.
2. Xcel did raise their price on utilities.
With natural gas prices falling then why did Xcel increases their charges? Simple, we the voters approved a bill to force Xcel and other utility companies to use more renewable energy.
Did you really think Xcel would not pass along those costs they are dealing with now, because they have to build more solar and wind farms? We only have ourselves to blame for the increased costs of our utilities.
Posted by jbowen43 on March 26, 2008 at 1:26 p.m. (Suggest removal)
Romer is a Democrat because Democrats get elected in his district. He thinks like a republican.
Posted by galty on March 26, 2008 at 8:51 p.m. (Suggest removal)
How short-sighted can these people like "Diff" be who would rather shortchange the State, workers, jobs and prosperity for the hundreds of thousands of people who benefit from oil and gas activity so that Diff can get below-market gas prices. For every $ in profits made by shareholders who are investing their capital to increase gas supply for the USA, there many $ which work for lots of suppliers, taxpayers teachers etc etc etc. Get a grip, Diff. At least Romer understands the economy enough to know you have to have one to tax it like a Democrat.
Posted by TonyB on March 26, 2008 at 11:25 p.m. (Suggest removal)
Does ANYONE know what galty is talking about?
Posted by CarefulReader on April 4, 2008 at 11:42 a.m. (Suggest removal)
So Romer wants to use our money to subsidize a pipeline for the oil and gas industry so the industry can charge us more for natural gas? Is every constituent in his district an oil and gas executive?
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