Weld County in Colorado, USA poised to be state’s top gas producer

Weld County in Colorado, USA poised to be state’s top gas producer

La Plata County production on the decline

Weld County may soon become Colorado’s top county in terms of natural gas production. In the game of musical chairs that characterizes fossil-fuel energy production, no single county seems to stay on top for long, because of variables such as commodity price, advancements in technology and the natural lifecycle of different types of plays.

La Plata County production

Twelve years ago, La Plata County, in southwestern Colorado, was the state’s top gas producer. Colorado Oil and Gas Conservation Commission data indicate that La Plata County’s natural-gas production peaked in 2003. La Plata County gas, drawn primarily from the Ignacio-Blanco gas field in the northern San Juan Basin, accounted for nearly 46 percent of Colorado’s total natural-gas production in 2003, with 473 billion cubic feet produced.

By 2012, Garfield County had overtaken La Plata County. In that year, Garfield County, drawing from the Piceance Basin, produced nearly 41 percent of Colorado’s total natural gas, with 701 billion cubic feet produced.

However, because of continuing production increases in the Denver-Julesburg Basin, Weld County appears poised to take over the title in the near future. Preliminary state oil-and-gas commission data for the first part of 2015 shows Weld County producing 32 percent of Colorado’s total natural gas, with Garfield County at 29 percent, and La Plata County a distant third at 21.6 percent.


“The DJ has been growing at a tremendous pace the last four or five years,” said Taylor Cavey, energy analyst at Bentek Energy, a division of Platts. “None of the other basins within Colorado, or even the Rocky Mountains, have seen that kind of growth. I don’t see anything else in Colorado being able to compete with it in terms of oil-and-gas production growth.”

Because prices for both oil and natural gas have declined precipitously since early 2014, producers have curtailed exploratory drilling and have instead focused their resources on “their highest return assets and core acreage, where they’ve already drilled and they’ve already seen very good initial production rates and returns,” Cavey said. By using this strategy – called “high grading” – producers hope to boost production while reducing expenditures at the same time.

Oil is better

“If you look at the price of oil and the price of gas on an MMBTU basis, where you basically make them equivalent in terms of dollars per molecule of energy,” said Cavey, “the return on oil is better.”

“Since the price point for oil is higher than the price point for gas, producers are targeting oil, and in the process, they are getting gas as a byproduct,” he said.

That’s good news for liquid-rich plays, such as the Denver-Julesberg, and not-so-good news for dry gas plays. In this economic context, drilling activity in dry gas plays declines. Drilling activity in liquid-rich plays, such as the DJ, may also decline, but efficiency gains have allowed production to grow.

The difference in oil versus gas price points is partly caused by the different scope of the two commodities’ markets.

“Oil is a global commodity, whereas natural gas is more of a domestic commodity,” Cavey said.

Global oil markets are well-established, with high volumes of import and export activity between countries. Natural-gas activity is more domestically and regionally focused.

U.S. market

“The U.S. is very independent in terms of gas production and demand,” Cavey said. “With oil, prices are very dependent upon the global environment. A geopolitical event in the Middle East can have a significant effect on the price of oil in the U.S., whereas something happening in the gas market outside of the U.S. isn’t really going to affect the U.S. gas price.

“We have more than enough gas to meet the demand within the U.S.,” Cavey said. “We don’t rely on foreign markets for natural gas. And since we have more than enough to meet the domestic demand, we are actually trying to export gas now.”

One of the keys to using natural gas as an exportable commodity is converting it to liquefied natural gas. According to the U.S. Energy Information Administration, natural gas is liquefied by cooling it to minus 260 degrees Fahrenheit. The liquefied gas represents about 1/600th of the volume of the gas in its natural state, making it easier to transport to areas not served by natural gas pipelines.

According to the EIA, the first LNG carrier, the Methane Princess, began service more than 50 years ago, in June 1964. The Methane Princess primarily supported the United Kingdom’s import of LNG from Algeria. Since then, the global LNG carrier fleet has increased to more than 350 ships, with an average capacity of 150,000 cubic meters of LNG per ship (the equivalent of 3,300 million cubic feet (MMcf) of natural gas.

At the beginning of 2015, the Kenai LNG export terminal, in Alaska, was the only U.S. facility exporting domestically-produced LNG to foreign countries. However, according to the EIA, companies in the Lower 48 states began applying to build LNG export infrastructure in 2010, when high oil prices impacted the demand for natural gas.

Growing LNG

As of July 1, the U.S. Department of Energy had received more than 50 applications for projects to export domestically-produced LNG from the Lower 48 states to both Free Trade Agreement and non-Free Trade Agreement countries.

Houston-based Cheniere Energy is expanding its Sabine Pass LNG Terminal in Cameron Parish, La., near the Louisiana-Texas border. The facility is slated to become the first plant in the Lower 48 to begin shipping LNG, beginning in late 2015. After completion, the facility will have bi-directional capabilities, meaning it can both export LNG, and receive (import) LNG for re-gasification, depending upon market conditions.

“Bentek is tracking several different projects that are expected to come online in the next couple of years to export liquefied natural gas,” Cavey said. “In the near-term, the demand for natural gas is going to be more dependent on domestic factors, such as weather. But once these LNG projects come online, global demand could start to play a significant role in natural gas production.”

As to whether the global export of U.S.-produced LNG could have an impact on gas production in the DJ, it’s hard to say, said Cavey. “The DJ continues to be a powerhouse of production,” he said, “If it keeps going that way through 2018, when a lot of these LNG export projects are expected to come online, they could source gas from the DJ, and that could definitely be helpful to producers.”


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