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Colorado drilling rules, as unanimously passed by the Colorado Oil and Gas Conservation Commission, will ensure responsible production of oil and gas in the state while safeguarding the public health, strengthening surface-owner rights, and protecting our wildlife.
Rules proposed by the commission include such simple, common-sense requirements as the protection of drinking water by creating protection zones near streams that serve as a public water source. Or how about the one that requires drillers to track and disclose to emergency medical providers the chemicals used in their operations? Any oilfield worker in a position to become accidentally contaminated would have to support that one.
The rules require that landowners receive timely notice of drilling operations and provide for a public comment period prior to development operations. State wildlife officials will consult and make recommendations for the mitigation of damages to fish and wildlife resources.
Balanced and sensible, the new drilling standards will strengthen the conduct of the energy business in Colorado, meeting energy needs while protecting the land and its people.
BILL SCHAPLEY
Grand Junction
28 Responses to “New oil and gas rules will ensure responsible production”
Posted March 29th, 2009 at 11:54 am Login to Send PM Report this comment
All the new oil & gas conservation commission has done is drive the energy companies out of Colorado, and ensured that Colorado will be last on their list when energy prices rebound and drilling pickes up again.
Unemployed? Hungry? then EAT an ENVIRONMENTALIST!
ENVIRONMENTALIST ON A SPIT! Barbecue the NITWITS!
Posted March 30th, 2009 at 5:26 pm Login to Send PM Report this comment
Parties over dude, please turn out the lights when you go.
Posted March 30th, 2009 at 5:58 pm Login to Send PM Report this comment
No the party is far from over dude.
I find it very interesting that all the enviros claim that it is not their fault that drilling has slowed. Yet all the people I know in the oil and gas industry say the slow down is directly linked to the enviros and the policies they force on us and the industry.
Posted March 30th, 2009 at 8:07 pm Login to Send PM Report this comment
If the new rules are the main reason for the slowdown, then why are the gas companies shutting down all the existing rigs which the new rules do not apply to? Why aren’t they drilling all they can on all the existing permits that don’t expire until the end of the year?
Unless there’s another reason…
Posted March 30th, 2009 at 9:05 pm Login to Send PM Report this comment
Once again you are not listening, I did not say anything what-so-ever about new rules now did I ?
Posted March 30th, 2009 at 9:26 pm Login to Send PM Report this comment
My comment wasn’t directed at you in particular, but since you bring it up, what did you mean by “the policies they force on us and the industry”?
Posted March 30th, 2009 at 10:37 pm Login to Send PM Report this comment
Scott, pulling out of Colorado even though permits don’t expire until later this year, I believe, was part of the plan. Oil & gas companies had contingency plans (1) if environmental regulations turned out to be reasonable for them and (2) if regulations turned out to be difficult with which to comply. These companies plan as far ahead as possible in order to protect their equipment and project investments. Moving out of Colorado promptly, after adverse regulations have been finalized gives exploration and production projects greater lead time to set up in states where environmental regulations are more favorable as there is competition for choice drilling locations. Committing financial resources early is a strategy for successful drilling projects and greater profits. Equipment and personnel have been leaving what was predicted to be adverse circumstances in Colorado. Now that there is definitely no future for them in Colorado, getting to work quickly in more favorable circumstances is the optimum choice.
I know that gas can be left in the ground in a completed gas well. I know that the gas wells in western Colorado are shallow and, consequently, are comparably less expensive to complete. Also, diagonal and horizontal drilling allows several wells to be drilled from the same pad with the same drill rig, which cuts drilling costs even more. So, fearing Colorado was going to implement environmental regulations that significantly increases their costs, gas companies completed lots of relatively low cost gas wells in the past several years that as a whole will continue to produce long after the rigs have left Colorado for greener pastures.
I prepared low cost proposals over the past several years for treatment of produced water for several gas companies. These proposals were not accepted, because, I believe, they were planning exactly what has happened, leaving Colorado. My proposals were part of these gas companies’ contingency plans for staying in Colorado if the political climate fostered less onerous environmental regulations. Oil and gas companies are conservative and employ long term planning. It is a myth that local, state and federal governments are going to hurt them for long. They just pick up and move.
Posted March 31st, 2009 at 6:00 am Login to Send PM Report this comment
So you honestly don’t think the 70% drop in gas prices and the maxing out of storage capacity had anything to do with the slowdown?
Posted March 31st, 2009 at 11:20 am Login to Send PM Report this comment
Scott, (1) 70% drop in gas prices means that producers receive less return on their investment. Producers can offer gas at higher prices but cannot absolutely control the price of gas due to Colorado’s many competitive gas suppliers. (2) Gas storage at capacity means no more gas can be pumped into storage, which is not the case today. Gas for Colorado typically originates in Colorado, Wyoming, Texas, Canada, Kansas, Oklahoma and Louisiana and can be stored in six depleted Colorado gas reservoir sites during the summer for distribution during the winter. Transporting gas from small gas wells to local storage is an expense to be avoided. Why pump gas into nearby storage if completed gas wells store gas just as well as gas storage? If distributed directly without going into storage, western Colorado gas wells could project long lives, without drilling additional wells.
U.S. historical maximum gas storage volume determined by the American Gas Association is 3,294 Bcf. This historical maximum volume is virtually certain to be less than the design maximum. In the future, working gas, stored during the summer for distribution during the winter, in storage could exceed the historical maximum volume from the period 1992-2000, during which the maximum volume was determined from actual usage. With only 1,654 Bcf gas in storage as of 3/20/09, only about 50% US gas storage capacity is being utilized. http://www.eia.doe.gov/oil_gas/natural_gas/ngs/ngs.html and http://www.eia.doe.gov/pub/oil_gas/natural_gas/analysis_publications/storagebasics/storagebasics.html
Posted March 31st, 2009 at 12:08 pm Login to Send PM Report this comment
And according to the chart, the storage capacity was maxed out back in November/December when the slowdown really started kicking in.
If the gas wells don’t come back, I’ll admit I was wrong. Will you do the same if they do come back despite the new rules?
Posted March 31st, 2009 at 12:29 pm Login to Send PM Report this comment
Scott, one major problem with your theory is that the “new Rules” do not apply to Federal land, ie BLM/forest service land. The state has tried before, and failed, at setting policy for federal lands.
Posted March 31st, 2009 at 12:45 pm Login to Send PM Report this comment
Scott, See: “Working Gas Relative to Historical Maximums An approach popularized by the American Gas Association (AGA) was to estimate storage “percent full” by comparing current inventory to the maximum amount of gas held in storage during a given time period. The regional historical maximum used by AGA for its weekly storage report (no longer published) was the sum of the largest volumes held in storage for each facility in a region at any time during 1992-March 2000. The total U.S. historical maximum was the sum of the three regional numbers. It is important to note that the respective historical maximum volumes for storage facilities did not all necessarily occur during the same week, or even the same year. Thus, AGA’s regional and total U.S. historical maximums were non-coincident peak volumes. AGA’s U.S. historical maximum volume determined this way was 3,294 Bcf. This historical maximum volume is virtually certain to be less than the design maximum. In the future, working gas in storage could exceed the historical maximum volume from the period 1992-2000.” http://www.eia.doe.gov/pub/oil_gas/natural_gas/analysis_publications/storagebasics/storagebasics.html for definition of maximum storage volume.
The chart on: http://www.eia.doe.gov/oil_gas/natural_gas/ngs/ngs.html looks at Historical Comparisons from Year Ago (03/20/08) and 5-Year (2004-2008) Average. Maximum actual storage volumes were reached during 1992-March 2000, which is not on the chart.
If the wells don’t come back??? The wells haven’t gone anywhere. The drillers are the ones who have left. They won’t come back, unless the political climate changes.
Posted March 31st, 2009 at 12:58 pm Login to Send PM Report this comment
Rexall,
Are you sure? The new rules are currently scheduled to take effect on Federal lands on May 1, although I hear there is consideration to delay that by 60 days to work out some details with the BLM. And even if the rules do not apply to Federal lands, that just means the new rules cannot be affecting the gas companies decision to slow things down on those lands.
Henderson,
Based on the chart, it appears that the storage capacity was very nearly at maximum at the end of last year. I have no doubt there is always some leeway on the exact quantities involved, but it still appears that there was very little room for any additional gas at that point.
I’m willing to bet that the drillers will be back when the price rises to the point that it is profitable to drill again, regardless of the new rules.
Posted March 31st, 2009 at 1:04 pm Login to Send PM Report this comment
Scott, I’m deferring to Henderson’s response to storage capacity. Well said. Your question about the drillers coming back is not about being right or wrong. As you can see, gas company actions are not predictable and once made are difficult to interpret. If they come back, something about environmental regulations effect on gas drilling will have changed and I will look until I find out what changed.
Posted March 31st, 2009 at 1:19 pm Login to Send PM Report this comment
Look Scott, The maximum storage capacity is 3,294 Bcf. The current volume is 1,654 Bcf. The capacity is 50% greater than the current volume. Storage capacity is not on the chart. Storage capacity is on the other reference. Two references have been presented that show these facts. What don’t you understand about capacity and current volume? If you are just being obstinate, I will dispense with further discussion.
Posted March 31st, 2009 at 1:21 pm Login to Send PM Report this comment
Scott, I believe that is the state saying they will take effect on May 1st, not the feds. Like I said, the state has tried to tell the feds what to do in the past just to be re-educated as to what federal land means. I would not be surprised if it does not happen for many months. Of course there is one ace in the hole for the rule lovers—the new ceo of obama motors could order it to be so!
Posted March 31st, 2009 at 1:48 pm Login to Send PM Report this comment
Dan,
I understand current capacity just fine. However, I’m not talking about current capacity. I’m talking about storage capacity last November.
You say that maximum storage capacity is 3,294 Bcf. I’m assuming that ir correct. According to the chart in your link, the amount IN storage around November of last year was just shy of 3,500 Bcf. That seems to indicate that at that point, storage capacity was maxed out, or very nearly so.
I recognize that there is plenty of storage capacity available right now. I never said otherwise.
Posted March 31st, 2009 at 3:54 pm Login to Send PM Report this comment
Scott, then you also understand that the amount of gas in storage is cyclical, such that gas goes in when demand is low, during summer, and out when demand is high, during winter. Are gas drillers going to leave in the winter and come back in the summer? Storage volume is 50% of capacity now and the drillers are not on their way back. They are still leaving. I am addressing one of your questions: “So you honestly don’t think the maxing out of storage capacity had anything to do with the slowdown?” No, it is predictable and happens every year.
Posted March 31st, 2009 at 4:49 pm Login to Send PM Report this comment
It happens every year, but not to the extent that it has this year. Looking at your graph, I agree that the storage capacity is not as major an issue as I had thought.
What about the price drop?
Posted March 31st, 2009 at 5:09 pm Login to Send PM Report this comment
Here is an excerpt from the EIA Short Term Energy Outlook;
” Consumption. Total natural gas consumption is projected to decline by 1.3 percent in 2009 and then increase by 0.4 percent in 2010 (Total U.S. Natural Gas Consumption Growth). The outlook for continued economic weakness in 2009 is expected to take its greatest toll on industrial sector natural gas consumption, which is expected to decline by about 6 percent this year, more than offsetting the small projected increases in other end-use sectors. Lower natural gas delivered prices compared with coal in some markets, particularly in the Southeast, are expected to cause some electric power generators to switch some generation from coal to natural gas. Natural gas consumption by the electric power sector is projected to grow by 0.4 percent in 2009.
The pace and extent of economic recovery in 2010 are the primary factors influencing the natural gas consumption forecast next year, particularly for industrial users. Based on the current economic assumptions for 2010, slight growth in the industrial sector and 2-percent growth in the electric power sector are balanced by declines in the residential and commercial sectors because of projected milder winter temperatures.
Production and Imports. Total U.S. marketed natural gas production is expected to remain flat in 2009 and then fall by 0.8 percent in 2010. Baker-Hughes reports 916 natural gas rigs working in the United States as of March 6, 2009, a decline of 43 percent from August 2008. Consequently, the robust growth in natural gas production in the Lower-48 region (excluding the Gulf of Mexico) over the last few years is expected to end as production reaches about 53 billion cubic feet per day (Bcf/d) in early 2009, then declines during the second half of 2009. The extent of the production decline later this year is highly uncertain and subject to fluctuations in demand and prices over the period. Rig activity is expected to recover in 2010 as the economy improves and prices increase. However, annual average production is still projected to be lower next year because of the decline in new wells drilled this year.
U.S. imports of liquefied natural gas (LNG) are expected to increase slightly in 2009 to 380 Bcf. New LNG supply capacity in Qatar, Indonesia, and Yemen could supply a significantly greater volume of LNG imports this year. However, delays to this new supply capacity as well as uncertainty about the weakness of natural gas demand in other LNG-consuming countries contribute to doubts about much higher LNG imports might be this year. LNG imports in 2010 are projected to be about 460 billion cubic feet (Bcf) as global supply projects ramp up. Pipeline imports are expected to decline by 9.4 percent in 2009 as Canadian drilling activity subsides, fields age, and a growing portion of available supply is dedicated to oil sands development.
Inventories. On February 27, 2009, working natural gas in storage was 1,793 Bcf (U.S. Working Natural Gas in Storage). Current inventories are now 218 Bcf above the 5-year average (2003–2007) and 270 Bcf above the level during the corresponding week last year. Storage inventories at the end of March 2009 are expected at about 1.6 trillion cubic feet (Tcf), roughly 200 Bcf above the previous 5-year average for that time.
Prices. The Henry Hub spot price averaged $4.65 per Mcf in February, $0.75 per Mcf below the average spot price in January. Prices continue to reflect demand reductions brought about by the current economic downturn. As the year progresses, it is expected that average spot prices will remain near $4 per Mcf. If prices fall further than currently forecast, natural gas will become increasingly competitive with coal for base load power generation in some regions. On the supply side, the current drilling pullback could contribute to higher-than-expected prices if the economy begins to recover earlier than expected and production is slow to react. The Henry Hub spot price is expected to average $4.67 per Mcf in 2009 and $5.87 per Mcf in 2010.”
Here is a link to the original article + a link to a US total natural gas consumption article:
http://www.eia.doe.gov/emeu/steo/pub/contents.html
http://www.eia.doe.gov/emeu/steo/pub/gifs/Fig16.gif
Posted March 31st, 2009 at 5:20 pm Login to Send PM Report this comment
Scott, Irrespective of myths to the contrary, gas producers can offer gas at higher prices but cannot absolutely control the price of gas due to Colorado’s many competitive gas suppliers from Colorado, Wyoming, Texas, Canada, Kansas, Oklahoma and Louisiana. Sometimes gas companies win on price, sometimes they lose. If they lose too often they go out of business. The trick is to balance low prices with high prices by managing where and how they distribute their gas reserves. Of course, producing gas at low cost helps by providing higher margins. Then, if they can strategically inject high volumes into the market, profits increase. Generally they have to ride out low prices with the gas they have already committed to the market.
Gas only goes in storage for six months and only out of storage for six months. The pipe flows only one way at a time. If weather warms up near the end of winter and gas is still flowing out of storage, there is a good chance gas prices will fall. In the end, nobody controls the price but everyone influences it. There is mighty complex software trying to predict gas prices and weather is a big consideration.
Posted March 31st, 2009 at 5:51 pm Login to Send PM Report this comment
Okay, so given that the price has dropped 70% from last summer, and the problems inherent with getting the gas out of Colorado to the major markets, could those factors not be influencing the drilling companies decision to slow down their efforts here in favor of places where those problems are not as pronounced, rather than rules that have not yet taken effect and wouldn’t affect any existing drilling operations in the first place?
Posted March 31st, 2009 at 6:33 pm Login to Send PM Report this comment
Here’s a good analysis of the rules and their impacts, http://www.glgroup.com/News/Life-After-New-Rules–Is-Colorado-Oil-Industry-Losing-Steam–36539.html
Here’s the conclusion:
“A spurt of investments in drilling oil wells, installing gas and oil pipelines is on the cards to tackle this challenge. EnCana and Pioneer are among 600 companies operating in Colorado. The energy industry continues its boom, with requests for drilling permits already more than 400 ahead of last year and on track to break the 2007 record of nearly 6,400 drilling applications.
Oil and gas commission approved over 8,000 permits to drill in 2008 and an additional 1,200 permits so far in 2009. When the commission approves an application to drill a well, the permit is valid for one year. Since January 2008, operators have developed approximately 4,000 new active wells. Thus, there remain over 4,000 valid permits to drill wells, obtained under the old rules, which will expire within a year.
Besides on checking the weekly rig counts published by Baker-Hughes, Inc. Through the first week of March, 2009, the number of active rigs in Colorado had declined 50 percent since peaking in 2008. The 62 idled rigs from Colorado are not moving to any of our western neighbors. Rig counts are decreasing in New Mexico (57 percent), Utah (54 percent) and Wyoming (43 percent). Other production states with decreasing activity include Montana (79 percent), California (53 percent), Texas (50 percent), Oklahoma (47 percent), North Dakota (39 percent), Louisiana (29 percent), and even Pennsylvania (10 percent). Kansas briefly saw an increase in active rigs through January 2009; losses since then leave only 19 active rigs in the state.
Thus it may be said that oil and gas investments are not definitely going anywhere and operators will play according to the new rules and still make profit.”
Posted March 31st, 2009 at 8:38 pm Login to Send PM Report this comment
Scott, There are 22 Interstate gas pipelines going through Colorado and 13 Intrastate gas pipelines within bordering states that feed the Interstate gas pipeline network going through Colorado. If you interpret “the problems inherent with getting the gas out of Colorado to the major markets” occur in spite of the magnitude of this gas pipeline network, so be it. There are no “places where those problems are not as pronounced” or as I would say “these problems are the same in all places” (eliminating the double negative), when “these problems” are defined as a “price drop” and “getting gas to major markets”. Prices fall when demand is low and gas is flowing out of storage. Xcel attributes low prices to low demand due to the recession and gas waiting in storage. See article.
DENVER (The Associated Press • March 19, 2009 ) - Colorado’s largest utility says the price it charges for natural gas will fall by 31 percent next month compared to the current month. Xcel Energy Inc. said Wednesday it submitted the proposed rate cut to state regulators at the Colorado Public Utilities Commission. Xcel says the lower gas price combined with warmer weather could bring a 41 to 45 percent decline in residential and small-business gas bills in April compared with March. The company said gas prices are falling because the recession has reduced demand and because so much gas is now in storage waiting to be used. http://www.coloradoan.com/apps/pbcs.dll/article?AID=200990319008
“rules that have not yet taken effect and wouldn’t affect any existing drilling operations in the first place” assumes that gas company policy makers see it this way. And, they may see it this way. But, I am betting that seeing the end coming and being in an unfriendly environment, they prefer not to stick around. I would breathe easier among friendlies, wouldn’t you? I believe there is a lot in this about the perception within a very conservative industry, being made so by the enormous investment in each and every well that requires protection by management. This is a mind set that comes from making decisions that eventually lead to taking very expensive risks and having to protect them. Where would you want to spend that kind of money?
Posted March 31st, 2009 at 9:03 pm Login to Send PM Report this comment
Numerous industry sources in fact cite the lack of sufficient pipeline capacity as a major reason why Colorado’s gas is less valuable on the market, less valuable means less attractive to drill–especially when commodity prices plunge near 70% in several months.
Industry will invest where the resource is, when the commodity price makes it profitable for them to do so (factoring in such things as how much they can get per cubic foot at the hub in TX…). Industry is building new pipelines, planning thousands of new wells, and installing additional infrastructure in Colorado still, because they know the price of natural gas will go back up and then the rigs–now idled–will be running again.
The extra few pennies per cubic feet that the new rules might cost is barely a factor if at all. Speculation about what companies really think, etc. is not convincing to me, as I read industry reports and industry trade papers and they say quite plainly that it is the crashing price of commodities that has led to idled drill rigs all over the US, and especially in the RM region.
Posted March 31st, 2009 at 9:14 pm Login to Send PM Report this comment
Dan,
So you are just speculating that the gas companies are leaving because of the rules, right? I’m not trying to be difficult, but you seem to be convinced that the gas companies slowdown is the result of the rules with no actual evidence that this is the case. It seems to me that the price drop has far more to do with it than anything else.
Posted March 31st, 2009 at 10:57 pm Login to Send PM Report this comment
Scott, There is no hard evidence that price or rules is THE reason. I have found: Article Last Updated; Monday, March 23, 2009 “But drilling rates across the state have dropped as the recession has worsened. The industry has blamed the pending rules. They say they’ve created uncertainty and driven companies to invest their money elsewhere. The supporters of the rules dispute that. They point to plummeting natural-gas prices, tight credit markets and lack of pipeline capacity in the region as the true culprits.” http://www.durangoherald.com/sections/News/2009/03/23/Debate_on_gas_oil_rules_moves_to_Senate/ My view is that rules are the problem. There is just as much support for rules being the problem as for price being the problem. Do you have any clear documented evidence to the contrary?
As far back as 2004, lack of pipeline capacity has been an issue. Therefore, lack of capacity is not a new reason for fitting current circumstances to stop drilling. This reference is helpful with visuals of the pipeline names and routes. WYOMING’S NATURAL GAS – At a Glance October 26, 2004 “Natural Gas Pipelines & Volume of Remaining Supply (Tcf) The pipeline system is under built in relation to the natural gas resource in the Central Rocky Mountains. This gas supply is underutilized and undervalued as a consequence of lack of pipeline capacity.” http://www.wyopipeline.com/information/presentations/2004/Bryan%20Hassler.ppt
Discussions of low prices due to lack of pipeline capacity appeared in 2007. Therefore, low prices is not a new reason for fitting current circumstances to stop drilling. Published September 26, 2007 at midnight “A lack of pipeline capacity has held down prices for Rockies gas producers. Gas sold at a hub in Opal, Wyoming, has averaged $4.14 per million British thermal units this year, a 40 percent discount to the benchmark price of $6.97 at the Henry Hub in Louisiana.” http://www.rockymountainnews.com/drmn/energy/article/0,2777,DRMN_23914_5707866,00.html
Article Last Updated: 11/02/2007 11:05:49 PM MDT “Suppliers in the Rockies so far this year have received an average of $4.66 per for each 1,000 cubic feet of production, compared with $6.94 for the gas flowing through the Henry hub in Louisiana, which is the main natural gas pricing point for much of the eastern half of the nation. The Bronco pipeline is scheduled for completion in 2011.” http://www.publicutilities.utah.gov/archive/naturalgaslinetocoastplanned.pdf
Filings for new pipeline construction in 2008. New pipeline filings have been popular as far back as lack of pipeline capacity can be documented. Urging for pipeline construction looks like a positive effort to solve the lack of pipeline capacity. However, nothing beyond filing has been accomplished. PORTLAND , Oregon – December 11, 2008 – “Palomar Gas Transmission LLC, a joint venture of TransCanada Corporation (TSX, NYSE: TRP) (TransCanada) and Northwest Natural Gas Company (NYSE: NWN) (NW Natural) today filed an application with the Federal Energy Regulatory Commission (FERC) for a certificate to build and operate an interstate natural gas transmission pipeline in Oregon.” http://www.wyopipeline.com/
And then in 2009, Colorado’s Governor heralds another pipeline to relieve lack of capacity. OFFICE OF GOVERNOR BILL RITTER, JR FOR IMMEDIATE RELEASE FRIDAY, FEB. 20, 2009 “Gov. Bill Ritter is urging the Federal Energy Regulatory Commission to quickly certify the Ruby gas pipeline, a $3 billion project that would carry 1.5 billion cubic feet a day of natural gas from Colorado and other Rocky Mountain states the Oregon/California border.” http://www.colorado.gov/cs/Satellite/GovRitter/GOVR/1235141210623
From these references and evidence, I am interpreting a view of what is happening. Pure speculation would be interpreting without references or evidence.
Posted April 1st, 2009 at 6:05 am Login to Send PM Report this comment
Given that drilling operations are down across the country, it would seem that there is far more to the issue that just the rules in Colorado. The rules MAY account for a small part of the downturn, but they certainly aren’t responsible for the idled rigs in Texas and the rest of the country.
If Colorado was the only state where drilling was way down, there might be something to the rules having that effect, but that’s not what we see.
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