Energy forecast: Natural gas likely to play a bigger role

Drilling Rig
Natural gas exploration and development has picked up in the Piceance Basin in Western Colorado. By one count, the number of active drilling rigs in the region has increased by 12 through October of this year to 41.

Less than three years ago, natural gas prices were rising as concerns mounted supplies would run short by the end of the century.

Continued dependence on oil also raised fears and gasoline topped $4 a gallon in the summer of 2008.

Now, in late 2010, prices for natural gas and gasoline have dropped. The price of natural gas fell below $3.40 per 1,000 cubic feet in mid-October, nearly $12 cheaper than five years ago. Discoveries of gas deposits in Louisiana, New York, Ohio, Pennsylvania and Texas have fueled predictions of long-term natural gas supplies. Meanwhile, the price of gasoline has remained below $3 a gallon for more than a year.

Texas oilman T. Boone Pickens continues to push a plan to increase use of natural gas to power vehicles. Cities across the west, including Grand Junction, are installing natural gas filling stations in anticipation of increased demand.

That demand of natural gas has bolstered the Western Colorado economy. After a nearly 70 percent decline in the number of active natural gas rigs in the Piceance Basin between October 2008 and May 2009, natural gas exploration and production activity slowly has increased. With the addition of 12 rigs in the Piceance through mid-October of this year, the rig count has risen to 41, according to statistics provided by Bentek Energy, an energy industry consulting firm based in the Denver area.

“Things are starting to pick up more,” confirms Doug Hock, director of public and community relations for Encana Oil and Gas. Encana and Williams Production operate the majority of gas rigs in the Piceance.

Hock says there’s more than an increase in the number of rigs. Improving technology continues to increase the number of wells that can be drilled from each pad. Directional drilling techniques enable workers to drill as many as 52 wells from a single pad and it continues to grow, he says. “This allows us to be more efficient, and there’s less truck traffic.”

Because energy workers typically earn more than $60,000 a year, each job sends dollars rippling through a locally weak economy. The Mesa County Workforce Center in Grand Junction estimates the energy industry affects 93 different occupations in the county.

Increased natural gas demand also affects two other energy industries in Colorado: coal and renewables.

The U.S. is known as the “Saudi Arabia of coal,” with plentiful supplies providing the bulk of the fuel for electricity production in the country. There’s a push, though, to convert power plants from coal to cleaner-burning natural gas to reduce emissions.

In Colorado, state lawmakers this year enacted legislation that requires Xcel Energy to develop plans to sharply reduce emissions from three coal-fired plants, including the possibility of converting the plants to natural gas. Legislators, including State Sen. Josh Penry (R-Grand Junction), endorsed the legislation partly because they believe the federal government will force states to reduce emission of carbon dioxide, sulfur dioxide and nitrogen oxide. Penry viewed the legislation as an attempt to keep the Environmental Protection Agency at bay while Colorado works to reduce emissions.

The Colorado Public Utilities Commission is staging hearings concerning the proposal to convert power plants to natural gas.

Representatives of the Colorado Mining Association have testified, urging the state to reconsider conversions that could mean the loss of jobs in the coal industry. Coal mines employed about 2,000 miners in Colorado in 2009, according to the Colorado Geological Survey. A coal mine planned for north of Loma in Mesa County could employ 250 people earning annual wages of more than $80,000, according to mine owner Rhino Energy. The company hopes to open the mine by 2014.

While coal fuels about 48 percent of electricity production in the U.S., natural gas fuels about 21 percent. But that’s gradually changing and some analysts predict the mix will be 44 percent coal and 25 percent natural gas by 2015.

Meanwhile, the renewable energy continues to grow. In Colorado and across the nation, utility rebates and tax credits have enticed businesses and homeowners to tap solar, geothermal and wind power even as they reduce pollutants. But such incentives come at ratepayer and taxpayer expense, and power from renewables remains more costly than power from traditional sources. Such costs might have been palatable during the economic boom between 2005 and 2007, but the ensuing national recession and high unemployment rates have people reassessing priorities.

“If you look at the plight of governments, does it make sense to subsidize (renewable energy projects) when you can’t pay for school books and health care?” asks Porter Bennett, president of Bentek Energy. “If the cost for utilities is higher, utilities have to charge more or people have to pay more in taxes. It’s an economy killer.”

Bennett says wind power projects underway by Xcel Energy might sound like a good idea environmentally, but likely will increase utility costs. “I do not believe that ratepayers know the types of rate increases that current policies will precipitate,” he says. “Whether that’s a good thing or bad thing, voters will ultimately decide when the true costs are clear.”

For now, Colorado voters and the State Legislature have forced Xcel to produce a growing proportion of power from renewable sources. Voters in 2004 approved a measure requiring major utilities to produce 10 percent of their power from renewable sources by 2015. State lawmakers hiked it to 30 percent by 2020.

Builders of Energy Star rated homes cite an increased interest in more energy efficient construction. Some builders say tax incentives to encourage such construction — and the industry — make sense over the long term. “How do you get a new economy off the dime?” asks Bonnie Peterson, owner of GreenStar Homes in Grand Junction.

Nuclear power offers yet another option to generate electricity. But environmental regulations combined with a lengthy permitting process make it difficult to plan a nuclear power plant. While the owner of a coal mine might have to wait a couple of years to get approval to begin mining, it can take a decade to obtain federal approval for a nuclear plant, Bennett says.

Oil plays only a minimal role in producing electricity, but accounts for most of the transportation fuel used in cars, trucks and airplanes. Moreover, oil is used in the manufacture of plastics, paints and other materials.

The potential increase in the use of natural gas to fuel vehicles could be one part of the equation to reduce use of foreign oil. Another part of the equation parallels what’s happening in the natural gas business: discoveries of additional oil deposits in the U.S.

“It’s entirely probable we’ll increase oil production in the U.S. by 20 percent in the next three to five years,” Bennett says. Large deposits in south Texas and Oklahoma have fostered hope the U.S. could use less foreign oil by the end of the next decade.

“And I’m not even talking about offshore,” Bennett adds. The federal government recently lifted a ban on offshore drilling instituted after a massive oil spill in the Gulf of Mexico.

An alternative fuel for powering vehicles — ethanol — continues to be used, but Bennett says the federal subsidies that make ethanol production possible are likely to phase out the fuel due to market conditions. “There’s not enough demand for ethanol,” Bennett says. “They’re betting on technologies that won’t work.”

Bennett and other energy industry analysts believe the best bet, given current economic conditions, is continued and even increased use of traditional energy sources. If they’re right, such a trend would bode well for the natural gas and coal industries in Colorado. But it could put a crimp in the plans of those pushing for more use of renewable resources.