Midstream investments portend growth in natural gas activity

It’s no secret energy companies have a big effect on the Western Colorado economy.

An energy boom in the Piceance Basin that extended through the fourth quarter of 2008 helped delay the effects of the Great Recession that hit the nation in 2007. And when the number of natural gas drill rigs dropped by 70 percent in a few months time, the local area felt the pain, with unemployment jumping from less than 4 percent in the summer of 2008 to more than 8 percent by the end of 2009. A recent national report indicates the average paycheck in Grand Junction dropped last year, and it’s probably more than a coincidence the decrease coincided with a decline in natural gas production.

Now, with rig counts and active wells on the rise in 2010, more job openings are advertised in newspapers and at the Mesa County Workforce Center. With average energy job pay topping $90,000 a year, the upturn is welcome news for a community witnessing decreased home values and rising foreclosure sales.

“Energy companies have an indirect effect on all your businesses,” said David Ludlam, executive director of the West Slope Colorado Oil and Gas Association.

Much of the effect happens away from drilling sites, being felt as far away as local restaurants and construction companies that provide services for people in the natural gas, coal and uranium industries.

Between those businesses and the well pads lies an industry of support services, called midstream energy services. They facilitate the process from raw material extraction to delivery of the end product to consumers. Such services include refining the product, transporting it, storing it and delivering it.

“We tend to get overlooked a lot by the media and that might be a good thing,” said Pat McCown, midstream services representative for Williams Production.

The Piceance Basin, covering 6,000 square miles northeast of Grand Junction, has been a gold mine of natural gas production, with companies virtually assured of hitting gas every time they drill a well.

“There are large areas (of the Piceance) that have yet to be developed,” said Rod Nielsen, regional director of gas gathering and processing for Enterprise Products, which also provides midstream services.

Energy companies such as Williams Production and Encana Oil and Gas extract about 1.3 billion cubic feet of gas per day, with Colorado using about two-thirds of the gas and the rest shipped by pipeline to other parts of the nation, Nielsen said. With consumer prices for natural gas on the rise and a national push to replace some oil use with alternative fuels, companies such as Enterprise Products see good reason to invest heavily in the Piceance.

As one example, midstream companies have committed $700 million toward the Ruby Pipeline project, which expands the capacity to export natural gas out of the Rocky Mountain region.

Williams Midstream plans to spend up to $5.5 billion in capital investment in the Rockies, from southern Wyoming to northern New Mexico. Up to $2 billion of that total is planned over the next two years. The company also plans to spend $450 million to purchase half the equity in a pipeline designed to siphon ancillary liquids away from the Piceance Basin.

And while predictions are often worth what one pays for them, Nielsen said he’s hopeful rig activity in the Piceance will remain steady or increase slightly over the next year. He doesn’t foresee a dramatic increase, such as happened from 2005 to 2008.

And the territory could expand beyond the Piceance.

“The Paradox Basin in southern Colorado has the potential to be another major gas play,” said McCown.

For now, many businesses in Western Colorado will settle for steady production in the Piceance Basin.

Mike Moran
Business Times