The conventional wisdom points to the Rocky Mountains as a major part of the solution to America's gas future. Is the euphoria real, or just a lot of "gas?" International energy analysts at Wood Mackenzie have their doubts.

One thing seems certain. There is little doubt that significant quantities of natural gas have been discovered in the Rocky Mountain states. There is also little doubt among oil and gas industry experts that technology exists today to enable economical and safe exploitation of those gas reserves without any adverse environmental effects. But has the issue of access to the vast Federal lands in the western United States become so politicized that any initiatives, no matter how well founded, will swamp in a sea of red tape?

Six industry analysts from world-renowned Wood Mackenzie, Ltd. (WML) of Edinburgh, Scotland, raised a yellow caution flag after considering the uncertainties imposed on the development of Rocky Mountain gas anytime in the near future. Their reports are summarized below.

First, the good news

The Rocky Mountain region of the United States represents a huge untapped resource of natural gas, both in conventional gas-bearing reservoirs and in unconventional coalbed deposits. While much of coalbed gas is methane (CBM), there is enough other gas, ethane and propane for example, that the industry uses the term coalbed natural gas (CBNG) to distinguish the resource. Even conservative estimates project that Rocky Mountain gas production could provide major support to satisfy US gas demand well into the next decade.

Not so fast, Kemo Sabe

However, a real threat to the promise indicated by the good news exists. In a word, the threat is "access." So much of the gas lies under public lands that are administered by the Federal Bureau of Land Management (BLM) that, absent access to these lands, it is unlikely that the critical mass of reservoirs needed to drive economic development can be found. Three key areas exist: the Powder River Basin of Wyoming and Montana, the Jonah and Pinedale fields of the Green River Basin of southwestern Wyoming, and the San Juan Basin in northwestern New Mexico, Colorado and Utah. Of concern is access for the drill sites themselves, as well as right-of-way for gas gathering flowlines, compressor and gas processing stations, and export lines tying into the pipeline infrastructure. To be sure, new directional drilling technology has reduced the surface "footprint" of a gas field to the point that a major production facility would occupy no more space than a set of typical ranch buildings and a stock tank. Present and approved pipeline capacity should accommodate increased production of Powder River gas through 2007. However, long-line pipeline capacity will have to be expanded to sustain production beyond that date. And concurrent production additions from other areas, such as the Green River and Wind River basins, could hasten the onset of capacity problems.

Production taking a powder?

So what's the problem? Notwithstanding a favorable environmental impact study that led to BLM approval for the development of Rocky Mountain CBNG, a succession of lawsuits and appeals by environmental activists has delayed the issuance of the necessary permits. Environmental groups are using the courts as their foil in a strategic delaying tactic by challenging virtually every application. For example, the average time to obtain a single permit to drill in the Powder River Basin is currently 197 days. A glimmer of hope was received recently when the courts agreed that hydraulic fracturing, an essential technique for stimulating coalbed gas reservoirs, did not pose a threat to groundwater aquifers, as alleged by the plaintiffs.

These tactics have a profound effect on the viability of the Powder River basin. Three scenarios were developed by WML to describe the potential for marketed wet gas. The three scenarios include a base case, which assumes access is not achieved until 2006-2007, an upside case, representing immediate access with streamlined permitting as advocated by local producers; and a downside case, which will occur if access to Federal lands is restricted indefinitely (Chart 1).

Access is not the sole problem. Timing plays a role. If access is delayed unreasonably, exploitation of the resource will be inefficient, resulting in higher costs and lower ultimate recovery.

Green thumb

Meanwhile, at Green River, prospects for a bumper crop are much better. All three scenarios yield essentially the same result, but that's because the prolific Jonah and Pinedale Anticline fields are currently under development under an existing environmental impact statement (EIS) that is scheduled to expire shortly. A new EIS was initiated in 2003, and the three forward-going projections for the basin depend largely on the fate of this study.

Green River supply scenarios include a base case, which assumes there will be a 5-month delay in completing the Jonah Field EIS, an upside case, which assumes no delay, and a downside case, which assumes the EIS will be completed 12 months behind schedule. Although the Pinedale decision is a bit late, so far this has not affected the ongoing drilling schedule (Chart 2).

Unlike Powder River production, which finds its way to eastern markets using the existing pipeline system, Green River gas goes into the Pacific northwest market, and into California, via Kern River. In 2003 there existed about 160 MMcf/d excess capacity in the northwest pipeline network, but the Kern River line to California is essentially full. There is some capacity in the Kern River line to tie into the Cheyenne hub to the east, which might provide some relief, and the two pipeline connections to the San Juan Basin have considerable excess capacity available. Wood Mackenzie reckons that pipeline capacity will not become critical until 2007.

Some interesting scenarios are on the horizon. As other CBNG gas provinces come onstream, capacity will be stretched. And there is the potential competition from LNG arriving at West Coast ports by sea, assuming local opposition issues are resolved before supply shortages affect the market.

Four Corners gas can go three ways

In the San Juan Basin, things are happening in big ways. The BLM has approved a 10,000 well development plan that, if implemented, could ramp up production there to more than 4.1 bcfg/d. The bad news is that the plan is currently under assault by local ranchers and native American tribes, goaded on by the ubiquitous environmentalists.

In the case of San Juan, everything hinges on access. The base case presumes that access is granted but that actual drilling is delayed in the courts on an individual permit basis. The upside case assumes full access with drilling to commence in 2005, and the downside case assumes that access to Federal lands is blocked indefinitely (Chart 3).

What does it all mean?

Wood Mackenzie analysts are cautiously optimistic. While recognizing the immense potential of Rocky Mountain region gas production and the ever-expanding market demand, there is little doubt that the risks imposed by legal and bureaucratic red tape will have a profound effect on the region's ability to reach its full potential. Nevertheless, despite the obstacles, the Rocky Mountain gas business is expected to experience continued growth into the next decade, with growth rate tempered by land access. Additional pipeline capacity will be required in all areas by 2010.

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