?One of the key comments coming from the recently held Colorado Oil & Gas Association conference in Denver is that more infrastruc­­­­­ture is needed “as pipes coming from the Rockies are full,” says Tudor, Pickering, Holt & Co. Securities Inc. analyst Becca Followill.
“The full consensus here among the industry players—Rockies pipelines are full and more production is on the way,” Followill says. Anecdotally, Followill add, are items like Williams Cos. Inc., Tulsa, Okla., reporting its Northwest Pipeline’s southern system is now charging maximum rates as opposed to normal discounts. Also, the Kern River system is running at 105% of capacity and producers have described the Rockies infrastructure as being at the tipping point.


“All these say there is a need now for more infrastructure to take gas from the Rockies to the consuming markets,” Followill says. In 2007, she added, “folks questioned whether a new Rockies pipeline would be needed before 2012. Now, not only has El Paso Corp. announced that the Ruby Pipeline is a go for 2012, but I think another one to two major pipes will be built to take gas out of the Rockies.”


Building this infrastructure will not come cheap, Followill adds, and notes that when the Cheyenne Plains pipeline was completed in 2004, the cost of steel was $400 per ton. “Now, folks are talking about $2,200 to $2,300 a ton. For a reference, pipe is typically 30% to 35% of a project cost. The result will be higher transportation rates for producers, but in this commodity-price environment, that becomes a rounding issue.”


Producers say environmental issues have become more challenging, she adds. A re-made Colorado Oil & Gas Commission has been seated with no industry participation, she adds. The new commission “is trying to push through some pretty restrictive new regulations, including an up-to-90-day annual drilling restriction for wildlife,” Followill says. “A 90-day drilling restriction is realistically a 120-day restriction due to the time needed to gear up and then gear down.”


Followill says the consensus among energy producers is that a compromise will be reached but the new rule could be adopted as early as August 12.


“There is no doubt, however, that it will continue to take longer and be expensive to permit and produce wells in Colorado.” Colorado currently produces 3 billion cubic feet per day, or about 6% of the nation’s total wellhead production.

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