Rocky Mountain natural gas producers continue to suffer harsh price differentials due to pipeline bottlenecks. Will the Rockies Express Pipeline be their saving grace? When it comes to the netback price Rocky Mountain producers receive for their gas at the wellhead, there is good news and bad news. The good news is that forward markets anticipate fairly narrow gas-price differentials after much-needed pipeline capacity comes on stream in 2008. Canadian gas imports are expected to continue to decline as well, further reducing gas-on-gas competition and price disparity. The bad news is that Rocky Mountain producers face dismal price differentials right now-at press time, their netbacks were as much as $2.84 per million Btu less than Nymex prices. So, Rockies producers are playing the waiting game. They are forced to accept less than optimal prices for their gas while elsewhere prices soar, until new transportation capacity, particularly the Rockies Express Pipeline, comes on line early next year. Rex has already finalized long-term, firm transportation contracts with a number of shippers for virtually all of the 1.8 billion cubic feet per day of new capacity. The perennial tug-of-war between rising production and pipeline constraints will occur again, because the region has so much potential to produce more natural gas. According to a Scotia Waterous U.S. Quarterly Market Review, the Rockies contain 31% of the remaining onshore U.S. gas resource potential (185 trillion cubic feet equivalent), 22% of the proved reserves (64 trillion cubic feet equivalent) and 17% of current production (10.6 billion cubic feet equivalent per day). For more on this, see the August issue of Oil and Gas Investor. For a subscription, call 713-260-6441.

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