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If we play by new gas-industry rules, we're going to get burned
In reality, it is too soon to know if the rules will actually protect our way of life in Colorado. One thing is certain though: They will hinder natural-gas development and stymie growth, not only in the energy industry, but probably throughout our economy.
The new rules come at the worst time for the industry, as natural-gas prices are nearly a quarter of what they were just one year ago. Nationwide, the effect of gas prices on the drilling rig count has been devastating. Last year at this time, there were 1,842 drilling rigs working in the United States. Today, there are just 955. That means just over half of the rigs working at this time last year are working now.
When compared to the Colorado numbers, though, the nationwide drop doesn't look so bad. Last year at this time, our state had 123 drilling rigs working. Now we have just 45. That's a loss of nearly two-thirds of the rigs we had running a year ago. As drilling contracts continue to expire, the number of rigs working in our state is expected to drop even more.
The financial impact of this reduction is significant. Consider that each rig will generate a minimum of $15 million to $20 million a year in total outlays for well costs. Some estimates go as high as $50 million. This means that the reduction in drilling rigs in Colorado from last year at this time has taken at least $1.5 billion out of our economy. That number could be as high as $4 billion.
Furthermore, it has been determined that each job in the energy sector creates as many as 1.67 indirect or induced jobs in the local economy.
Based on the number of drilling permits being submitted to the Colorado Oil & Gas Conservation Commission, the future looks bleak for the industry in our state.
In April 2008, the state received 1,415 applications for permits to drill new wells. This April, the first month that the new regulations were in force, the state received a grand total of nine applications for permits to drill. Once the inventory of permitted wells is drilled, Colorado will have just one or two rigs running in the entire state.
It is ironic, but the natural-gas industry is a victim of its own success. Without considering the effects of the recession, the industry has been able to increase production by more than 4 billion cubic feet of gas per day. New technologies have enabled the industry to develop new resources (like shale gas) that were unknown just five years ago.
Another irony is that Colorado is home to some of the largest natural-gas reserves in the country. The Piceance Basin, lying between Grand Junction, Rifle and Rangely, literally has trillions of cubic feet of natural gas in numerous zones underlying the region's mountains and valleys. In addition, the San Juan Basin, the northern part of which sits in our county, currently produces the most gas of any basin in the country. The Front Range also has huge gas reserves underlying the eastern plains. It seems our legislature should do all within its power to encourage responsible development of this natural resource for the benefit of the citizens of the state, rather than obstructing development with more legislation and job-destroying rules.
Giving our state the "most demanding (rules) of any state" ensures that when demand for natural gas returns, energy companies will be looking elsewhere for potential resources before they look to Colorado. This means our economy probably will take longer to recover than those states that have more inviting regulatory regimes (meaning every natural gas-producing state in the country).
With the energy industry providing the lion's share of the state's revenue and the best-paying jobs, the new rules ensure the recession will be more severe in Colorado than it would have been otherwise.
The bottom line is we need natural gas.
It is the cheapest, cleanest, most environmentally friendly and abundant hydrocarbon fuel available to heat our homes, cook our food and generate our electric power.
It also could easily be used to offset our reliance on foreign sources of energy.
In fact, we now have the technology to use it to offset oil as our primary transportation fuel.
Doing so would increase the demand and value of this abundant resource while simultaneously reducing emissions and pollutants.
Unfortunately, the new rules will make it virtually impossible for our state to ever lead the nation in the development and production of this beneficial energy source, despite the vast supplies buried beneath our surface.
A. M. Mickey O'Hare is president of Maralex Resources, Inc., based in Ignacio. Reach him at 563-4000.
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