DENVER - Unnoticed by most people outside the energy industry, America suddenly is awash in natural gas, because of technological breakthroughs that could have major effects in Southwest Colorado.Southern La Plata County used to be the king of Colorado gas fields, and the area still produces more than a third of the state's output. But now companies are looking at deposits north and west of Cortez and on La Plata's western side, which has seen very little drilling in the past.
What's more, producers are moving into vast regions of Texas, North Dakota, Louisiana, Pennsylvania and New York - new competitors for Colorado's gas industry.
The gas world changed when producers figured out how to extract gas from shale - very tight rock formations that previously were too costly to drill.
"The paradigm for natural gas has changed. Our industry may have re-created the supply glut of the 1990s," said Keith Rattie, CEO of Questar Corp., which had been looking at a Montezuma County project before gas prices collapsed.
A report last month from the Potential Gas Committee at the Colorado School of Mines said shale gas had helped boost the possible U.S. reserves to more than 2,000 trillion cubic feet, enough for almost a century of consumption at current rates. The number is a third higher than the group's last report in 2007.
Shale gas was the hottest topic last week at the Colorado Oil and Gas Association's annual conference in Denver. COGA calls its conference the Energy Epicenter, and until recently, Colorado fit that role. Keynote speakers in past years noted how most U.S. gas basins had played out, and the only area of growth was the Rockies.
But this year, the biggest action on shale gas is happening far away, with major plays in North Dakota, Texas and Louisiana.
Colorado's major shale basin lies mostly in Montezuma and Dolores counties.
Frac fluids unlock shale resourceShale gas now is accessible because of technology, including horizontal drilling and hydraulic fracturing. Congress exempted hydrofrac fluids from the Safe Drinking Water Act in 2005, but Colorado reps. Diana DeGette and Jared Polis have introduced a bill to end the exemption.
The bill worries Rattie, who said the Environmental Protection Agency never has shown that frac fluids endanger drinking water. Environmentalists say the Bush administration prematurely halted the EPA study. Last summer, a nurse at Durango's Mercy Regional Medical Center got national attention when she almost died after treating a worker for exposure to a frac fluid spill.
Frac regulations vary from state to state. In Colorado, as of this May, companies have had to maintain a list of their well site chemicals and disclose them to state regulators, but not the public. In Pennsylvania, frac fluid ingredients are a matter of public record, but not the formulas by which the chemicals are blended.
Aside from frac fluids, shale could open up lands to drilling where the residents don't understand the industry, said Sharon Buccino of the Natural Resources Defense Council.
"With the potential development of shale, you're going to potentially have those issues in people's backyards in a lot of parts of the country, not just the West," Buccino said.
Seven wells drilled near DoloresThe future of the industry in the Four Corners might be on a large well pad on Montezuma County Road X, southwest of McPhee Reservoir. From the site, Denver-based Bill Barrett Corp. has drilled seven experimental wells to get gas out of the Gothic shale formation.
But it's too early to call the wells a success.
"We're really taking a deliberate approach to this and thinking about it," said Joe Jaggers, president of Bill Barrett.
Four wells have been fraced and are producing gas, but Bill Barrett has had troubles with its frac jobs diverting into salt formations. When that happens, saltwater flows up along with the gas.
Jaggers hopes his engineers can find a fix on the last three wells. He said he'll probably know by the end of the year.
Because shale wells are drilled horizontally, the Gothic gas could be extracted with as little as one well pad per square mile, said Jaggers.
If the technology works, it could open a potential reserve of 2 trillion cubic feet of gas under Montezuma and Dolores counties, Jaggers said. For perspective, that's about 10 percent of the annual demand of the United States, or five years worth of production from La Plata County's prolific gas field.
"It could be very, very large. But then again, given some of these issues, I don't want to get too far out ahead of our headlights," Jaggers said.
Price, demand are keyThe Potential Gas Committee's report does not consider whether companies can afford to actually drill for shale gas. But the break-even price has fallen rapidly - much faster than most industry-watchers understand, said Porter Bennett of Bentek Energy in Denver.
Just last year, shale producers were saying they needed $6 to $7 per thousand cubic feet to make shale work. But Bennett said costs for the leading shale producers have fallen as they figured out better technology.
Shale producers still are pumping gas even though natural gas for August delivery was selling for less than $3.50 per thousand cubic feet last week, half its price from the summer of 2007.
Colorado gas usually sells for even less because of the lack of pipelines leading out of the state.
Questar was looking at the Gothic shale in Montezuma County, but unlike Bill Barrett, it put its local project on hold indefinitely.
Rattie, the Questar CEO, said his company would need higher prices than Bennett believes in order to restart its Montezuma County shale operations.
For Bennett, the glut of gas means the industry has to find new markets.
"To me, there's only one issue that's of significance with shale and the supply buildup, and that's demand. We've got to have more of it," Bennett said.