SOME OIL AND GAS INDUSTRY EXPERTS across
the country warn that declining oil prices will make it difficult to
build much-needed pipelines and infrastructure to get oil and gas to
consumers.
But in northern Colorado,
the situation might actually be the opposite, as production remains
profitable and midstream development continues, with plans for another
natural gas processing plant to open in Weld County in a few months.
“We
do feel like Weld is insulated from what is happening in other places,”
said Brian Frederick, president of asset operations for DCP Midstream,
which processes 12 percent of the nation’s natural gas. “We look at
producer economics. Weld County consistently ranks in the top 5 of
producers in the country. So as the rate of growth slows down, producers
will choose their best place.”
With
63 natural gas processing plants in 17 states, DCP Midstream opened its
O’Connor plant in Weld County in October 2013 and completed an expansion
of it last February. Another plant in Weld, called Lucerne 2, is
scheduled to be open in the second quarter of this year. The company
also has 3,000 miles of gathering pipelines across Weld County.
Once
Lucerne 2 opens, DCP Midstream will have nine processing plants in
Weld. Total capacity among them will be to process 800 million cubic
feet of natural gas per day, producing 79,000 barrels per day of natural
gas liquids.
There’s
no question the infrastructure in Weld is stressed and challenging, but
those numbers are amazing considering the history of the Wattenberg
Field, said Craig Rasmuson, COO of Platteville-based Synergy Resources.
Companies like DCP Midstream have had
their work cut out for them trying to keep up with the volume of
natural gas being drilled in the last decade, Rasmuson said.
“This
basin was built in the ‘70s and ‘80s for vertical wells with one stage
of fracturing,” he said. “It took 20 to 30 years for the smaller
processing plants to be able to handle 250 million cubic feet per day.
And by 2016 or 2017, the plants will be processing a billion cubic feet
per day.
“The technology has totally
changed the game for the midstream companies, and they have done a
yeoman’s job keeping up,” Rasmuson said.
INVESTING IN INFRASTRUCTURE
The
ability to drill wells horizontally has been around for a long time,
but rising commodity prices in the last decade made it viable for
producers to try the technology. The result has been an oil and gas boom
that has turned the United States into the biggest oil producer in the
world.
But the midstream and
downstream side including pipelines, processing plants, refineries,
roads and railways - have found it challenging to keep up. It’s one
reason the American Petroleum Institute announced in January the
creation of a midstream department to advocate for the need for energy
infrastructure.
“One of the few
areas most often mentioned where both political parties largely agree is
on the need to invest in our nation’s aging energy infrastructure,”
said Jack Gerard, president and CEO of the American Petroleum Institute.
“Investment in infrastructure upgrades would generate massive economic
gains.”
Gerard points to an analysis
from the IHS consulting group that found essential infrastructure
improvements in just the oil and natural gas area could, over the next
decade, encourage as much as $1.15 trillion in new private capital
investment, support more than 1 million new jobs, and add $120 billion
on average per year to the nation’s GDP.
In
January, the U.S. Senate passed a bill to authorize the construction of
the Keystone XL pipeline, which would carry oil primarily from Canada’s
tar sands to Nebraska, where it would connect with existing pipeline to
Gulf Coast refineries. President Obama has said he would veto the bill.
Supporters say the $8 billion
project, which would be built by TransCanada Corp., would create
hundreds of thousands of jobs and cheap energy for American consumers.
Opponents don’t like the project for environmental reasons, saying it
would only contribute to global warming, and they argue it won’t benefit
Americans anyway because the end result product would be sold on the
global market.
Opponents also say it will be harder to justify the need for the Keystone XL pipeline if gas prices remain low.
Plunging
oil prices may blunt the need for infrastructure in some areas. If oil
prices remain low or continue falling, production will likely decrease
in places like North Dakota,
where companies rely mostly on rail lines to move crude to a more expensive option than pipelines.
PLAYING CATCH-UP
But
it’s a different story in Weld County, where natural gas pipelines and
processing plants are already in place. Companies also are starting to
build oil pipelines that would lead to the SunCor oil refinery in
Commerce City.
“Because we already
have some of the infrastructure in place, our cost per barrel is less
expensive than in places like North Dakota,” Rasmuson said. “Production
will slow in Weld County, but it will be consistent. We’ll also be one
of the quickest to recover when the commodity prices increase.”
Already,
Rasmuson said his company has decreased its cost to complete a well to
about $3 million, down from $4 million about a year ago. With gas at
$50-$55 a barrel, that $3 million completion cost makes sense, Rasmuson
said.
Before oil prices started
falling, Synergy had also decided to wait to complete several dozen of
its wells until DCP Midstream’s Lucerne 2 processing plant opens in the
spring, Rasmuson said.
“We have all been victims of what we’ve created here, and we all have to figure out ways to deal with it,” he said.
With
engineering and getting necessary permits, the lead time for DCP
Midstream to create needed infrastructure is about 18 months, much
longer than it takes to drill and complete a well.
“We
have to work with all of our producers to figure out the best places to
put our infrastructure,” said Frederick. “It takes a lot of planning.”
The slowdown in production may actually give companies like DCP Midstream time to catch up with the need for what
they provide.
“We
anticipate there will be a need in Weld County for continued expansion
of infrastructure,” Frederick said. “Weld is a very important basin for
us. It’s not a short-term thing. We are a company that will build the
infrastructure, operate it and in a hundred years when production stops,
we’ll be the ones to take
it out.”
