By Don McClure, Vice President, Government, Stakeholder Relations and Legal, EnCana Oil & Gas (USA) Inc.

Colorado is blessed with many natural resources, including an abundance of natural gas reserves. The nation, in fact, has experienced a profound change in the supply of natural gas.

Recent studies, most notably one by the U.S. Department of Energy, have determined that the recoverable natural gas resources in this country are enough to last for the next 90 to 100 years based on the current rate of production. Last week,
the Potential Gas Committee, a leading authority on gas supplies,
reported that the nation’s gas reserves jumped 35 percent between 2006 and 2008. There is now a common understanding among experts that the North American natural gas industry has changed materially and permanently.

Just a few years ago, many thought natural gas supplies were peaking. Quite the opposite has occurred. Over the past two years continental natural gas production has grown nine percent due solely to new shale gas discoveries in states such as Texas, Louisiana, and Pennsylvania. Advanced, proven technologies such as horizontal drilling and hydraulic fracturing provided the impetus to make these new “shale plays” viable.

And the new production is just beginning. As of last year, shale gas accounted for nearly 5 billon cf/d of natural gas. In ten years, this new production is expected to increase five-fold to 25 billion cf/d.

Perhaps more importantly, from a business standpoint, this new gas supply comes from wells with high rates of production in markets in close proximity to major pipeline infrastructure. As a result, these wells provide a strong return on investment.

Rocky Mountain producers face near-term challenges in terms of constrained pipeline capacity and, in general, higher cost structures, relative to some of the newer sources of natural gas production across the country. According to analysis by investment banks, the break-even costs for producers operating in areas such as the Piceance Basin of Colorado and the Powder River Basin of Wyoming are in the range of $7 MMcf to $9 MMcf versus a breakeven in Louisiana’s Haynesville of $3.25 MMcf.

How can Colorado compete and take part in this new era of abundant natural gas supply?

Let’s be clear: natural gas basins in Colorado are among the best resources in America. Technological advances helped the Rocky Mountains become a leading source of natural gas supplies and continual process advancements will lead to solutions for the near-term challenge in reducing overall cost structures. Technology also provides opportunity to tap into new resources. There are shale gas formations across Colorado and technology, given the opportunity and as the economy recovers, will unlock these opportunities. 

In addition, Colorado can utilize more natural gas intra-state and help lead the nation in “moving the needle” on climate change and reducing our dependence on hostile foreign sources of oil. We can do this by increasing the utilization of natural gas for power generation and transportation.

Colorado is a net exporter of natural gas. It has historically used its natural gas exclusively for home heating and some peak power generation, leaving it with an excess of supply.  By using the excess supply within the state to replace some coal generated base load electricity and as a substitute for some gasoline and diesel in transportation, we can maintain well-paying jobs and improve air quality.

Natural gas is the cleanest of all fossil fuels. It emits just over half the CO2 of coal, less than 20 percent of NOX and virtually no SOX or particulates and no mercury. This switch could occur quickly since Colorado is using only about 30 percent of the capacity of its natural gas-fired power plants.

In the case of transportation, at an estimated long-term North American price of less than $8 /MMbtu, or the equivalent of $50 per barrel WTI oil price, natural gas is about 30 percent cheaper than current North American gasoline or diesel prices. In addition, independent studies have shown natural gas tail pipe emissions are about 30 percent lower than diesel or gasoline.

Unlike power generation, however, in the case of transportation further infrastructure is needed. Currently, for example, there are seven publicly available fill stations in Metro Denver, but none between Denver and Grand Junction. Some states, such as Utah and California, are farther along the curve on this and have begun efforts to add infrastructure and encourage the use of natural gas-particularly for fleets.

North American natural gas supplies are abundant, affordable, and clean. They can play an integral role in reducing greenhouse gas emissions and our dependence on hostile foreign oil sources. While regional producers will struggle in the near-term until technology provides an opportunity to reduce cost structures, the supply that is currently exported can be utilized to help meet these needs right here in Colorado.

Mr. McClure is the 2009 chairman of the Colorado Oil and Gas Association.