US Rockies gas: right place, right time, right economics

High costs have stifled the growth of gas production in the US Rockies over the past two decades. But with demand rising, expectations of sustained gas prices above US$4 per thousand cubic feet (mcf) change everything, especially as improved extraction techniques maximise well economics. Add to that established pipelines with expansion capacity to export additional production and the scene is set for a Rockies gas renaissance.  

Why the Rockies went dormant as a gas producer 

The cost of extracting much of the gas in the Rockies region meant producers were unable to compete at historic gas prices around the US$2.50/mcf mark. Higher costs stem from several factors: 

• Geology: The need for deeper, more technically complex wells results in higher drilling and completion costs 

• Infrastructure: Limited takeaway capacity creates higher basis differentials and transportation costs to key demand centres and LNG terminals 

• Scale: Lower development density makes it difficult to achieve economies of scale, driving up unit costs 

• Regulatory environment: Stricter permitting and environmental compliance in Colorado and Utah adds time and cost to project development 

As a result, lower prices over the past 15 years have seen Rockies production struggle even as Gulf Coast production has risen and Northeast production has soared (see chart below). 

However, thanks to surging demand, stronger prices, new technology and the potential to exploit existing infrastructure, the region is poised for a significant comeback. From being ‘too hard, too expensive’, suddenly it looks like a case of ‘right place, right time, right economics’ for Rockies gas. 

Get more insight 

With various elements falling into place, the Rockies are ready to re-emerge as a strategic gas supply region. Fill out the form at the top of the page to download the rest of this article, which explores the economics and logistics of the new Rockies gas opportunity in detail.