06-01-04 For decades, Utah was considered one of the country's natural gas backwaters. Rich in the fossil fuel, the state nevertheless lacked the production and pipeline capacity needed to get much of its natural gas to markets in the Midwest and along the West Coast where it was in high demand. The problem also plagued other Rocky Mountain states.
Now, changing dynamics in the natural gas industry are pushing Utah and its neighbours to the forefront as natural gas suppliers to the nation, said Alan E. Isaacson, a research analyst with the University of Utah's Bureau of Economic and Business Research.

In a new report, Isaacson notes Utah and the other Rocky Mountain states now account for nearly 20 % of the country's natural gas production, up from less than 10 % 20 years ago.
"Over the past five years, Utah has gone from a net importer of natural gas to a net exporter," Isaacson said.

The Rocky Mountain region is emerging as a major player in the natural gas marketplace at a time when the industry nationwide is under increasing scrutiny due to price fluctuations. In recent weeks, both of Utah's US senators indicated they plan to convene hearings early this year to investigate whether natural gas prices are being illegally rigged. In early November, the average cost of 1,000 cf of natural gas produced in the Rocky Mountains states was just above $ 4.
A few weeks ago, Utah Sen. Bob Bennett, said he is unsure whether the US supply of natural gas is sufficient and he worries continued volatility in the market could hurt the economic recovery.
"An adequate supply can help prevent the kinds of price spikes seen in recent weeks," Bennett said.

Utah and neighbouring states will continue to augment that supply. Isaacson said their prominence as natural gas producers results from several emerging trends. Natural gas production from the Southern Plain states and the Gulf of Mexico is declining as those fields age and reserves dwindle. At the same time, the production of coal-bed methane in theRocky Mountain states is increasing.
Coal-bed methane, or coal-seam gas, is typically found at relatively shallow depths and recovery is generally cheaper than production from more traditional gas wells. Isaacson reported production of coal-bed methane has increased dramatically in Utah in recent years, rising from 1.3 % of wellhead gas production in 1994 to 34.8 % in 2002.

Increasing production in Utah and other states in the region spurred the construction of additional pipeline capacity, such as the newly commissioned Kern River Pipeline expansion that carries additional supplies from Wyoming, through Utah and Nevada to California.
"We never would have seen that increased pipeline capacity if the production wasn't there to begin with," Isaacson said.

Increased demand for natural gas, a clean-burning fuel that produces few pollutants, in part is driven by the electric power industry. Electricity producers increasingly rely on natural gas rather than coal to power new plants.
"Almost all ofthe new electrical generation built in this country over the past few years is either entirely natural gas powered or dual powered by natural gas or fuel oil," Isaacson said. He points out in his report that Utah consumption of the fuel for electric power increased 116 % from 1998 to 2002.

For Salt Lake City-based Questar, an integrated natural gas exploration and production company whose Questar Gas subsidiary provides most Utahns with the fuel to heat their homes, the region's emergence as a major player in the natural gas industry is proving a boon.
"Most of our exploration and production activities currently take place in Wyoming and Colorado, but we will continue to look for opportunities in Utah," Questar spokesman R. Curtis Burnett said. "There are a lot of opportunities throughout the region."

The increasing demand for Rocky Mountain natural gas combined with additional pipeline capacity to move the fuel out of the region, though, has its benefits and drawbacks for Utah consumers. For the past two decades, a lack of pipeline capacity produced a natural gas bubble, or an oversupply of the fuel in the region. As a result, Utah consumers typically paid about 80 % of the nationwide average price.
That regional price differential, though, is subsiding as natural gas production in Utah and other nearby producing states becomes more closely integrated with the rest of the country, Isaacson said.

On the flip side, increasing production in Utah and the rising price of the fuel means more money flowing into state coffers, which could help ease the tax burden on residents. The Utah State School and Institutional Trust Lands Administration, for example, reported that last year producers paid $ 26.6 mm in royalties for the gas taken from state-owned lands.
That compares with a little more than $ 2 mm in 1994.

Source: The Salt Lake Tribune