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Why you’re paying more for natural gas

Ed Quillen

Could overzealous regulators cause natural-gas prices to skyrocket in Colorado? Or are there some other reasons for higher natural-gas rates in the Centennial State?

According to a couple of our state senators, we should worry about regulators who deal with the effects of all those drilling rigs, slurry pits and compressor stations that have sprouted on the Western Slope and High Plains.

But if the senators truly cared about keeping gas prices low in Colorado, they would instead oppose the pipelines that export natural gas.



The issue came up last week when the state senate considered Gov. Bill Ritter’s nominees to the Colorado Oil and Gas Conservation Commission, which regulates natural-gas drilling. It’s a complicated issue here and in much of the West on account of the “split estate,” largely a result of old homesteading laws. The pioneer homesteader got to farm or ranch the surface, but the underground mineral rights were kept by the federal government, which can sell or lease those rights to energy companies.

Surface owners generally have to accommodate those who need to drill to exercise their property rights below ground; the drillers are supposed to minimize their effects on the surface. The commission tries to make this work for both sides ” obviously a thankless task.




In opposing a nominee, State Sen. Greg Brophy of Wray said he was “concerned that if we don’t aggressively extract the natural resources this state has in such great abundance,” then “we’re going to see an increase in the amount we pay for oil and natural gas.” Sen. Jack Taylor of Steamboat Springs added that the new nominees to the commission could produce regulations that raised “heating bills as high as mortgages.”

But natural-gas prices in Colorado have been rising anyway. The reason is not regulation, but transportation.

Colorado produces much more natural gas than it consumes, and has for years.

In 2002, according to the federal Energy Information Administration, Colorado produced 905,203 million cubic feet of natural gas, and consumed only 459,397 million cubic feet. In 2006, production was 1,166,504 and consumption was 449,830.

In other words, consumption has gone down while production has gone up ” so prices should be declining, not rising.

In past years, the excess of production over consumption kept natural-gas prices relatively low because there was not enough pipeline capacity to export the surplus to parts of the country where natural-gas prices were higher.

That has changed. In 2003, the Kern River pipeline more than doubled its capacity. It runs to California, where natural gas sells for higher prices, from southwestern Wyoming, where it connects with pipelines from Colorado gas fields.

Earlier this year, part of the new Rockies Express natural-gas pipeline went into service, with the potential of transporting 1.8 billion cubic feet of natural gas every day from western Colorado to the Midwest.

From a national perspective, this is a good thing, according to Porter Bennett, who runs Bentek, an energy industry analyst based in Golden.

“Natural gas is our cleanest fossil fuel,” and if it’s more affordable and can replace dirty coal and fuel oil elsewhere in the country, “then we have a cleaner environment.”

But, Bennett added, “while the rest of the country gets lower energy costs, we end up paying more in Colorado,” since the expanded pipelines mean that Colorado consumers now have to compete with consumers in California and Illinois. Or as Xcel Energy put it last week in an application to raise electric rates, “Increased pipeline capacity out of the region has largely eliminated the lower-than-average prices for natural gas that benefited Colorado customers.”

If Sens. Brophy and Taylor were truly concerned about affordable natural gas in Colorado, then they should oppose the export pipelines that raise our natural-gas prices, rather than complain about appointees to the Colorado Oil and Natural Gas Conservation Commission.

But they haven’t addressed that issue. Who elected them to represent the interests of out-of-state natural-gas consumers, rather than Colorado landowners?

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