Some Worry Colorado's Gas Boom Could Go Bust

High prices and a push from the Bush White House to open public land to drilling fueled a natural gas boom in Colorado's Rocky Mountains in recent years. Now that prices are lower — and the state is considering strict new industry regulations — drilling has dropped off dramatically and the local economy is suffering.

Business is slow at the LHR Services and Equipment store in Parachute, Colo. The company sells all kinds of drilling safety equipment, such as gloves, harnesses and earplugs. It opened in November 2008 — about the time the slowdown began. Since the fall, drilling has dropped by more than 50 percent.

"We might have chosen just a little better time to get started here — when the rigs were all coming in instead of going away," said store manager Clint Robinson.

Challenges From Terrain, Environmentalists

The rigs are leaving because drilling in the Piceance Basin is more expensive, thanks to the geology. It's mountainous there, and it's difficult to extract gas from the tightly packed sandstone. As gas prices have gone down, companies have sent their rigs to places where it's less expensive to drill.

And there's another reason drillers say they are starting to shun Colorado: environmentalists.

Environmental groups have been warning for years that wild areas in the Colorado Rockies are at risk because of drilling. But policymakers hadn't paid much attention until recently, when Colorado voters started electing more Democrats, and Barack Obama won the presidency.

Now Colorado is set to adopt some of the strictest rules for oil and gas development in the country. They would require companies to jump through more environmental hoops to get drilling permits, adding to what drillers already consider a cumbersome process. Among the most controversial rules is one that requires drillers to consult with Colorado's Department of Wildlife to limit effects on wild plants and animals.

Drillers Threaten To Leave

"I think any additional regulations or rulemakings are going to cause the industry to stand up and fight," said Clare Bastable, conservation director for the Colorado Mountain Club.

And they have. Some companies have threatened to leave the state. Calgary-based EnCana Corp. says it's reducing the number of drilling rigs it has in the Piceance Basin from 15 to five. Recently the company set aside about $500 million to invest in drilling in the U.S.

"In making our decision on where to spend that, we chose to spend it all in Texas, Louisiana and Wyoming and none of it in Colorado, in part because of the uncertainty over the rules," said Doug Hock, spokesman for EnCana.

But Bastable is skeptical that the new rules are really having that much of an effect.

"The major factor is that natural gas prices went from $13.57 [per 1,000 cubic feet] last July to $5.29 in December," Bastable said.

'Gas Industry Is In A Conundrum'

The natural gas industry doesn't like some of the talk coming out of Washington, D.C., these days, either. The Obama administration has focused heavily on renewable energy; the industry worries that it's at the expense of natural gas.

"The gas industry is in a conundrum right now," said Porter Bennett, president and CEO of Bentek Energy. Bennett points to the Piceance Basin, where the limited number of pipelines makes it difficult to transport gas to population centers, driving down prices.

"You're not going to solve the pipeline constraints unless you invest money; but you're not going to invest money unless you can see demand. When you look at national and local policies, those tend to discourage demand," Bennett said. "So, as a producer, are you going to put money into a pipeline? I don't think so."

Still, those interviewed for this story were reluctant to call what's happening in Colorado a "bust." They describe it more as a "lull." That's because demand is expected to rise again in coming years, and that likely will push prices back up.

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